Lloyd's insurer Hiscox (HSX) anticipates losses from the recent UK storms and flooding, but its £16m reserve for this is hardly calamitous. Add that modest hit to an otherwise benign claims backdrop and Hiscox's combined ratio (of claims to premiums) improved by 2.5 percentage points in 2013 to a solidly profitable 83 per cent.
But competition and a lack of capital-consuming catastrophes are also putting premium rates under pressure. Hiscox's reinsurance account saw premium rates slip 15-20 per cent, while business lines such as marine, energy and aerospace all saw rates fall in 2013. Pricing is slipping from high levels, so Hiscox's earnings prospects should remain healthy for some time. But that backdrop also leaves decent growth opportunities hard to come by, which explains why the company is returning 36p a share in surplus capital.
Amidst challenging bond market conditions, the return from Hiscox's investment portfolio - focused on bonds and cash - fell to 1.9 per cent from 3.1 per cent in 2012. Had it not been for a 7.1 per cent weighting in risk assets (significantly, in equities) the performance would have been even worse.
Broker Numis Securities expects EPS of 50.9p this year (down from 66.3p in 2013), with net tangible assets (NTA) of 371p.
HISCOX (HSX) | ||||
|---|---|---|---|---|
| ORD PRICE: | 652p | MARKET VALUE: | £2.32bn | |
| TOUCH: | 651-653p | 12-MONTH HIGH: | 703p | 513p |
| DIVIDEND YIELD: | 3.2%* | PE RATIO: | 10 | |
| NET ASSET VALUE: | 397p | COMBINED RATIO: | 83% | |
| Year to 31 Dec | Gross premiums (£bn) | Pre-tax profit (£m) | Investment return (£m) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 1.44 | 321 | 183 | 25.0 |
| 2010 | 1.43 | 211 | 100 | 16.5 |
| 2011 | 1.45 | 17 | 24 | 17.0 |
| 2012 | 1.57 | 217 | 92 | 18.0* |
| 2013 | 1.70 | 245 | 60 | 21.0* |
| % change | +8 | +13 | -35 | +17 |
Ex-div:tbc Payment:tbc *Excludes special dividends: 38p in 2012 & 36p in 2013 2013's 14p final dividend to be paid via a 'C/D' share scheme Capacity owned: 72.5 per cent | ||||
