Following 2011's grim year for insurers – when a number of FTSE 350 underwriters suffered heavy losses from a stream of costly catastrophe events – 2012 turned out to be fairly benign. Add that to decent premium rate increases, at least for catastrophe-related lines, as insurers sought to compensate for 2011’s losses, and many in the sector were able to quickly return to making underwriting profits last year – and report sub-100 per cent combined ratios (of claims to premiums).
Of course, there was Hurricane Sandy, which deluged New York – it was 2012's only really costly catastrophe. But even that wasn't as grim as it could have been. Analysts estimate that the total insured loss from Hurricane Sandy stands at $20bn-$25bn (£12bn-£15bn) – relatively modest compared to, say, hurricane Katrina with its $45bn loss. And, assuming no other big loss events in the near future, most FTSE 350 players look set to remain profitable in 2013, despite Sandy-related claims.
In fact, most Sandy-related loss estimates so far don't look overly burdensome. The total Lloyd's market loss, for instance, is estimated at a hardly disastrous $2bn-2.5bn. At the company level, Lancashire Holdings (LRE) expects a $40m-$60m loss, Catlin (CGL) expects a $200m hit and Hiscox (HSX) expect a £90m loss. And even after announcing an estimated $90m Sandy-related hit, Beazley (BEZ) still "expects a full year 2012 combined ratio in the low nineties" – meaning decent underwriting profits. Amlin (AML) has announced the largest loss so far at £145m, but that is not surprising given the insurer's relatively heavier exposure to catastrophe-related business than many of its Lloyd's peers. Still, overall, Sandy hasn't blown away profitability and the losses could yet support further rate hardening. "We believe it [Sandy] will be readily absorbed and that it will help continue the improvement in US property insurance rates that has been evident so far this year," said Charles Philipps, Amlin's chief executive.
Drivers for RSA Insurance (RSA), Admiral (ADM) and newly listed Direct Line (DLG), are a little different – with their focus on household lines, catastrophe events are less significant. RSA – with exposure to the UK, Canada and Scandinavia – is likely to continue seeing reasonable single-digit premium rate growth and its shares remain a great income play. Admiral and Direct Line, however, are heavily exposed to grim UK motor conditions where rates are tumbling fast. Prospects there aren't helped by the Office for Fair Trading's decision to refer UK motor insurance pricing to the Competition Commission – that probe could take years and could result in further rate pressure. Prospects for broker Jardine Lloyd Thompson (JLT), meanwhile, look better – it's set for decent growth as it boosts its focus on fast-growth emerging markets, such as Asia and Latin America.
| NON-LIFE INSURANCE | ||||||
| COMPANY NAME | LATEST PRICE (P) | MARKET VALUE (£M) | PE RATIO | DIVIDEND YIELD (%) | PERCENTAGE CHANGE IN 2012 | LAST IC VIEW |
| ADMIRAL | 1,202 | 3,288 | 14 | 4.8 | 36.2 | Hold,1,163p, 30 August 2012 |
| AMLIN | 390 | 1,940 | 11.3 | 6.0 | 20.7 | Sell, 372p, 8 November 2012 |
| BEAZLEY | 179 | 934 | 8 | 4.5 | 31.7 | Buy, 153p, 23 July 2012 |
| CATLIN | 509 | 1,840 | 6.2 | 5.6 | 26.3 | Buy, 447.1p, 6 August 2012 |
| DIRECT LINE | 214 | 3,215 | na | 0.0 | na | Sell, 198p, 6 December 2012 |
| HISCOX | 458 | 1,807 | 7.6 | 3.9 | 21.7 | Hold, 444p, 30 July 2012 |
| JARDINE LLOYD THOMPSON | 774 | 1,693 | 17.9 | 3.2 | 14.6 | Buy, 726p, 30 July 2012 |
| LANCASHIRE HOLDINGS | 792 | 1,289 | 8 | 1.2 | 7.0 | Buy, 776p, 25 July 2012 |
| RSA INSURANCE | 128 | 4,596 | 15 | 7.2 | 19.5 | Buy, 111.4p, 2 August 2012 |
