Research that is free to access for all investors. Companies commission these providers to write research about them.
Brokers who write research on their corporate clients and make it available through our main bundle offering.
Research that is paid for directly by asset managers. Only accessible to institutional investors permissioned for access.
Event in Progress:
View the latest research on other companies in the sector.
Helios Underwriting released an update on net asset value (NAV) as at 31 December 2024 on 8 April 2025. The company disclosed an increase in unaudited NAV per share to 214p from 206p at 30 September 2024, versus our expectation of 217.8p. The NAV benefited from a capacity portfolio revaluation of £
Helios Underwriting PLC
Helios Underwriting’s (Helios’s) share price rose by 7% in the past two months, driven by healthy syndicate underwriting capacity and net asset value (NAV) updates on 15 November and 18 December 2024, and a strong UK non-life insurance market. Aviva’s successful bid for Direct Line kicked off a ser
Helios Underwriting (Helios) delivered EPS growth of 35% to 7.7p in H124 and reported a net asset value (NAV) of 191p/share. While its combined ratio of 91.6% deteriorated from 88% in H123 and 85% in FY23 due to seasonal impacts on the 2024 year of account (YOA) and stricter reserving for its 2022 YOA, we forecast an improvement to 88.8% for FY24. Helios experienced cost pressures during the period as a result of abandoning its ‘follow-only’ syndicate initiative and the departure of its CEO. We expect a meaningful reduction in costs in FY25, including a saving in stop-loss reinsurance costs as the company is expected to reduce cover in light of very healthy syndicate solvency levels. We have significantly reduced our forecast underwriting capacity growth for the company to reflect its new strategy, aimed at consolidating its book and focusing on shareholder distribution. We have lifted our FY24 EPS forecast by 10% on higher underwriting and group income expectations and by 4% in FY25 on lower costs, but cut our longer-term EPS forecasts on lower growth expectations. This leaves our valuation unchanged at 280p/share.
Helios Underwriting (Helios) delivered strong EPS of 21.6p in FY23, from a loss of 3.1p in FY22, ahead of our 14.7p forecast. On 7 June, the company announced that CEO Martin Reith had stepped down, with Michael Wade taking over as executive chair. Mr Reith had driven a strategy of investment in internal capabilities and Lloyd’s of London (Lloyd’s) capacity expansion via tenancy capacity and promotor activities. While Helios will still pursue select capacity acquisition, indications are that future strategy will increasingly be focused on extracting value from the existing portfolio, with greater shareholder distributions through dividends and share buybacks. We have updated our forecasts based on the FY23 performance and underwriting outlook, paring back our near-term capacity growth forecasts but allowing for a more liberal distribution policy. We have cut our EPS forecasts by 5.5% in FY24 and 1.9% in FY25, and introduce FY26 forecasts. Our valuation is unchanged at 280p/share, supported by higher distributions.
Helios Underwriting (Helios) delivered a strong EPS recovery in FY23 from a loss of 3.1p in FY22 to a profit of 21.6p, 50% ahead of our forecast of 14.7p, driven by super syndicate underwriting profit of £31.6m versus £0.1m in FY22 and a combined ratio of 86%. Lloyd’s of London (Lloyd’s) capacity at year-end was accelerated to £507m relative to our expectation of £502m, with retained capacity of £392m also ahead. Net asset value (NAV) increased from 151p/share to 189p/share, slightly ahead of our forecast of 187p/share. The dividend doubled from 3p/share to 6p/share as expected. Our forecasts and valuation are under review.
On 22 March, Helios Underwriting reported NAV for 31 December 2023 of 185p/share. This is broadly in line with our expectations and has not affected the forecasts in our update note published on 16 January. We maintain our valuation of 280p/share, which is at a 51% premium to the 31 December 2023 NAV. Since our last publication, Helios’s share price has risen by 22% (up 33% in the last month). This strong performance is well supported by the underlying fundamentals and outlook (as highlighted in our research) and was delivered despite the conclusion of Helios’s share buyback in January. Share overhang pressure appears to have subsided, although one of Helios’s key shareholders, Hudson Structured Capital Management (HSCM), may still be a natural seller of Helios shares due to internal issues.
Meeting Notes - Mar 22 2024
HUW HFG BOOT GAMA
Helios has published its quarterly NTA update for December 2023. This shows NTA increased by 9p to 185p during Q4, beating our estimated growth of 5p. We understand the outperformance reflects strong underwriting results in Q4, mirroring good performance recently reported by many Lloyd's insurers.
