Veterans of Lloyd’s of London’s early 1990s near-death experience know how easy it is to lose money fast in insurance. One is Bronek Masojada, boss of UK specialist insurer Hiscox. The wariness born of experience pervaded Hiscox’s first quarter trading statement on Tuesday. Premiums rose just 3.3 per cent on the first quarter of 2018. A year ago, Mr Masojada had reported a 20 per cent rise. The slowdown is a good sign for investors in the few remaining Lloyd’s businesses still quoted in London.
Cutting back business makes sense in an insurance downturn. In the past, big disasters, such as 2005’s Hurricane Katrina, pushed up prices for cover. Despite rising claims, however, rates have remained soft in recent years. One reason for Hiscox’s first-quarter wobble was a pull back from unprofitable liability insurance for US executives.
Hiscox reckons conditions are improving. Lloyd’s, the last big financial market in London owned by members is restructuring. One push is to force syndicates to cut out their least profitable lines. They apparently need reminding losses are to be avoided. London insurance rates have risen 4 per cent this year, says Hiscox.
Some see an opportunity. Another London market veteran, Stephen Catlin, recently raised $1.8bn for a Bermuda-based venture. Hiscox shares have outperformed the FTSE 100 over the past year. So has the stock of local rival Lancashire. Firmer prices would help revenues rebound. Hiscox’s premiums should rise a respectable 7 per cent or so for the next three years, reckons Berenberg. Growth at Beazley, another rival, will be a percentage point or two higher.
In weak markets, Hiscox benefits from its diverse earnings. Retail insurance accounts for around half its business. The stock trades at 19 times forward earnings; around a third higher than Beazley and Lancashire. Await further evidence of insurance price discipline. This phenomenon, like Lloyd’s reform itself, is predicted far more often than it is manifested.
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