In a rare piece of respite for hard-pressed households in 2022, premiums for household insurance generally fell through most of the year before recording an uptick during the start of renewals season. That state of affairs illustrates the fact that the non-life sector has struggled to keep its income streams in line with inflation at a time when costs are rising – and there are few signs that this situation is going to change this year, with the bill for reinsurance costs beginning to rise as many companies take stock of the catastrophes and disasters that afflicted 2022.
It is important to note that the non-life sector has different companies that offer different types of products to radically different markets; Beazley (BEZ) is completely different in both operating model and final customer base to Direct Line (DLG), for instance. Still, all companies in the sector will be buffeted by similar forces. Chief among these will be the premiums that insurers must pay their own insurers to cover key elements of their books. It has been well reported that reinsurance premiums have doubled so far during the key January renewal season, as companies paid out for extreme weather events and the ongoing insurance saga for leased aircraft caused by the onset of the war in Ukraine and Russia’s seizure of the aircraft fleet on its territory.
According to research from broker Gallagher Re, aviation reinsurance premiums have increased by as much a 200 per cent, with legal battles with leasing companies still on the horizon.
Paradoxically, aviation might be less troublesome for Lancashire (LRE) than its major property catastrophe line. Costs here have risen by more than 45 per cent after an awful season of extreme weather events in the US, culminating in a vast weather 'bomb' blanketing the traditional snow belt. Lancashire had signalled late last year that it would be pulling back from its expansion in property catastrophe insurance – having pursued a growth strategy on this front since 2018. That decision might help to limit some of its exposure. Meanwhile, Beazley should be able to continue to cash in on cyber attack insurance after launching a catastrophe bond for cyber threats. Premiums have been rising substantially to cover the heightened risk of cyber attacks due to the war in Ukraine. Industry estimates put the eventual value of cyber attack premiums at $40bn (£32.7bn), compared with $10bn now.
| FTSE 350 non-life insurance | ||||||
|---|---|---|---|---|---|---|
| Price | Market | 12-month | Fwd | Dividend | ||
| Company | (p) | cap (£mn) | change (%) | PE | yield (%) | Last IC view |
| Admiral | 2,184 | 6,614 | -30.7 | 16 | 8.8 | Buy, 2,228p, 18 Aug 2022 |
| Beazley | 663 | 4,447 | 35 | 8 | 2.8 | Buy, 521p, 22 Jul 2022 |
| Direct Line Insurance | 179 | 2,345 | -40.7 | 9 | 8.1 | Hold, 206p, 2 Aug 2022 |
| Hiscox Ltd | 1,140 | 3,951 | 19.6 | 10 | 3.1 | Hold, 946p, 2 Mar 2022 |
| Lancashire Limited | 645 | 1,574 | 20.7 | 7 | 2.2 | Hold, 439p, 28 Jul 2022 |
| Source: FactSet | ||||||
