UK insurer Hiscox is by far the most heavily leveraged to its reinsurers among the large listed Lloyd’s carriers, highlighting its vulnerability in the event of a failure to collect its assumed share of Covid-19 business interruption (BI) reinsurance recoveries, research by The Insurer highlights.


  • Hiscox reinsurance leverage at 1.99x vs Beazley at 1.1x
  • Reinsurance collectibles balloon to new high of $4.4bn
  • Hiscox continues to negotiate with reinsurers apparently reluctant to pay Covid-19 claims (an industry-wide trend)
  • 10% adverse movement = 20% hit to Hiscox NTA

As the industry-wide impasse between reinsurers and their cedants over certain Covid-19 claims continues, research by The Insurer shows Hiscox is leveraged at 2x tangible equity to reinsurance collectibles.

The higher the number the greater an insurer’s sensitivity to reinsurance recoveries which have been booked as an asset on its balance sheet but are yet to be collected. 

Last month, Hiscox revealed its reinsurance recoveries had ballooned to a new record high of $4.4bn at H1 2021, a further leap on what was a new high of $3.6bn at year-end 2020. 


Tellingly, the issue of reinsurance collectibles was also addressed by Hiscox chairman Robert Childs in his accompanying statement. 

“We have maintained continuous and transparent dialogue with our reinsurance panel throughout the pandemic and remain confident of our reinsurance recoveries,” he explained (The Insurer emphasis).

Hiscox, however, is known to be one of a number of insurers currently facing resistance from at least some of its reinsurers over the issue of Covid-19 BI claims submitted on its main cat all-risk XoL programs (including its UK tower). The issue – which in the aggregate involves billions of dollars of potential recoveries – even prompted intermediary Guy Carpenter to recently advise clients on how to represent claims in a bid to break the logjam.

The intermediary identified six main reinsurer objections, including: (1) the pandemic was not an event but an ongoing state of affairs; (2) reinsurers should not have to pay for non-physical damage losses that underwriters did not contemplate; (3) a government closure order is not a cat event because it is issued pre-emptively; and (4) defining an event or catastrophe as a Covid-19 outbreak requires an arbitrary line drawing. 

While acknowledging the legal position under English law is probably more reinsurer-friendly than in the US, the final two main objections identified by Guy Carpenter were that the UK Supreme Court decision on pandemic BI claims held a Covid-19 outbreak is not an “occurrence” and finally the meaning of “event” in UK legal precedent is too narrow to encompass an outbreak of the virus.

Guy Carpenter is recommending cedants try to avoid becoming embroiled in technical arguments and press home the “honourable engagement” component of XoL reinsurance.

“The cat XL treaty is an honourable engagement governed by industry custom – not [just] strict legal obligations and technical legal arguments. Cedants should keep this critical principle in mind when framing a Covid loss occurrence,” the intermediary explained in its client report published this summer.

Hiscox – like other insurers – has given scant detail on its discussions with its panel of reinsurers over Covid-19 claims. It has provided no breakdown of its gross position, details of what has been paid (and by whom), analysis of claims count versus reserves and how much involvement its reinsurers have in monitoring payments.

What we do know, however, is that Hiscox expects “fewer than one third” of its 34,000 UK BI policies may respond to Covid-19.

In guidance issued following last year’s High Court judgment in the Financial Conduct Authority (FCA)’s test case into pandemic-related BI claims, Hiscox said it anticipated a loss of “less than” £100mn ($138mn) from claims related to the suit. It later increased this figure by a further $48mn in January 2021 following the Supreme Court’s pro-policyholder appeal ruling.

As of 5 September 2021 the carrier had accepted 9,674 claims for Covid-19-related BI losses across its London insurance company and Lloyd’s operations. The September figures – published by the UK regulator – represent a significant increase from the 253 claims Hiscox had accepted when the regulator first published data in March. 

The London-listed insurer has now made an offer of a final settlement and paid this settlement in full on 2,672 policies, up from 2,106 in August. Hiscox has also made 1,860 interim payments on claims to policyholders with BI claims related to the FCA test case.

Analysis by The Insurer highlights how much more leveraged Hiscox is compared to its nearest rivals. 

The insurer has net tangible assets of $2.2bn and, as we note above, reinsurance recoveries of $4.4bn as of 30 June 2021.

This is equivalent to a leverage ratio of 1.99x. If, for example, there was a 10 percent adverse movement in its reinsurance assets, this would be the equivalent of a $444mn hit to net tangible assets, or 19.9 percent.

Hiscox has highest reinsurance leverage among peers…

This would be a devastating hit to Hiscox’s balance sheet and likely trigger a downgrade to its ratings (it could be worse, of course, potentially prompting regulatory scrutiny). 

While there is no reason to doubt Hiscox’s own “confidence” about its ability to collect all of its reinsurance claims, the reality is that reinsurers appear to be stone-walling, which may make a failure to pay a possibility.

In a statement to The Insurer a spokesperson for Hiscox said: “The data published recently by the FCA shows that we are making significant progress in accepting claims and issuing interim payments, and this will continue as we work to pay all valid claims swiftly.

“We have maintained continuous and transparent dialogue with our reinsurance panel throughout the pandemic and remain confident of our reinsurance recoveries.”

In contrast, a 10 percent adverse movement in reinsurance collectibles for Hiscox peers, such as Beazley and Lancashire or even Fairfax Financial-owned Brit Insurance, would have significantly lesser impact because they have substantially lower leverage.

For example, with reinsurance recoverables of roughly $2bn representing 17.7 percent of total assets (compared with 29.9 percent for Hiscox), Beazley’s leverage stood at 1.1x as of 30 June 2021.

As a result of this lower leverage, a 10 percent reduction in Beazley’s reinsurance assets would imply a hit of $203mn, less than half the magnitude of Hiscox’s in absolute terms and almost half the size as a share of net tangible assets.

Meanwhile, Lancashire’s leverage of 0.34x was even lower than that of Beazley, making the company significantly less vulnerable to an adverse movement in reinsurance assets.

In fact, the carrier has been known for having a consistently low ratio of reinsurance assets to tangible equity over the years when compared to other London-listed carriers as well as peers like Brit, QBE UK and RSA.

Reinsurance recoverables to tangible equity

The Insurer comment

Thus far, investors appear relaxed about Hiscox’s reinsurance leverage and exposure despite the continuing Covid-19 BI standoff with some of its reinsurers. Let’s hope they’re correct – as the research demonstrates, any adverse movement would be magnified in its impact on the Hiscox balance sheet…