Shares in insurance group Hiscox (HSX) were the worst performers in the FTSE 350 index, slumping 130p or 13.4% to 850p, after the company reported a pre-tax loss of $268.5 million for the year to December compared to a profit of $53.1 million the previous year.
Despite a resilient performance in terms of gross written premiums, which remained steady at $4.03 billion thanks to the firm’s mix of big-ticket contracts and its steady retail business, the firm swung to a loss last year due to $475 million of Covid-related claims for event cancellation and business interruption.
Although the result was largely in line with market expectations, the shares put in their worst one-day performance in close to a year.
As chairman Robert Childs observed: ‘Over my 48 years in the business, I have experienced most of the challenges that Mother Nature and mankind have thrown at the insurance industry, but Covid-19 and its repercussions have been one of the most testing.’
BRIGHTER OUTLOOK
There were bright spots in the results, not least the huge jump in profit for the London Market business, from $23.3 million to $97.2 million, while 2020 was another good year for investment returns.
Moreover, the firm is bullish on the outlook for this year thanks to positive insurance rate momentum across all of its businesses, led by the London Market unit which has seen rates soar 20%.
This hardening of rates led the firm to raise £375 million of new equity, roughly equal to 20% of its issued share capital, to support growth opportunities, especially in the US wholesale and reinsurance markets.
Hiscox also expects to return to paying dividends, starting with this year’s interim results, as it is well capitalised against both regulatory and rating agency requirements.
As Shore Capital analyst Alan Devlin points out, Hiscox shares have lagged the market and firm’s own book value considerably over the past 12 months, ‘even though the market trading conditions have improved. We believe Hiscox, along with peers Beazley (BEZ) and Lancashire (LRE) can benefit from the strong market’.
