The Bermuda-based boss of Hiscox’s reinsurance operations expects the unit he heads to write less business than it did last year — and that does not bother him at all.

For Hiscox Re chief executive officer Jeremy Pinchin, the focus is not on quantity, but rather on quality of business — in other words the company will walk away from business that it believes is not adequately priced.

In an interview, Mr Pinchin told The Royal Gazette that the influx of third-party capital, as well as the lack of major catastrophes in recent years, had put downward pressure on the prices insurers will pay for reinsurance, especially for property and catastrophe coverage.

“The quality of your underwriting portfolio is not shown in a good year — it’s shown in a bad one,” Mr Pinchin said. “There is a price at which Hiscox will not sell reinsurance. We are prepared to walk away from business. It comes down to quality of underwriting.

Those who pursued market share when pricing was soft “could get lucky for so long, until something happens”, he said.

He pointed out that Hiscox’s underwriting portfolio had outperformed the market in each of the past ten years — but the outperformance had been greater after losses.

“You need to make sure that the pricing is adequate to pay for the risk you are taking and the capital you’re providing,” Mr Pinchin said. “In a catastrophe-driven business, that is critical for the long-term survival of the company.

“At Hiscox, our focus is being there to pay claims and to be open for business the day after a major event, to be a trusted service for brokers and clients like we have been doing for 100 years.”

Hiscox moved its domicile from the UK to Bermuda in 2006. It operation in Hamilton, in Wessex House, on Reid Street, employs about 50 people, approximately 60 percent of them Bermudians. Mr Pinchin said the company remained “pleased to be here”.

Bermuda has been at the centre of the insurance-linked securities (ILS) boom which is changing the look of the industry, as an ever greater proportion of catastrophe risk is taken up by the capital markets, rather than traditional reinsurers using their own balance sheets. The changes make it a challenging time for the industry.

“The dynamics of the reinsurance market are changing,” he said. “The growth of ILS has led to pricing pressures on traditional players, making life very uncomfortable and uncertain for the industry.

“Bermuda has shown itself to be a very stable domicile that has the people, the innovation and the excellent regulation that is enabling it to be part of the dynamic of change. While there is uncertainty in the market now, Bermuda is showing its strength and I think it will continue to be a major centre of reinsurance.”

Last year, Hiscox brought together its reinsurance operations in London, Paris and Bermuda, under the banner of Hiscox Re, led by Mr Pinchin, who is also CEO of Hiscox Bermuda. He said the integration was going well and the combined operation had brought together a strong team and had gone down well with brokers and clients.

Hiscox Re is one of several Bermuda reinsurers to embrace the ILS development by building out its own ILS platform. Its Kiskadee Re Ltd special purpose insurer manages its ILS interests and has been adding to its staff in recent weeks. Last month, Kiskadee Investment Managers appointed Richard Lowther, who was formerly chief operating officer at Validus Re’s ILS management company AlphaCat Managers Ltd, as COO.

The development of the operation illustrates that ILS can create jobs — and in Kiskadee’s case it’s likely to create more.

“We’re building out our ILS platform and as it continues to grow we will add new members to our team to support it,” Mr Pinchin said.

While new capital in the form of catastrophe bonds does not create the obviously visible employment opportunities in the manner of new traditional reinsurance companies, Mr Pinchin said ILS still required people to deal with underwriting, accounting, and client service such as dealing with claims.

Some have questioned whether the investors who have poured capital into ILS in search of yield would continue to invest in reinsurance after the case of major events triggering catastrophe bonds and wiping out capital.

“I think third-party capital is here to stay,” Mr Pinchin said. “However, I think events could certainly test some of that capital.”

ILS had proved itself as attractive to the capital markets, as an asset that offered diversification to investors, and a lack of correlation with the financial markets, as well as healthy yields.

And wile the market had not reached the stage where there was equilibrium between long-term and short-term players, ILS would continue to play a significant role in the reinsurance market, he predicted.