Hiscox reports sharply higher profits

The Lloyd's insurance market has enjoyed a buoyant half as increasing rates make new written premiums increasingly profitable for key syndicates. The interim results for Hiscox (HSX) did not deviate from broader positive trends and a combination of strong property insurance demand and assigning capital to increase its exposure to the market meant underwriting profits were sharply higher on a reported basis. Return on equity was particularly noticeable at 19.9 per cent.

The scope of the upswing was obvious in total underwriting profits, which were 58 per cent higher at $221mn (£173mn). One of the best performances happened to be in the London market, where revenues increased by 14 per cent to $443mn, driven by rising rates for property, and new business in marine and upstream energy. The company now uses the new measure of insurance contract written premiums, which replaces gross premiums under IAS17 reforms.

The other high-performing area was Hiscox Re, which saw reinsurance revenue growth of 18 per cent as property and catastrophe rates hardened during the half. Meanwhile, rising rates helped investment returns back into the black with income of $122mn, compared with a loss of $214mn in the same period last year.

Broker Panmure Gordon broadly welcomed the results, but cautioned that Hiscox may need to deploy more of its own balance sheet if demand for insurance-listed securities (ILS) does not recover sufficiently. ILS allow insurance companies to match bundles of premiums with third-party capital without risking the balance sheet, but demand has disappeared. Panmure rates the shares at 15 times earnings for 2023. A bit too elevated. Hold.

Last IC view: Hold, 1,107p, 9 Mar 2023