Helios shares produced a TSR of -5% in 2023 despite 20% growth in NTAps including dividend yield. The culprit was a de-rating in P/NTA from 1.1x to 0.9x, which we mainly attribute to increased cost of equity, particularly for UK small caps. Standing today at a P/NTA rating of 0.8x, we think further
Meeting Notes - Mar 01 2024
HUW STJ HMSO SRP JUP RMV CKN DATA SNR DLTTF
Helios Underwriting reported FY24 expected underwriting capacity of £501.8m on 15 December 2023, a huge 69% increase over the past year. Capacity growth of £28m reported at H123 is followed by a further expected £177m of tenancy capacity, some only becoming active during H124. The large addition was made possible by a significant capital restructure where Helios raised US$75m in seven-year unsecured debt at a coupon of 9.5%. The syndicate underwriting operating result outlook has meaningfully improved on the back of this increased exposure, driving a strong upgrade in our FY25 earnings forecast, although FY24 was downgraded to allow for a sharp uptick in financing costs. After allowing for the additive impact of the company’s ongoing share buybacks, our FY24 EPS forecast has been cut by 5%, while our FY25 forecast has been lifted by 10% to 37.6p. This upgrade, combined with a sharp reversal in gilt yields, has resulted in an 11% increase in our valuation to 280p/share.
Helios Underwriting reported H123 EPS of 5.7p, a meaningful turnaround from a 4.4p loss in H122 and a 4.9p loss in FY22. It benefited from a much-improved combined ratio of 88% (H122: 95%) and a turnaround in syndicate investment income, supported by 28% growth in gross written premiums (GWP). It recorded a 4.8% increase in underwriting capacity, to £310.8m, thanks to acquisitions and new investment. Group investment income lagged in H123 but is forecast to deliver strongly in H223 and into FY24. This resulted in a small reduction in our FY23 EPS forecast from 15.1p to 14.6p, but thanks to increases for FY24 and FY25, benefiting from share buybacks, our valuation remains unchanged at 252p/share, a 46% premium to our FY23e net asset value (NAV) and double the current share price. As the forced sell-off by Odey Asset Management is completed, a more liberal dividend policy and further buybacks should be supportive.
Meeting Notes - Jun 22 2023
HUW HILS ERGO BMY OXB RAT
Helios Underwriting + (HUW, No Recommendation, 160p) - Terminating coverage
Having utilised the proceeds of the March 2021 £54m fundraise, retained capacity of £172m at the start of 2022 YoA (year-of-account) was almost threefold higher than the prior year’s £59m. The step up in underwriting exposure into Lloyd’s hard market should significantly increase Helios’ earnings power, which we expect will become evident by FY24F, given the three years it takes to accrue underwriting profit under Lloyd’s accounting practices. We publish forecast revisions with limited changes to NAV, being our key forecast metric. We believe Helios is an excellent way to obtain diversified exposure to peak-in-cycle returns over the next few years at Lloyd’s. HOUSE STOCK.
Helios Underwriting is an AIM-listed investment vehicle which acquires and consolidates private underwriting capacity at Lloyd’s. The market cap has grown from c.£20m in late 2020 to £125m. Helios’ portfolio has grown strongly with retained capacity increasing more than 8x since the start of 2020 to c.£170m at the start of 2022, following utilisation of the 2021 fundraise proceeds. This growth comes at a time of buoyant pricing across Lloyd’s, which should underpin underwriting profitability and Helios’ earnings power over the next few years. We believe Helios is an excellent way to obtain diversified exposure to peak-in-cycle returns over the next few years at Lloyd’s. HOUSE STOCK.
Over the last few months, Helios has transformed itself. Having raised £64m, and acquired over £10m of additional capacity, it has greatly increased its ability to add to its exposure to its desired Lloyds syndicates. It can do this through continuing to acquire new vehicles, increasing its retention by reducing its quota share arrangement, or obtaining tenancy agreements with existing syndicates. The timing for doing this looks ideal: after several years of losses, premium rates have been increasing strongly since 2018. Notwithstanding the recent COVID-19- related claims, the prospects for improved underwriting results are very good.
Helios has raised a further £54.8m of new equity, as announced in March 2021, shortly after raising £18.5m in November 2020. This transformational fundraise roughly doubles Helios’ market cap. New capital will accelerate: (i) Helios’ strategy of consolidating private capital at Lloyd’s, (ii) capacity portfolio growth and (iii) retention of underwriting risk. In our view, Helios is increasing capacity retention and accelerating LLV acquisition momentum at just the right time with the next three years likely to be the most profitable of the underwriting cycle, reflecting hard market conditions at Lloyd’s. We have updated our forecasts to reflect: (i) use of fundraise proceeds, (ii) the revised calculation of adjusted NAV Helios published on 16 February and (iii) the impact of the future rise in UK corporation tax rate from the 3 March Budget on NAV projections. HOUSE STOCK.
We issue new forecasts on Helios to reflect a £20m capital raise concluded in late November 2020 and use of proceeds. Adjusted NAV for 2020F is now estimated at 161p, better than the 155p the company had guided. The outlook is confident amidst hard market conditions at Lloyd’s. The fundraise has enabled Helios to execute its strategy of consolidating private capital at Lloyd’s, which we see the company as uniquely positioned to do and for which we see the window of opportunity as limited. The fundraise has also enabled significant portfolio growth and increased retention of underwriting risk, which we expect to boost earnings power and dividend paying capability. In our view, Helios is increasing retention at just the right time with the next three years likely to be the most profitable of the underwriting cycle. Since new shares were issued at 120p in November, a discount to end-2021F adjusted NAV has swung to a premium, which we believe reflects the positive outlook, increase in portfolio size and improvement in stock liquidity, noting the recent addition of new institutions to the shareholder register. HOUSE STOCK.
