The insurer pauses dividend payments but says these could return by the end of the year.
Hiscox (LSE:HSX) shares fell as much as 7% earlier today before staging a late fightback, as the insurer announced a first-half loss of $138.9 million (£106.7 million).
In its results the insurer said it would not pay an interim dividend to investors, adding that “the decision was not taken lightly”.
The insurer also increased its reserves against coronavirus-related claims by $82 million (£63.14 million).
This is on top of $150 million already disclosed in May and brings Hiscox’s total net reserves against such claims to $232 million.
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The reserve pot is meant to insulate the insurer against claims against its London Market division, including the cancellation of high-profile sporting events.
It also expects Covid-related property and travel bond claims from the UK and Europe, as well as third-party liability healthcare claims from the United States.
Hiscox’s pre-tax loss hit $138.9 million for the six-month period, compared to a profit of $168 million in the first half of 2019.
Hiscox’s combined operating ratio (COR) - the measure of insurance underwriting profitability - reached 114.6%. A COR above 100% means an insurer is making an underwriting loss.
But Barclays Capital says that, excluding Covid-19 claims, the insurer’s COR was 97%, and “investors may be encouraged by improved reserve confidence level.”
Hiscox did not dismiss the chance of it paying a dividend by the end of 2020.
A statement from the insurer says:
“The board is committed to returning to paying a dividend as soon as possible, and will re-evaluate the position at the year-end. The directors will not be taking any cash bonuses until the dividend is reinstated.”
S&P Global Ratings said in April insurers’ decisions to suspend dividends “likely indicates caution, not credit risks”.
The agency’s June note on Hiscox said:
“We expect Hiscox to maintain its competitive position as a global insurance and reinsurance group thanks to its balanced, diversified portfolio and strong brand.”
Hiscox is also in the spotlight of a test case being brought by the Financial Conduct Authority over not paying claims for business interruption in the UK.
The judgement from the High Court is expected in mid-September.
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