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Hiscox ups reserves provisions

The insurer performed solidly if you disregard Covid-19, but the extent of eventual liabilities is far from clear
August 3, 2020

The general level of insurance claims relating to Covid-19 disruption has been difficult to quantify as the crisis unfolds. But in a May update, Hiscox (HSX) said that it anticipated to pay net claims totalling up to $150m (£115m) between March and September on cancelled events and travel arrangements.

IC TIP: Hold at 746p

That liability figure has since swollen to $232m, with the set-aside propelling the Lloyd's of London insurer to an earnings loss for the first six months of 2020. Reserve releases amounted to $63m through the period, against $26m in the first half of 2019.

If you ignore the elephant in the room, then underlying profit from the retail business exceeded $100m, with four out of five of its business units increasing gross premiums – the outlier being Hiscox UK, which recorded a modest 2 per cent decline at constant currencies. The virus and subsequent lockdown constricted new business over April and May, though underwriting activity improved from June onwards. Non-Covid-19 claims remain in line with expectations, but uncertainty remains over the financial impact of Covid-19 on Hiscox’s reinsurance operations.

Consensus estimates give a combined ratio (net underwriting profitability) of 108 per cent, falling to 93.9 per cent in 2021.

HISCOX (HSX)   
ORD PRICE:746pMARKET VALUE:£ 2.58bn
TOUCH:744-746p12-MONTH HIGH:1,674pLOW: 635p
DIVIDEND YIELD:NILPE RATIO:NA
NET ASSET VALUE:702¢COMBINED RATIO:116%
Half-year to 30 JuneGross Premiums ($bn)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
20192.3416851.213.75
20202.24-139-50.2nil
% change-4---
Ex-div:-   
Payment:-   
£1 = $1.30.