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Hiscox finds joy outside Lloyd's

The insurer's retail business helped insulate it from a competitive claims environment
February 28, 2017

It was a case of anywhere but Lloyd's for insurance group Hiscox (HSX) last year. While the specialist London operations continued to suffer from pricing pressure on premiums, its retail arm managed to double profit during 2016. As a result the latter accounted for 60 per cent of profit, excluding foreign-exchange gains. More importantly, this division's earnings covered the increased dividend.

IC TIP: Hold at 1072p

The group benefited from £152m in foreign-exchange gains, boosting profit despite shrinking margins. All the bond portfolios - which traditionally deliver the majority of the insurer's returns - benefited from the fall in yields following the referendum, pushing up investment returns. A relatively benign claims environment for the retail business meant it was able to reduce its combined ratio (of claims against income) to 88.1 per cent from 92.9 per cent the previous year. The most mature retail UK and Ireland business increased gross written premiums by 13 per cent to almost £500m.

The London Market business suffered a dip in profit of almost a fifth, as the claims market continued to be highly competitive. Despite a sizeable uplift in gross written premiums, the combined ratio increased to 91 per cent from 86.6 per cent as losses increased to more normal levels.

Analysts at Shore Capital expect net tangible assets of 627p a share at the end of December 2017.

HISCOX (HSX)

ORD PRICE:1,072pMARKET VALUE:£3.06bn
TOUCH:1,072-1,073p12-MONTH HIGH:1,106pLOW: 897p
DIVIDEND YIELD:2.6%PE RATIO:9
NET ASSET VALUE:636pCOMBINED RATIO:84%

Year to 31 DecGross premiums (£bn)Pre-tax profit (£m)Investment return (£m)Dividend per share (p)
20121.572179218
20131.702456021
20141.7623156.222.5
2015*1.9421635.424
20162.4035575.028
% change+24+64+112+15

Ex-div: 11 May

Payment: 20 Jun

*Excludes special dividend of 16p a share