We issue new forecasts on Helios to reflect recent movement in syndicate mid-point forecasts, the continued improvement in the premium rates and the potential to grow capacity through pre-emptions. Adjusted NAV/share rises +15% to 209p in 2020F and +18% to 218p in 2021F within our base case. In the context of the growth opportunity and hard market at Lloyd’s, Helios trades at an anomalous 45% discount to our forecast adjusted NAV. Helios announced the exploration of new growth initiatives on 10 August, in recognition of the substantial incremental growth opportunities a hard market presents. Yesterday the company announced it is partway through discussions to raise up to £20m of new equity issuing new shares at 120p, representing a c.40% discount to end-2020F adjusted NAV and a c.7% premium to the current share price. In this note, we also explore the impact of a £20m fundraise on forecasts. We think the window of opportunity to consolidate private capital invested in Lloyd’s is limited with Helios uniquely positioned to do so. A fundraise should accelerate this consolidation strategy.
We issue new forecasts on Helios to reflect the July fundraise, acquisitions and H1 2019 results. Adjusted NAV/share: 2019F -10% to 180p and 2020F -12% to 182p. The capacity portfolio is now at £55.7m following £11.6m of net growth in 2018 and £3.1m acquired YTD in 2019. Having replenished its financial resources, Helios can look to convert an attractive acquisition pipeline and continue its explicit Nameco consolidation strategy. Shares trade at a c.30% discount to forward adjusted NAV/share, which is near a historical high and unwarranted, offering an attractive entry opportunity into this unique consolidator of private capital invested in Lloyd’s.
Helios has published FY 2018 results covering the period to end-December. The results are broadly as flagged in the 13 May trading update, though the dividend policy has changed to reflect Helios’ capital priorities. As we work through our forecasts, we are likely to put through high single-digit downgrades to 2019E and 2020E adjusted NAV, and a low single-digit reduction to 2019E DPS. These changes are likely to reflect principally a reduction in underwriting profit for the 2018 YoA, as initial midpoint estimates were materially lower than we had modelled, and to a lesser extent reduced underwriting profit for the 2017 YoA. Though we would de-emphasise the importance of earnings to Helios’ investment case, these revisions nevertheless entail material reductions to 2019E and 2020E EPS. Following a significant year of growth in 2018 including the acquisition of £14.7m of capacity, Helios’ portfolio grew by 28%, from £41.0m to £52.6m, excluding £1.2m of capacity acquired so far in 2019. This drove an impressive 18% increase in adjusted NAV/share to 190p, which partially reflects a 24% increase in capacity prices to 39p. By focussing on syndicate quality, Helios has continued to show superior returns on capacity than Lloyd’s. Underwriting profits of £0.8m compared to £0.2m in the prior year. Other income increased from £1.3m to £1.9m reflecting a significant £1.2m of negative goodwill from acquiring assets below fair value. Total costs increased to £2.1m from £1.9m, reflecting small increases in both overheads and stop loss costs. Operating profit of £0.6m was as guided and compared to a £0.4m loss in the prior year. With a reduced impairment charge on the capacity portfolio and continued utilisation of deferred tax assets, EPS of 3.1p compared to -4.7p in 2017. Total DPS of 3.0p was twice the 1.5p paid in respect of 2017 however lower than the 4.2p we had estimated. The outlook is positive. Following a second successive year of above average catastrophe claims across Lloyd’s in the 2018 YoA, the flow of Lloyd’s capacity vehicles for sale has increased. So Helios continues to see a significant opportunity to purchase assets below fair value though the pace of acquisition will depend on the availability of external capital. Helios’ share of total capacity is c.30% compared to 57% in 2016 and we assume the company will continue to maximise the use of quota share to free up capital to grow the capacity portfolio. Helios shares are trading at a 29% discount to 190p of adjusted NAV/share at end-2018, which we believe offers good value for this unique Lloyd’s Nameco roll-up story. 143p of this adjusted NAV/share comprises capacity fund value, against which shares trade at a 6% discount before ascribing any value to the remaining 47p of adjusted NAV/share which represents tangible equity and capital for stop losses.
Helios has published Q1 2019 updates to syndicate mid-point forecasts. The mid-point forecast for the 2017 year-of-account (YoA) has improved marginally to -8.95% from -9.53% in the prior quarter. A first mid-point forecast for the 2018 YoA of -3.53% reflects a challenging market backdrop. However, these forecasts show Helios continuing to outperform the Lloyd’s market average by 1.45% in the 2017 YoA and by 0.27% in the 2018 YoA, which in our view reflects the relative quality of Helios’ portfolio.
