Hiscox unveils $150mn share buyback

A relatively quiet hurricane season and a Lloyd’s insurance market that is enjoying an underwriting boom combined to give Hiscox (HSX) one of its strongest annual performances in recent years. Though somewhat distorted by changes demanded by IFRS 17, the results gave management enough confidence to underwrite a new $150mn (£118mn) share buyback, with investors getting a $75mn tranche immediately.

This was underpinned by a hardening rate environment during the year, with the overall London market seeing rates higher by an average of 7 per cent. There were also signs that the property insurance strike seems to be ending in problematic markets, like Florida for instance, and property insurance rates surged by 26 per cent. Cyber insurance, which had been a star performer, saw declines during the year. Hiscox Re was a beneficiary of these trends, and the business deployed more capital into the hardening market and achieved net premium growth of 23.2 per cent to $449mn.

Cumulative rate increases now stand at 90 per cent since 2018, but rate growth is beginning to plateau in the US property catastrophe market, having enjoyed a solid year. Meanwhile, the international property catastrophe book continues to see a broad rate hardening.

Meanwhile, Hiscox ILS saw assets under management fall to $1.8bn (2022:$1.9bn) for the year to 31 December 2023, with planned capital payments of $270mn contributing to the fall in assets to $1.6bn in January 2024. To remedy this, management allocated more of Hiscox’s own capital, which meant that gross income was maintained, and fee income nearly doubled for the year from $51mn to $101mn.

Importantly, the insurer also maintained its ‘A’ rating from S&P after a review of the capital, which now gives more weight to asset diversification. The agency maintained its ‘stable outlook’ and ‘strong’ operating rating for the company.

Broker peel Hunt maintained its generally sunny outlook for the shares: “At 1.5 times 2024 tangible net assets... we believe the shares are undervalued given the double-digit returns HSX can generate.” While we are slightly more cautious given the inherent ability of the market to throw up a black swan, there is no doubt that capital is earning decent returns for Hiscox in a way that mirrors the rest of the Lloyd's market. Hold.

Last IC view: Hold, 1,059p, 14 Aug 2023