OREANDA-NEWS. Fitch Ratings has affirmed Hiscox Ltd's (Hiscox) group core entities at Insurer Financial Strength (IFS) 'A+' rating. Fitch has also affirmed the Long-term Issuer Default Ratings (IDRs) of all Hiscox's holding companies at 'A-'. The Outlooks on all ratings are Stable. A full list of rating actions is available at the end of this commentary.

The ratings take into account Fitch's recently updated notching criteria for the insurance sector, published on 14 July 2015. This followed publication of an initial exposure draft of proposed criteria on 12 May 2015. The updated notching criteria appear in Section VI of the insurance master criteria report 'Insurance Rating Methodology'.

KEY RATING DRIVERS
The rating affirmation reflects Hiscox's solid capitalisation, strong underwriting performance, and very conservative approach to reserving. However, the ratings are constrained by the group's medium market position and size/scale.

At end-2014, Hiscox's risk-adjusted capitalisation was 'Extremely Strong', as measured by Fitch's Prism Factor Based Model. This is further supported by strong retained earnings and the absence of debt in the capital structure.

Hiscox's strong track record of underwriting profitability, reflected in a Fitch-calculated five-year average combined ratio of 88.1%, is a key positive rating driver. The historical stability of Hiscox's earnings has been aided by a diversified business mix, combining volatile but more profitable products with more stable lines of business. Several years of benign catastrophe activity has helped boost Hiscox's profits, although the group has less exposure to the volatile catastrophe business than most of its peers.

Hiscox's reserve releases have been consistently strong in past years, which Fitch views as indicative of a prudent approach to its reserving. In 2014, reserve releases were 12.2% as a percentage of prior-year equity, which is higher than most peers. The agency expects Hiscox to maintain its reserving prudence.

In 2014, all of Hiscox's underwriting divisions contributed positively to the technical result and the group's growth. Hiscox International and Hiscox Europe reported gross written premium (GWP) growth of 15.7% to GBP301.1m and 8.5% to EUR190.8m respectively. Fitch believes that Hiscox's operations outside the UK will continue to grow, supported by continued marketing expenditure.

RATING SENSITIVITIES
Deterioration in profitability, reflected in a combined ratio consistently above 97% or net return on equity consistently below 10%, could lead to a downgrade.

Fitch considers an upgrade of Hiscox's ratings unlikely given the group's market position and size/scale, which is not expected to change materially in the medium term.

FULL LIST OF RATING ACTIONS

Hiscox Insurance Company Limited: IFS affirmed at 'A+'; Outlook Stable
Hiscox Insurance Company (Guernsey) Limited: IFS affirmed at 'A+'; Outlook Stable
Hiscox Insurance Company (Bermuda) Limited: IFS affirmed at 'A+'; Outlook Stable
Hiscox Ltd: Long-term IDR affirmed at 'A-'; Outlook Stable
Hiscox Plc: Long-term IDR affirmed at A-'; Outlook Stable