We reiterate Buy on Helios and, following a transfer of coverage, present new forecasts and set a 12-month forward target price of 175p (previously 160p). This together with an estimated 3.9% dividend yield implies 67% TSR potential. Following a significant year of acquisitions, we estimate 32% growth YoY in the capacity portfolio in 2018, underpinning +25% in adjusted NAV. Trading at 0.5x adjusted NAV at end-2018E, we see considerable share price upside, with the current valuation not reflecting the recent acquisitions Helios has announced.
The FY17 results will inevitably be impacted by the 2017 catastrophe losses but we believe the quality of Helios’s Lloyd’s portfolio will enable it to continue to outperform the average, as seen with the latest syndicate returns. We reduce FY17E’s pre-tax loss (Norm) to £0.42m and raise FY18E PBT Norm to £0.46m and FY19E to £1.0m. Helios is well positioned to benefit from rate rises, plus we believe more LLVs should come up for sale through 2018-19, and at more attractive prices. Our revised target price is 160p (45% upside); we stay at Buy.
Helios has guided that it expects to report an operating loss of c£0.5m for FY17 and an Adjusted NAV of 168p. This reflects the hit from Q3 catastrophe losses on underwriting returns and the fall in the average capacity auction price in 2017 as some Names looked to exit Lloyd’s. We expect the pain to unwind in FY18-19 as conservative loss estimates improve, and rates rise. We provide initial revised estimates below but will produce a more detailed report shortly. We note that 2018 capacity has already risen 26% to £41m on pre-emptions.
H1 2017 PBT Norm fell YoY to £365k due to the softer rating backdrop, lower retained capacity YoY at H1 and the flagged shift in earnings to being more H2 weighted. We expect the 2015-16 year of account returns to improve but H2 2017 catastrophe losses will materially negatively impact Lloyd’s syndicates and so Helios’s profits. Our forecasts/TP are under review as we assess the hit to FY17 PBT and implications for rates/profits in 2018. We expect Helios to slow its acquisitions until the size of the 2017 losses become clearer.
The group continues to deliver on its stated strategy to build a meaningful third party capital provider and has today announced a further acquisition. It has agreed to acquire the LLV Nottus No.51 Ltd for £964,500 in cash, equivalent to a c4% discount to the independent Humphrey valuation of £1.0m. The LLV has some £669k of underwriting capacity for 2017 and so this will take the group’s capacity for the 2017 YOA to £35.6m. Nottus has a portfolio of syndicates that is broadly similar to that of Helios. Buy
FX helped Helios’s beat our FY16 forecast as PBT (Norm) rose 77% YoY to £1.334m/EPS 11.64p. The total (final) dividend was also ahead at 5.5p, comprising 1.5p base and 4.0p special. We upgrade our 2015 YOA estimate, but now expect recognition of the 2016/17 YOA profits to be more back-end loaded, so keep our FY17E PBT Norm unchanged for now, especially ahead of the 2017 windstorm season. Helios continues to deliver on its strategy to build a meaningful third party capital provider. Buy
Helios has updated on its portfolio performance following the release of the latest quarterly midpoint syndicate forecasts from Lloyd’s. The midpoint estimated return on capacity to Helios on its 2015 YOA has improved to 9.82% (Lloyd’s: 4.22%), ahead of our current forecast of 9.0%. The initial forecast for 2016 YOA is a return of 3.48% (Lloyd’s: 0.42%). Helios is again outperforming the Lloyd’s average, underlining the quality of its portfolio. We will review our forecasts with the FY2016 results announced 30 May. Buy
Helios will report FY2016 results on 30 May. Following the announcement of strong results for its 2014 YOA portfolio (return on capacity of 15.5%), we upgraded FY2016E PBT Norm by 13% to £1.016m/7.9p EPS and increased the dividend to 4.5p (+29%). Helios continues to use the capital raised to buy LLVs and we expect further acquisitions through 2017. The group is steadily growing its portfolio whilst waiting for an opportunity to accelerate its acquisition strategy as more Names look to exit. The story remains intact. Buy
Helios reported strong 2014 YOA results with a return on capacity of 15.50% vs. the previous estimate of 12.78%. This drives the 13% uplift in our FY2016E PBT Norm to £1.016m/7.9p EPS. The dividend rises to 4.5p (+29%) and the NAV Adj. rises to 193p. On the current share price this values Helios at 0.7x P/B Adj and a yield of 3.1%. We also raise 2017E PBT Norm 5% to £0.99m and increase the dividend to 3.2p (yield 2.2%). The NAV Adj rises to 194p. Helios has made another acquisition and we expect it to add more LLVs in 2017. Buy
In the week to 24 January the FTSE All Share fell -0.9% vs. +0.2% for the Insurance Index and -1.0% for the Lloyd’s Index. The best performer was JLT (+1.3%); Novae was the worst performer (-4.5%). This week we review JLT’s January 2017 renewals report. Whilst most reinsurance lines remained under pricing pressure, there was a clear moderation in the rate reduction in c50% of classes (see graph below), with only cyber and healthcare seeing larger YoY reductions. This is (quietly) positive for reinsurers/Lloyd’s underwriters.
