Bermuda-based Hiscox Ltd yesterday announced a 12 percent rise in full-year pre-tax profit to £244.5 million ($406.8 million) — the second-best earnings in its history.

The insurer and reinsurer, which employs around 50 people in its Reid Street headquarters, also said it would be reducing the amount of reinsurance business it writes this year because of a sharp fall in rates.

Hiscox chairman Robert Childs told The Royal Gazette that he was happy with 2013 earnings, which represented a 19.3 percent return on equity and which allowed the company to pay out a special dividend of 36p per share on top of the 14p year-end dividend.

He was also well satisfied that the combined ratio, or claims and expenses as a percentage of premiums, improved to 83 percent from 85.5 percent in 2012, even as the group had grown its business, with gross premiums rising 5.8 percent to nearly £1.7 billion ($2.8 billion).

Hiscox Bermuda grew its business, with gross premiums rising 5.6 percent to £211.9 million ($352.6 million), thanks in part to its health insurance segment.

Hiscox shares fell 3p, or 0.5 percent, in London Stock Exchange trading yesterday, to close on 653p.

Mr Childs said reinsurance made up about a quarter of the group’s business.

He said Hiscox had seen rates fall by 16 percent during January reinsurance renewals and that Hiscox was “adapting to a changing market”.

In 2013, the group brought together its reinsurance operations in London, Paris and Bermuda, under the banner of Hiscox Re, led by Jeremy Pinchin, who is also CEO of Hiscox Bermuda, Mr Childs said.

The chairman added that the company had built substantial quota share capacity to support Hiscox Re, as well as Kiskadee, an entity for managing third-party capital and collateralised reinsurance, which has deployed $110 million of capital. Hiscox said this was “less than we had expected as we are seeing signs that capital markets investors are being more disciplined than some traditional reinsurers”.

Hiscox was maintaining its profile in a reinsurance market in which “smaller players are becoming marginalised”, Mr Childs added.

While there is much talk about the impact on the market of catastrophe bonds, Mr Childs argued that “the competition is coming as much from the traditional market as it is from ILS”, as the oversupply of capital in the market chased opportunities.

Mr Childs warned that the special dividend paid out to shareholders for 2013, as it was for 2012, might not be repeated in 2014.

One of the reasons for this was Hiscox expects to reserve an extra £5 million to cover UK flood claims, taking the total since December to £16 million.

Britain is reeling from storms that have saturated the ground and battered coastlines since December. Insured costs from the storms may reach as much as £1 billion by April, according to Deloitte.