Best Upgrades Hiscox Ratings to ‘A’

September 18, 2008

A.M. Best Co. has upgraded the financial strength ratings (FSR) to ‘A’ (Excellent) from ‘A-‘ (Excellent) and the issuer credit ratings (ICRs) to “a” from “a-” of Hiscox Insurance Company (Bermuda) Limited, Hiscox Insurance Company Limited (Hisco) and Hiscox Insurance Company (Guernsey) Limited. They are all operating companies of Hiscox Ltd. (Bermuda). Best also affirmed the FSR of ‘A’ (Excellent) and ICR of “a” of Hiscox Insurance Company Inc. (Hiscox US), the group’s admitted U.S. insurer. The outlook for all of the ratings is stable.

“The financial strength of the Hiscox operating companies is supported by the excellent consolidated risk-adjusted capitalization of the group’s ultimate parent holding company, Hiscox Ltd.”, Best explained. “The companies draw additional benefit from a series of internal reinsurance agreements and from enhancement to the business profile the companies have in their respective markets resulting from their membership of the Hiscox group.”

Best said it has “upgraded the ratings of Hiscox Bermuda because risk-adjusted capitalization is stronger and has stabilized earlier than anticipated following its 2005 start, partly as a result of lower growth in net written premiums. The company has not paid a dividend since it began trading in 2005, allowing strong growth in capitalization through the retention of earnings.”

Best also indicated that it “believes that risk-adjusted capitalization is likely to continue to be supported by strong financial results. The upgrades are also driven by the nature of Hiscox Bermuda’s underwriting portfolio, which is more highly correlated with the rest of the Hiscox group than A.M. Best originally expected.

“The company benefits from internal group reinsurance ceded from Hisco, Hiscox Guernsey and Hiscox Dedicated Corporate Member Limited (a capital provider to Lloyd’s Syndicate 33, managed by Hiscox Syndicates Limited). The reinsurance ceded to Hiscox Bermuda from other group members provides the company with a widely diversified book of international business that has a proven track record of profitability. Hiscox Bermuda is expected to increase the proportion of its business from these sources during 2008.

“In addition, the company writes an external book of property catastrophe reinsurance risks, many of which are also underwritten by syndicate 33 (its ratings have been affirmed by Best – see related article).

Hiscox Guernsey benefits from the explicit support of Hiscox Bermuda, which substantially reinsures Hiscox Guernsey’s underwriting. After taking into account this reinsurance and smaller reinsurance arrangements the company has with syndicate 33 and third party reinsurers, Hiscox Guernsey retains very little residual risk.

Hisco’s rating upgrades are based on its strengthening risk-adjusted capitalization, which is expected to be supported by excellent retained earnings in 2008 and increased use of internal reinsurance from Hiscox Bermuda (in excess of 50 percent of U.K. commercial business will be ceded). Additionally, A.M. Best believes the group is committed to maintaining this higher level of risk-adjusted capitalization at Hisco. The company is expected to report a combined ratio in 2008 of below 100 percent, continuing its consistent good performance. Hisco’s focus on specialist risks may partially insulate it from rate reductions in the wider market, enhancing its ability to maintain a loss ratio close to the 48 percent achieved in 2007. However, underwriting performance is expected to continue to be affected by relatively high expenses.

The affirmation of the ratings of Hiscox US reflects its maintenance of strong risk-adjusted capitalization and its sustained operating profitability driven by consistent underwriting performance. An offsetting factor is uncertainty relating to the impact of business plan changes implemented when the company was acquired by the Hiscox group in 2007.

Source: A.M. Best –

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