Nearly three-fifths of Hiscox's (HSX) book is priced in dollars. The currency's weakness was a problem in the first half, knocking £16.4m off pre-tax profits after a £34.9m gain last year. In a benign claims environment, however, the Lloyd's underwriter delivered a solidly profitable forex-adjusted combined ratio (of claims to premiums) of 79.7 per cent, broadly flat year-on-year.
Premium rates, however, are softening, especially for catastrophe-related cover. That reflects greater competition and an absence of big loss-inducing events. Rates for Hiscox's US property catastrophe business and its Japanese earthquake cover both fell 15 per cent at April's renewals. The group's non-catastrophe business is seeing less pressure, but rates are still either falling or merely stable. Such conditions could leave Hiscox struggling to utilise capital effectively, so some analysts think more special dividends are likely after last year's bonanza. But management won't commit to further capital returns ahead of the impending hurricane season.
Hiscox's investment return was a modest 2 per cent (annualised), which isn't surprising given the focus on high-quality bonds and cash. Still, that's an improvement on last year's 1.5 per cent return, and the portfolio includes a small equity book offering some scope to generate higher returns.
Oriel Securities expects full-year pre-tax profit of £194m, giving EPS of 51p (from £245m and 64p in 2013) and net tangible assets (NTA) of 414p.
HISCOX (HSX) | ||||
|---|---|---|---|---|
| ORD PRICE: | 693p | MARKET VALUE: | £2.2bn | |
| TOUCH: | 691-693p | 12-MONTH HIGH: | 744p | LOW: 643p |
| DIVIDEND YIELD†: | 3.1% | PE RATIO: | 11 | |
| NET ASSET VALUE: | 418p | COMBINED RATIO: | 82% | |
| Half-year to 30 Jun | Gross premiums (£bn) | Pre-tax profit (£m) | Investment return (£m) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 1.02 | 181 | 25.1 | 7 |
| 2014 | 0.98 | 125 | 29.2 | 7.5 |
| % change | -4 | -31 | +16 | +7 |
Ex-div: 6 Aug Payment: 17 Sep †Excludes 36p special dividend in 2013 Capacity owned: 72.5 per cent | ||||
