Hiscox shares hit hard by concerns over rising US claims

Shares in insurance company Hiscox dropped sharply on Thursday as worries grew about the scale of claims the company is facing in the US.

US juries are becoming much more generous when deciding how much they should award to claimants in litigation across a variety of claims. The phenomenon — known as social inflation — is leading to rising payouts from insurance companies on casualty policies, which cover claims in which the policyholder might be responsible for losses or damage suffered by someone else. 

Philip Kett, an analyst at Jefferies, said that after a meeting with Hiscox management on Wednesday, “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”. 

In response he cut his profit forecasts by 32 per cent for this year and about 10 per cent for 2020 and 2021. Other analysts have also cut their estimates. 

Hiscox’s shares were down as much as 16 per cent at one point on Thursday, although they later recovered. 

In a trading update on Monday Hiscox said its US business was “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”. 

On Thursday, it said its comments to analysts at the meeting had been meant to clarify when it expected underwriting profitability to reach its target range.

Speculation is growing that the whole market might have to reassess the reserves it holds to cover these sorts of casualty claims. 

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At an event in London on Thursday run by The Insurance Insider, industry veteran Stephen Catlin said the insurers were facing a $100bn-$200bn gap in their reserves for casualty claims. 

Earlier this, week UK regulator the Prudential Regulation Authority said it saw “increasing areas of emerging risk, particularly in some US casualty lines such as financial and professional lines, medical malpractice and general liability classes”.

In contrast to Hiscox, shares in insurer RSA rose 5 per cent on Thursday after an upbeat set of third-quarter results. The company faced underwriting problems in its UK-based business last year but chief executive Stephen Hester said “underwriting results have sharply improved”.

Mr Kett at Jefferies said: “In the context of catastrophe losses, low yields and profit warnings, it seems to us that RSA stands apart as an oasis of calm, with the restructuring progressing well.”



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