November 5, 2012 10:11 pm

Hiscox chief considers capital return

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The chief executive of Hiscox said that the insurance group may still return capital to shareholders in spite of Hurricane Sandy, in the latest sign that the industry is confident it will absorb the costs of the storm without too much pain.

Bronek Masojada, head of the insurer at Lloyd’s of London, said losses to the industry arising from Sandy may well come in at about $20bn, at the top end of estimates issued by catastrophe modellers.

“It’s a thousand-mile-wide storm,” he said. “When you start adding it up you can quite easily get there.”

However, he added that the well-capitalised sector should be able to withstand the hit.

Hiscox said it was too early to provide an estimate for losses it would endure from Sandy but the FTSE 250 company suggested it may still pay a special dividend or undertake a share buy-back. Before Sandy, analysts estimated the company was likely to return about £150m – equivalent to more than a tenth of its net tangible assets.

Mr Masojada acknowledged that Sandy “does change the dynamic”. “The original plan was that capital would be on the agenda in the second half.”

But he added: “It’s still on the agenda ... We could have a capital return in some way,” without spelling out what form such a return would take.

The chief executive added Hiscox would review its position on capital when it knew how much the storm would cost and also “what opportunities it will create”.

Nick Johnson, analyst at Numis, said that as well as reducing the pool of capital, Sandy may also prompt Hiscox to deploy more of it in underwriting because the storm may boost premiums in some areas.

Historically, insurance rates have tended to rise after the industry makes big payouts because weaker insurers exit the market – thus reducing competition among the remaining underwriters.

However, even though the industry last year endured one of the costliest on record for natural disasters, rates have risen only modestly since then because the industry remains well capitalised.

Mr Masojada said the “momentum will continue” to push rates upwards but not by a “massive” amount. Hiscox said rates for US property business had risen by as much as a tenth this year.

Rising rates helped Hiscox increase by 6.4 per cent to £1.24bn the amount of insurance premiums it wrote, before paying reinsurers, in the first nine months of 2012 compared with a year earlier.

Catastrophe modellers have yet to pinpoint estimates of losses arising from Sandy, highlighting that the size of payouts on business interruption policies were particularly difficult to determine.

Hiscox shares, which have been trading near all-time highs, fell 7.08p to 476.52p.

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