Interactive Investor

Hiscox loses $138 million as coronavirus claims bite

3rd August 2020 16:27

Liz Bury from interactive investor

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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. 

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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