Hiscox has been having a rough ride. With its half-year figures it became clear that the Lloyd's underwriter had been hit hard by natural catastrophes. Hiscox's combined ratio (of claims to premiums) was a loss-making 117 per cent after the company suffered a £210m hit from big catastrophes, including the Japanese and New Zealand earthquakes, US tornadoes and Australia's floods. Recovery is taking its time, too, with broker Numis Securities estimating that Hiscox will make another underwriting loss this year.
- Some premium rates are hardening
- Reasonable investment book
- Hit hard by catastrophe losses
- Motor market pricing being probed
- Modest dividend yield
- Shares expensively rated for the sector
The firm's motor book could also become a worry. Unlike most Lloyd's players, Hiscox boasts a book of top-end motor business and the UK and European divisions, where, amongst other activities, that business is written, generates about 30 per cent of gross premiums. But, after several years of toppy premium rate rises in the motor sector - average UK motor rates rose 40 per cent in the year to end-March, according to the AA - the Office of Fair Trading (OFT) has become interested.
Sentiment wasn't helped by news last month that the government has plans to outlaw payments to motor insurers from lawyers and claims management groups for details about customers who are accident victims. There's no evidence that Hiscox will be affected, but others, such as Admiral, may well be and that has hit sentiment towards motor insurers. Besides, the outlook for motor rates - regardless of the OFT's probe - is mixed. Admiral, which is a reasonable bellwether for the motor sector, saw its premium rates rise 11 per cent in its first half, but its bosses acknowledge that such chunky increases are unlikely to last much longer.
HISCOX (HSX) | ||||
|---|---|---|---|---|
| ORD PRICE: | 365p | MARKET VALUE: | £1.41bn | |
| TOUCH: | 365-367p | 12-MONTH HIGH/LOW: | 428p | 335p |
| DIVIDEND YIELD: | 4.8% | PE RATIO: | 913 | |
| NET ASSET VALUE: | 296p | COMBINED RATIO: | 117% | |
| Year to 31 Dec | Gross premiums (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 1.20 | 237 | 48.4 | 12.0 |
| 2008 | 1.15 | 105 | 18.8 | 12.8 |
| 2009 | 1.44 | 321 | 75.2 | 15.0 |
| 2010 | 1.43 | 211 | 47.2 | 16.5 |
| 2011* | 1.46 | 2 | 0.4 | 17.5 |
| % change | +2 | -99 | -99 | +6 |
Normal market size: 10,000 Matched bargain trading Beta: 0.5 *Numis Securities estimates | ||||
Still, Hiscox's investment book looks in reasonable shape. It is largely focused on safe-looking bonds and cash, and the portfolio delivered an annualised return of 2 per cent in the first half of 2011 - slender in today's world of ultra-low interest rates, but still better than the returns generated by most rivals. And the catastrophes that have been so costly for Hiscox should eventually boost premium rates in related lines as insurers rebuild their reserves. At the half-year stage, Hiscox said its premium rates had risen 10 per cent on average, with increases "substantially higher in affected areas" - good news for the group's longer-term earnings profile.