HUW HSX JLT LRE NVA BEZ
In the week to 17 January the FTSE All Share fell -0.7% vs. -1.4% for the Insurance Index and 0% for the Lloyd’s Index. The best performer was Beazley (+1.8%); Novae was the worst performer (-2.0%). The key risks identified in the WEF’s 2017 Global Risks all have (re)insurance implications to a varying degree, depending on the exposure and level of penetration (hence the strategic partners are Marsh & McLennan and Zurich Insurance). Catastrophes (natural/man-made) and cyber are among the most likely risks for 2017.
Happy New Year. In the week to 3 January the FTSE All Share rose 1.5% vs. +1.0% for the Insurance Index and +1.9% for the Lloyd’s Index. The best performer was JLT (+2.7%); Helios was the worst performer (-2.3%). In the first Money Bin of 2017 we briefly review the sector’s performance during 2016. Beazley was the most consistent in terms of share price, ending the year -1%. The others have been more volatile with Lancashire, JLT and in particular, Novae, delivering mixed news.
Helios is looking to acquire the LLV Pooks Ltd, in which CEO Nigel Hanbury has an interest. Consequently, this will require shareholder approval at a General Meeting to be held on 10 January. We note that the acquisition price is at a slight discount to the independently estimated NAV: most of its transactions are at, or slightly above, NAV. Also, based on the latest midpoint forecasts, the LLV can deliver above average returns and hence has the potential to be a value-add acquisition. We expect the deal to be approved.
In the week to 19 December the FTSE All Share rose 1.6% vs. +1.7% for the Insurance Index and +1.0% for the Lloyd’s Index. The best performer was Lancashire (+4.7%); Hiscox was the worst performer (-1.3%). In the last Money Bin for 2016 we look back at the M&A activity, which picked up in terms of deal value in Q4. This year has been quieter, as we predicted, but we expect further capitulation in 2017 as the pain starts to really bite. We don’t rule out M&A at Lloyd’s but see other markets coming first - sorry. Season’s Greetings
In the week to 13 December the FTSE All Share rose 2.5% vs. +0.2% for the Insurance Index and -2.3% for the Lloyd’s Index. The best performer was JLT (+0.1%); Novae’s profit warning made it the worst performer (-19.9%). We look at the plans to create a UK ILS sector. NY and then Bermuda are the big ILS players and London is missing out on an increasingly important market, which will reduce its relevance over time. If it can get the necessary (and competitive) framework in place, there is upside potential.
An improved 2014 YOA return drives a 6% uplift in FY16E PBT (Norm). Helios’s 2017 opening capacity is £32.6m (+16%), albeit this is below our forecast £35.3m and so we reduce FY17-18E PBT (Norm) by 2% and 6% (on unchanged return on capacity estimates). We assume the cash raised will be deployed by end-2017.This is subjective: a slower timetable will delay profit recognition but, in our view, it is more important that Helios acquires the right LLVs at the right price. We nudge back our TP (-4%) to reflect this adjustment.
In the week to 6 December the FTSE All Share was flat vs. -0.3% for the Insurance Index and -0.4% for the Lloyd’s Index. The best performer was Lancashire (+2.7%); Hiscox (-2.5%) was the worst performer. We look at cyber insurance, which is one of the fastest growing (re)insurance lines – bringing huge opportunities but also not yet fully quantified/understood aggregation exposures. The PCI has warned that GDPR will be a “game-changer”, a positive for cyber insurers, and that fines in the UK could go up 90-fold as a result.
In the week to 29 November the FTSE All Share fell 0.7% vs. -1.3% for the Insurance Index and -0.6% for the Lloyd’s Index. The best performer was Novae (+2.1%); Hiscox (-2.4%) was the worst performer. This week we look at Swiss Re’s global review for 2016 and 2017/18 outlook. We note the forecast for further rate softening but that an inflection point is close, albeit this could mean at best flat rates. As we’ve flagged, reserve strength is becoming more concerning. Underwriting profits will fall. The ROE is falling YoY but the Lloyd’s sector continues to offer investors superior returns to the sector average.
As we have previously flagged, we anticipate further improvement in the 2014/15 YOA returns. The Q3 2016 midpoint forecasts show the group’s 2014 return on capacity has improved to 12.78% (Q2: 11.31%) vs. 9.40% for the Lloyd’s average. The 2015 YOA, which is much younger, has improved to 7.55% (Q2: 7.22%) vs. Lloyd’s at 3.30%. Helios recently raised c£5.97m gross via a Placing and Open Offer, providing additional funds to make further capacity acquisitions. We expect to revise up our 2016 PBT forecasts.
In the week to 22 November the FTSE All Share rose 0.4% vs. +1.9% for the Insurance Index and +0.7% for the Lloyd’s Index. The best performer was Novae (+4.4%); Helios (0%) and Lancashire, which went XD its 61p special, (0.1%), were the worst performers. We review the aviation market as it is possible that airline rates will finally stabilise in 2017. It’s a small class today for the sector but any improvement is welcome. Of more interest is the fastgrowing cyber exposure across the aerospace market. We point investors to our latest research on this rapidly developing class, published 17 November.
