Healthy interest for higher ILS layers, though CA wildfires to weigh on fees: Hiscox CFO
Hiscox CFO Paul Cooper said today there remains “healthy interest” in catastrophe bonds at higher layers of the reinsurance tower, but also noted that the effect of the California wildfires could weigh on ILS fund performance fee income in both the organisation’s H1’25 and FY’25 results.
Earlier today, Hiscox Group reported that AUM at Hiscox ILS, the firm’s dedicated insurance-linked securities (ILS) management arm, dipped by $100 million to $1.3 billion in the first-quarter of 2025, due to the effects of the California wildfires.
In his opening remarks during the firm’s Q1 2025 earnings call earlier today, Cooper said: “Turning to claims, the largest event during the first quarter of 2025 was the California wildfires, the group’s previously disclosed $170 million estimate remain prudent and unchanged, with $150 million in Hiscox Re and ILS and $10 million in each of London Markets and Retail. This estimate does not take account of any potential subrogation.”
“In addition, whilst performance fees remain robust, the wildfire losses will likely act as a drag on Hiscox Re & ILS performance fee income at both half year and full year,” he added.
In response to questions on capital and AUM movement in Hiscox Re & ILS, Cooper noted that total assets under management declined modestly, from $1.4 billion to $1.3 billion, due to the wildfire event. He declined to give a detailed breakdown of inflows and outflows but reiterated continued interest in the segment from investors.
“We continue to see good interest from third-party capital,” Cooper said. “But I think in common with the entire sector, we’re not seeing a dramatic uptick in terms of the billions of new capital wanting to come into the market.
“I think there is a bit of healthy interest in terms of cat bonds at higher layers, but there’s no guide on the outlook for AUM, for our business.”
While acknowledging that capital levels within Re & ILS are expected to remain steady for now, Cooper emphasised that underwriting conditions remain favourable.
“Turning to Re and ILS, from a capital generation perspective, you’ll know that if you stand back and look at the big picture, the capital generation has been strong in the past two years, both from an asset side and from an underwriting perspective,” the CFO noted.
“Retail, you’ve got to view that in the compound, and we expect to operate within that sort of 89 to 94. And then, from an underwriting perspective, let’s see where the second half comes out in terms of cat. But the underwriting environment has been favorable and continues to be so, overall,” Cooper added.
Turning to the overall reinsurance and big-ticket landscape, Cooper acknowledged that while rates have declined from recent peaks, they remain elevated by historical standards and continue to support strong underwriting profitability.
“The business is well rated,” he said. “If you look at the rate increases, for example, on London Market, they are up 69% since 2018, and the equivalent number for Re & ILS is more like 80%. So, we’re coming off of very significant highs.
“I think the general commentary in the market is that the rating environment is the best in a decade, for example, over the past couple of years, and that comes through in the level of return that we’ve delivered. So, yes, rates have come off, but they are off of those very strong highs.
“The other thing to consider, and we did talk about it, is from an outward reinsurance perspective, the purchases that we’re undertaken actually came in below our plan. So, we are making savings on that perspective.”
He continued: “I think the other thing considering about margin, is that you will know that we have a conservative reserving philosophy and have generated consistent reserve releases. So, we’ve got an unbroken track record of reserve redundancy, and hence, positive prior year development over a more than 20 year track record. So, I think obviously that bodes well from a sort of an accretion perspective.”
