BERMUDA-based insurer Hiscox saw premiums remain largely flat in its third quarter trading update but warned that pricing pressure later this year will come to bear, particularly in the US.
The firm yesterday blamed a lack of severe summer hurricanes for the likelihood of hot competition during the January policy renewal period.
In years with a large number of hurricanes, less well-financed insurers are driven out of the market due to pay-outs to policyholders, but in milder years they remain capitalised and compete on pricing.
Overall, written premiums shrank very slightly by 0.6 per cent to £1.2bn, with Hiscox London seeing the largest drop: premiums fell 13.9 per cent to £495.8m.
Third-quarter investment returns were strong at 3.2 per cent, with Hiscox citing the prospect of low interest rates into next year as driving up corporate bonds and equities. However, the firm plans to reduce its exposure to non-government debt and is monitoring its government bonds closely.
Analysts reacted largely positively: Numis’ Nick Johnson maintains a “hold” rating but suggests that Hiscox’s current share price around 350p could be a good buying opportunity. And finnCap’s Charles Coyne recommends a “buy”, saying that the firm is successfully reducing its concentration in more difficult areas such as US property.
Sales for the first nine months of 2010 were £1.2bn, broadly unchanged on the period last year, the company said.
FAST FACTS | HISCOX
Hiscox provides home insurance for 40,000 UK?homes and other insurance for over 100,000 small and medium-sized UK businesses.
Originally based at Lloyds, it has grown into a FTSE?250 firm with a presence in 13 countries.
ANALYST VIEWS:?Is hiscox a good buy given its third- quarter statement?
Interviews by Juliet Samuel
JOY FERNEYHOUGH | EXECUTION NOBLE
Hiscox has already stated it intends to reduce capacity next year in order to be disciplined on price and with the high net worth business continuing to thrive we continue to believe its stock remains the cleanest ‘buy’ story.
CHARLES COYNE | FINNCAP
An investment return of 3.2 per cent may not look spectacular but it is acceptable in the insurance segment where returns are de minimis [minimal] in the bond market. Hiscox may cash in its chips here.
NICK JOHNSON | NUMIS
The shares have recently slipped back towards the bottom of the 12-month trading range and now trade at a price-to-net-asset ratio of 1.13 times. We see this as good value for a high-quality name such as Hiscox.