In the week to 15 November the FTSE All Share fell 0.5% vs. +0.3% for the Insurance Index and -1.1% for the Lloyd’s Index. The best performer was Hiscox (+0.8%); JLT was the worst performer (-3.4%). This week we review the Q3 updates from the Lloyd’s/London insurance sector. We upgraded our FY16E PBT forecasts for Beazley and Hiscox and downgraded Lancashire, JLT and Novae. We forecast a 5p special in Q4 from Beazley. FY2016 should be a pretty good year for most – 2017 will be much more challenging for insurers but hopefully JLT will (at last) start report improving returns.
In the week to 8 November the FTSE All Share fell 1.0% vs. -2.1% for the Insurance Index and 0.6% for the Lloyd’s Index. The best performer was Lancashire (4.9%, boosted by the Q3 special dividend announced); JLT was the worst performer (-4.1% on another downgrade). This week we flag the 2017 US market rate forecasts compiled by Willis TW and published in late October, which makes for mixed reading. Ten lines are forecast to see rate decreases in 2017, six are expected to see rate rises and seven are predicted to see flat pricing. It’s still tough out there but the Lloyd’s players’ specialisms will help.
In the week to 1 November the FTSE All Share fell 1.4% vs. -1.0% for the Insurance Index and -2.0% for the Lloyd’s Index. The best performer was Helios (0%); Lancashire was the worst performer (-3.3%). This week we review the European earthquake risk following recent events in Italy. The insured loss exposure is generally much lower than in the US/Japan, and is more remote – but the risk should not be ignored. Much of the exposure is in SE Europe but countries such as Benelux, Germany, Portugal and Switzerland have an earthquake risk – as indeed does London (last quakes were in 1382 and 1580).
Helios has raised c£5.97m gross via a Placing and Open Offer, providing the group with additional funds to make further capacity acquisitions. Our forecasts already assume it will increase capacity by £5m pa: this equity raise will allow Helios to accelerate the deal flow. The timing of acquisitions is unknown but we expect the capital to be fully deployed by end-2017. We expect more improvement in the 2014/15 YOA returns and consider our 2016 YOA estimate to be cautious, so we see scope to revisit 2016/18E forecasts.
In the week to 25 October the FTSE All Share was flat vs. -1.0% for the Insurance Index and +0.2% for the Lloyd’s Index. The best performer was Novae (+1.7%); Beazley was the worst performer (-0.7%). Swiss Re’s latest report flags the significant long term growth potential for commercial premiums arising from China’s B&R project. The Chinese are no fools and will want to keep much of this income domestically but we believe there will be good opportunities for (re)insurers, including the Lloyd’s players. It will also highlight the need to bridge the gap between insured/economic loss in China.
In the week to 18 October the FTSE All Share fell 0.9% vs. +0.4% for the Insurance Index and +0.7% for the Lloyd’s Index. The best performer was Lancashire (+3.9%); Helios was the worst performer (-1.5%). We look at the potential implications for the US property/casualty market from either a Trump or Clinton presidential win, based on analysis from the Insurance Information Institute. Historically the president’s political party has had limited impact on ROE but these are troubled times. Insurance is very sensitive to the economic and political climate and the US is a major market for Lloyd’s.
In the week to 11 October the FTSE All Share fell 0.3% vs. -3.2% for the Insurance Index and -2.2% for the Lloyd’s Index. The best performer was Helios (+1.5%); Beazley was the worst performer (-4.9%). We look at the latest MarketScout data for US commercial property/casualty rates which makes for mixed reading: the average rate reduction is -1% ie an improvement on earlier in the year but it is still on a downward trend. A small positive can be seen in the improvement in property (flat) and professional liability rates (+1%). It looks unlikely that Hurricane Matthew will make much difference to pricing.
In the week to 4 October the FTSE All Share rose 3.8% vs. 1.7% for the Insurance Index and 2.9% for the Lloyd’s Index. The best performer was Novae (+5.7%); Helios the worst performer (-2.9% NB impact of Placing). As Hurricane Matthew barrels through the Caribbean and threatens Florida, we look at the US wind exposure and ask how much longer (re)insurers can miss a large US loss? People like living by the sea: between 2000-10, the number of housing units in coastal shoreline counties rose 8% and the number of seasonal housing units rose 18%. All the Lloyd’s insurers are exposed to a US hurricane.
H1 2016 PBT (Norm) improved materially YoY to £605k (Norm) +729%. The increased 2014 YOA return on capacity estimate drives the 9% rise in our FY16E PBT to £807k, with scope to revisit this again post the Q11 update. The proposed capital raise announced today will fund future LLV acquisitions to grow capacity and value for investors. We upgrade our PBT estimates by 25% for 2017E and 36% for 2018E as a result, plus we continue to see potential for further upgrades to 2016-18E PBT given our conservatively-based forecasts.
