After a benign six months to June 2018, specialist insurers such as Hiscox (HSX) and Lancashire Holdings (LRE) saw claims from natural catastrophes jump in the third quarter, with Hiscox reserving $125m (£96m) and Lancashire $138.5m. However, these amounts come out of reserves – Hiscox has assets under management of $6.4bn – and will lead to premium rates hardening.
For Hiscox, gross written premiums grew by 14.3 per cent in the first nine months of 2018. In Hiscox's London market rates increased across the portfolio by 5 per cent in the year to date, with double-digit increases in major property and 5 per cent in casualty lines. However, strong competition is likely to see the rate of growth in premiums moderating in the fourth quarter as it adopts a more disciplined approach to writing new business. This reduces volume growth, but means there is no temptation to chase new business at unattractive rates. The shares closed the day down 6 per cent on the business update and now trade below the 50-day and 100-day moving averages.
By contrast, Lancashire’s reduced capital requirement has prompted payment of a special 20¢ dividend, with the return on equity in the nine months to September improving to 3.9 per cent from a negative 5.1 per cent a year earlier. And it would have been higher still without a negative 1.9 per cent return in the three months to the end of September. In October, the insurer warned that the marine portfolio would incur net losses of around $30m during the third quarter, with an additional $25m-$40m of extra losses from recent natural disasters including hurricane Florence and typhoons Jebi, Mangkhut and Trami.
However, while Lancashire's premium income at first glance looked to be down for the nine months to September, the numbers were distorted by a number of factors including the timing on the renewal of some multi-year deals. Lancashire added new business in the third quarter, and rates are expected to continue hardening, notably across its speciality lines of business.
