Specialist insurer Hiscox (HSX) topped the FTSE 100 fallers table in early trade on Friday after the firm cautioned that 2018 catastrophe losses are still rising.

Hiscox share price has slumped more than 5% in early trade today to £16.53. That decline also makes the stock the biggest loser across the entire pan-European Stoxx 600 index.

Hiscox is one of the insurance firms that provides cover for extreme events - massive storms, earthquakes and other acts of God.

A series of particularly bad hurricanes and typhoons last year has left Hiscox and many of its peers facing rising costs of insurance claims payouts, forcing the company to make larger payments into its reserves.

2018 saw a number of large catastrophe events including Hurricane Michael, the first Category Five hurricane to hit the US since 1992, and Typhoon Jebi, the strongest storm to hit Japan since 1993.

In today's trading update, for the first six months of 2019, Hiscox flags ‘continued deterioration from 2018 catastrophe events’ and warns that ‘the scale of deterioration has been significant with industry loss estimates having increased materially since these events’.

In a footnote the company reveals that insurance industry loss estimates for Hurricane Michael have increased from $6bn to $12bn, while loss estimates for Typhoon Jebi have rocketed from $2bn to $16bn.

This is largely because of their impact on high-value construction sites ahead of the Olympic Games and Rugby World Cup next year.


Today’s statement is timely as the US hurricane season is about to start, with oil and gas rigs on the US Gulf Coast already battening down the hatches ahead of storm Barry which is expected to hit the area this weekend bringing torrential rain.

The insurer also cautions that, unlike 2018, it won’t be releasing much in the way of prior-year provisions to help its profit and loss account. Last year it was able to release $25m of provisions in the first half due a benign claim season.

The one bright spot in today’s statement is that Hiscox now expects to generate first half pre-tax profits of between $150m and $170m against a Reuters consensus of $153m, but analysts are unlikely to raise forecasts given the gloomy overall tone.

Business in the London market is improving as reduced capacity has helped insurance rates rise and the retail business recently passed the 1m customer mark so the group’s diversification plan is well on track.

However, today’s statement is a reminder that the biggest ‘delta’ or swing factor for the business is still global catastrophe insurance, and climate change is having a very real impact, punishing the industry with historic market losses two years running with the potential for more damaging losses to come.

For this Atlantic storm season forecasters expect a slightly higher than average number of named storms (14 vs 12) and at least three Category Three or higher weather events.

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Issue Date: 12 Jul 2019