In the week to 27 September the FTSE All Share fell 0.5% vs. -1.2% for the Insurance Index and -2.3% for the Lloyd’s Index. The best performer was JLT (-0.6%); Hiscox and Novae were the worst performers (-3.0%). We look at the latest reports from IUMI on the global marine market, which make for quite depressing reading, especially if you are an underwriter. According to IUMI, global marine premiums have fallen 10.5% YoY to US$29.9bn. Part of the reduction is due to the strong US$ but all lines have suffered from soft pricing and challenging trading. Lancashire and Novae have the largest exposure.
In the week to 20 September the FTSE All Share rose 2.3% vs. +7.2% for the Insurance Index and +1.7% for the Lloyd’s Index. The best performers were Hiscox and Lancashire (+2.9%); Novae was the worst performer (-2.1%). We look at the AM Best report on the US Excess & Surplus Lines Market. Lloyd’s remains the biggest player by some margin and its appetite is undiminished. This is good news for the Lloyd’s insurers, but competition is rising as margins for the better players have been more robust. M&A is creating larger peers and we expect Berkshire Hathaway to become more aggressive too.
In the week to 13 September the FTSE All Share fell 2.2% vs. -3.3% for the Insurance Index and +0.5% for the Lloyd’s Index. The best performer was Lancashire (+1.1%); Novae was the worst performer (-0.5%). This week we look at the 9/11 loss on the 15th anniversary of this atrocity. As we review the impact of soft markets and benign loss activity on current (re)insurer results, we remind investors that major cats never exactly follow the models, deliver unexpected claims and have broad social and economic implications. The largest modelled claims for Lloyd’s are for US Florida hurricanes (US$125bn).
In the week to 6 September the FTSE All Share rose 0.2% vs. +1.8% for the Insurance Index and +0.6% for the Lloyd’s Index. The best performer was Lancashire (+3.5%); JLT was the worst performer (-1.1%). This week we look at hurricane activity given (i) September is historically the busiest month for storms; (ii) the Monte Carlo Reinsurance Rendez Vous kicks off on the 10th; and (iii) AM Best has just warned its negative rating outlook on reinsurance “remains longer-term than our typical 12-18 months.” The more diversified books written by the Lloyd’s insurers should provide some protection.
In the week to 30 August the FTSE All Share fell 0.7% vs.-2.3% for the Insurance Index and -0.2% for the Lloyd’s Index. The best performer was Lancashire (+3.4%); Beazley was the worst performer (-1.2%). Marsh’s Global Insurance Market Quarterly Briefing at Q2 2016 shows that, globally, insurance rates have declined for the 13th consecutive quarter. A small positive however, is the overall moderation in the pace of decline for the second quarter in a row, driven primarily by non-US property rates. Against this, US property and D&O rates softened further. In summary, trading still remains challenging.
In the week to 9 August the FTSE All Share rose 3.2% vs.+0.4% for the Insurance Index and 0.7% for the Lloyd’s Index. The best performer was Jardine Lloyd Thompson (+1.8%); Hiscox was the worst performer (-0.1%). The H1 reporting season is over for the Lloyd’s brokers/insurers and we have raised TPs for all bar Lancashire but flag both it and Novae for income (the latter before any special div). This week we look at M&A activity and the different ways in which insurers/broker are looking to grow their businesses in the face of ongoing competitive market and a low interest rate climate.
The latest report from Hampden Research reminds us that, notwithstanding the generally good results reported at H1 2016, trading remains challenging, especially in short tail lines. Rates in the longer tail liability classes are holding up better, but the low yield environment should be pushing pricing higher in these lines. Relatively benign loss activity has helped partly offset soft market conditions. Is a floor getting closer in some lines? Maybe, but we are not there yet. A focus on quality underwriting remains key in these markets.
In the week to 2 August the FTSE All Share fell 0.9% vs.+6.4% for the Insurance Index and -0.5% for the Lloyd’s Index, as more H1 results were reported. The best performer was Novae (+1.1%); Lancashire was the worst (-2.6%). We review the Lloyd’s sector’s H1 results. Brexit was a key theme both in terms of FX/investment returns and the limited impact (certainly near term) on these international businesses. Novae’s H1 PBT rose 278% YoY, Hiscox was +52%, Beazley was -3% and Lancashire was -13%. There is a possibility of FY16 special dividends at Beazley and Novae, in our view.
In the week to 26 July the FTSE All Share rose 0.5% vs.+2.1% for the Insurance Index and +2.2% for the Lloyd’s Index as H1 results kicked off. The best performer this week was Novae (+4.3%); Helios was the worst at (0%). AM Best has recently affirmed the financial strength of the Lloyd’s market at ‘A’ Excellent, but moved the outlook to ‘Stable’ from ‘Positive’ to reflect ongoing competitive pressures and challenging trading. It has reaffirmed the ratings of 11 individual syndicates: four of which are supported by Helios, (Kiln 510, Beazley 623, Hiscox 33 and Lancashire’s Cathedral Syndicate 2010).
