the Group Solvency Self Assessment framework The Group manages the underwriting portfolio
(GSSA) including assessment of the Group’s so that in a 1 in 250 aggregate bad year it would
Bermuda Solvency Capital Requirement lose no more than 15% of the Group’s core
(BSCR). At this time the legislation for these capital plus assigned buffer capital (currently
requirements is still in draft form, with a proposed £100 million). A market loss at this remote return
implementation date of 1 January 2014. period would be very big indeed and would
Nevertheless, the Group continues to monitor certainly bring about positive market changes.
its compliance with these requirements ahead The Group would be well positioned in the
of this implementation date. resulting strong market with capital in the order
of £1 billion in addition to its LOC facilities and
The BSCR model applies factors to premium, its now well-developed reinsurance partnerships.
reserves and assets/liabilities to determine
the minimum capital required to remain solvent If the return of capital is approved by the
throughout the year. shareholders on 28 March, the available capital
will reduce to approximately £1,228 million,
The GSSA is based on Hiscox’s own internally comfortably exceeding current regulatory and
assessed capital requirements and is informed rating agency requirements. This level of capital
by the Group’s Economic Capital Model (ECM), would be in line with the Group’s stated risk
which together with the BSCR forms part appetite for 2013.
of the BMA’s annual solvency assessment.
The ECM combines factor-based risk charges The Board believes that this level of capital
with stochastically modeled elements. It is a gives sufficient flexibility to achieve its desired
forward-looking model for which primary inputs business growth whilst maintaining the Group’s
are derived from the following year’s business current capital strength.
plan, in respect of expected levels of premium,
exposure and underwriting losses (both
catastrophe and non-catastrophe).
The proposed return of capital will leave
the Group with a comfortable surplus above
Hiscox’s internal projections of both the BSCR
and GSSA for the 2013 business plan.
Internal capital requirements
The chief determinant of our capital requirement
in 2013 is our own internal risk appetite which
is more restrictive than any external measure.
Projected capital requirement
£1.4bn available capital
£1.2bn available capital (post return)
A.M. Best A.M. Best Standard Bermuda GSSA (Hiscox’s Hiscox internal
(standard model) (catastrophe & Poor’s Solvency Capital internal capital risk appetite
stressed) Requirement assessment)
(BSCR)
Rating agency requirements are an internal projection, by Hiscox, based upon the 2013 business plan.
The Hiscox internal risk appetite reflects Hiscox’s goal of maximising its return on capital within accepted levels of risk.
All capital requirements have been normalised, with respect to variations in the allowable capital in each assessment,
for comparison to a consistent available capital figure.
Capital Hiscox Ltd Report and Accounts 2012 17