A fairly benign claims backdrop helped Lloyd’s insurer Novae (NVA) to cut its half-year combined ratio (of claims to premiums) by five percentage points to a solidly profitably 91 per cent.
But premium rates are under pressure. US catastrophe rates tumbled 14 per cent, while Novae’s aviation reinsurance and general liability books suffered 11 and 12 per cent rate declines, respectively. Moreover, with an investment portfolio that’s focused on low-risk bonds, the investment return reached just 0.6 per cent in the half. Management thinks a somewhat higher-yielding asset allocation strategy might be possible should interest rates start rising.
The group’s return on equity, estimated by broker Numis Securities to reach 10.2 per cent this year, could receive a boost, too. Crucially, Novae’s return is lower than that of its main rivals - Beazley's (BEZ), for example, is 17 per cent. That's largely because Novae has been benefiting from a deferred tax asset, relating to hefty losses incurred over a decade ago, and therefore avoided following its Lloyd’s peers offshore for tax purposes. But the benefit is likely to finish by the year-end, leaving Novae free to explore a more tax-efficient structure.
Numis expects full-year pre-tax profit of £37.1m, giving EPS of 45.3p (from £42.8m and 49p in 2013) and net tangible assets (NTA) of 493p.
NOVAE (NVA) | ||||
|---|---|---|---|---|
| ORD PRICE: | 529p | MARKET VALUE: | £341m | |
| TOUCH: | 526-529p | 12-MONTH HIGH: | 642p | LOW: 464p |
| DIVIDEND YIELD*: | 4.4% | PE RATIO: | 10 | |
| NET ASSET VALUE: | 470p | COMBINED RATIO: | 91% | |
| Half-year to 30 Jun | Gross premiums (£m) | Pre-tax profit (£m) | Investment income (£m) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 362 | 21.1 | 4.4 | 6 |
| 2014 | 363 | 21.3 | 7.4 | 6.6 |
| % change | - | +1 | +68 | +10 |
Ex-div: 03 Sep Payment: 01 Oct *Excludes 2013's 20p special dividend Capacity owned: 100 per cent | ||||