In the week to 19 July the FTSE All Share rose 0.3% vs. +0.1% for the Insurance Index and -0.2% for the Lloyd’s Index. The best performer this week was Novae (+2.7%); Beazley was the worst at (-1.1%). We look at the global broker rankings compiled by AM Best. JLT has moved up into 5th place from 6th and London based Hyperion (not quoted) debuts at 17 th . We have moved JLT to Neutral from Add based on share price movements. The group reports H1 results on 26 July and currently trades on a PE of 17.4x 2016E, dropping to 14.3x 2017E. It yields 3.3% and 3.5%, respectively
As flagged, H1 2016 results will see some quite big movements, particularly for the insurers. Claims are going to be higher YoY thanks to more, large losses especially in Q2. FX movements post Brexit will deliver strong positive contributions, particularly for Hiscox, Helios* and Novae. Investment yields will also be better than originally expected in Q2, following a good Q1. Against this, rates are still under pressure. We upgrade Hiscox and Novae FY2016E PBT materially due to FX. All other forecasts are unchanged. We move to Add on Lancashire and Novae and to Neutral on JLT.
In the week to 12 July the FTSE All Share rose 2.8% vs. +2.2% for the Insurance Index and +5.3% for the Lloyd’s Index. The two best performers this week were Beazley and Hiscox (+8.2%); Novae was the worst performer (-0.8%). We take a quick look at the key expected drivers to the imminent H1 2016 results. Q2 has seen some lumpy losses but Brexit has had a positive FX impact on FX especially for those reporting GBP and long USD. Investment returns will also be better. Rates are still softening but reductions are moderating. The sector has held up extremely well as a result
In the week to 5 July the FTSE All Share rose 5.7% vs. +3.1% for the Insurance Index and +5.7% for the Lloyd’s Index (helped by US$ exposure). The best performer this week was Hiscox (+8.4%); Helios was the worst performer (0.6%). This week we look at the Swiss Re sigma report on global insurance growth against the backdrop of Brexit. Global insurance growth was steady in 2015 at 3.8% with non-life premiums +3.6%. However, the YoY growth outlook is mixed with expectations of moderate economic activity overall, (especially in advanced economies), a key driver to re/insurance demand.
Helios remained upbeat about prospects at its AGM yesterday and sees limited negative impact from the Brexit vote. It will benefit from a stronger US$ and is encouraged by the number of LLVs now up for sale. Helios has the potential to build a significant Lloyd’s investment portfolio that can deliver above average returns, a growing NAV and an attractive (base/special) dividend. Our conservatively struck estimates still deliver YoY PBT (Norm) growth from 2016E. We reiterate our Buy recommendation and Target Price of 245p (+44%).
In the week to 29 June the FTSE All Share fell 0.2% vs. -3.0% for the Insurance Index and -1.0% for the Lloyd’s Index. The best performer was Hiscox (+1.3%); Novae was the worst performer (-11.6%). Given the vote to leave the EU, we review the amount of European sourced business for Lloyd’s companies. Based on the carry value of NAV and gross premiums written in 2015, the sector’s exposure to the EU is low vs. the size of the European market. This should provide some comfort whilst uncertainty reigns. FX should be positive as the dominant currency for all (60%+) is the US$.
For the Lloyd’s insurers the near term trading impact of Brexit will be small, although clearly there will be FX and investment yield implications. Fundamentally it will be business as usual. The medium term issue will be the ease of trading in the EU (passporting), the attraction of Lloyd’s/London as an EU hub (with M&A implications) and economic uncertainty. Insurance demand driven by economies, legal requirements and loss activity so any negative impact to economic activity will have an effect on demand.
In the week to 21 June the FTSE All Share rose 4.9% vs. +6.4% for the Insurance Index and +5.4% for the Lloyd’s Index. The best performer this week was Lancashire (+7.5%); Helios was the worst performer (0%). This week we look at the expense ratios reported by the Lloyd’s insurers and the growing issue of cost control. Expenses will be increasingly under the spotlight as underwriters look to offset the ongoing negative impact of soft rates and low yields. NB cutting costs is not always the only response: there can be a positive correlation between expense and claims ratio.
In the week to 31 May the FTSE All Share rose 0.7% vs. -1.4% for the Insurance Index and -1.3% for the Lloyd’s Index. The best performer this week was Helios (0%); Novae was the worst performer (-2.0%). We look at the natural catastrophes loss activity to date as 2016 has been somewhat more active. None are large enough to turn rates but maybe 2016 will see a multitude of medium/small claims that can erode profits. Forecasts are for a ‘normal’ hurricane year, but it only takes one making landfall in a key zone and quakes have no calendar. There have also been some notable risk losses.
Helios is a unique AIM-listed insurance investment vehicle that is building a quality portfolio of Lloyd’s underwriting participations through targeted acquisitions. This boosts open year returns, drives NAV growth (2015: +15%) and offers the potential for good future profits and dividends (c2% yield). The portfolio includes syndicates not accessible outside Lloyd’s and we expect Helios to outperform the Lloyd’s average return. We forecast PBT growth from 2016E (+22% YoY) and initiate at Buy with a 245p target price (+36%).
