Hiscox shares plunge over fears of casualty claims

Shares in Lloyd’s insurer Hiscox fell by as much as 18% after analysts revised their profit forecasts, according to reports.

In a trade update released on Monday, Hiscox revealed that it expected the full year combined ratio for its retail arm to be between 97% to 99%, before improving in the “medium term” to 90% to 95%

The insurer also said that it is “taking action in anticipation of worsening claims trends in casualty business across the market, where so-called social inflation is causing dramatic increases in jury awards and defence costs which is impacting claims severity.” At the request of the Financial Conduct Authority (FCA), the insurer clarified what it meant by “medium term” in meetings with analysts on Wednesday.

The clarification did not grab the confidence of analysts, however, who proceeded to scale back their price targets on Hiscox stock. Philip Kett, an analyst at Jefferies, told the Financial Times that, after the meeting, “we were left with the distinct impression that Hiscox is preparing for a casualty catastrophe, the likes of which haven’t been seen since the turn of the century.”

RBC, Jefferies and UBS, which had already scaled back forecasts on Hiscox shares on Tuesday, lowered them again after the analyst meetings, according to Reuters. And JP Morgan downgraded the stock to “neutral” from “overweight.”

For its part, Hiscox told Reuters that it gave the detailed information in response to questions from analysts about the meaning of “medium term,” and that it expected to exceed its “conservative” estimates.

“The group did not believe that this constituted inside information, rather it was a clarification of the meaning of ‘medium term’,” the insurer said. “The FCA asked us to make an announcement and we were happy to do so.”

Source: Insurance Business UK