Hiscox shares fall nearly 10% after combined ratio ‘clarification’

Shares in Hiscox fell 9.7 percent on Thursday after the insurer issued a clarification about expectations for its combined ratio, which may not reduce as fast as some investors had expected.

In a statement on Monday November 4, the company said:

"Due to the combined impact of increased claims activity and a cautious approach to reserve development, the Group expects the full year combined ratio for Hiscox Retail to be between 97-99 percent. The Group continues to target a combined ratio range for Hiscox Retail between 90-95 percent over the medium term."

At a meeting with analysts on Wednesday, the company responded to a request for clarification over the meaning of medium term the Group's management team described an expected return to a target range of underwriting profitability for Hiscox Retail with a progressive improvement of 1-2 percent per annum over the next two to three years.

Specifically the Group provided the following ranges for the estimated combined ratio for Hiscox Retail: 2019: 97-99 percent; 2020: 96-98 percent; 2021: 95-97 percent; 2022: 90-95 percent.

The Group said it did not believe that this constituted inside information, rather it was a clarification of the meaning of "medium term".

Hiscox said it believes that these are conservative expectations, which of course it will aim to exceed. “The Retail market opportunity for the Group remains significant and the growth engine of the business remains intact,” said the company.

But the revision caused some analyst to cut earnings forecasts,

RBC Capital Markets said it was cutting earnings estimates “to reflect a slower path back towards the 90-95 percent combined ratio target in Retail than we had previously expected”.

RBC cut its 2020 and 2021 earnings estimates by 4.2 percent and 12.9 percent respectively. RBC also cut its price target on the company to 1,350p, from 1.450p. The shares are currently trading at about 1,250p.

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