Shares in insurance underwriters Beazley (BEZ), Hiscox (HSX) and Lancashire Holdings (LRE) have risen sharply this week after the industry got an early all-clear from regulators.

The UK's Financial Conduct Authority (FCA) published its final report earlier than expected having concluded that its probe into pricing across the insurance underwriting sector found no evidence of ‘risk of harm’ to clients.

The City of London-based industry underwrote c£60bn of gross premiums in 2017, so news that competition has been found to be healthy and that there is no need for ‘intrusive remedies’ has understandably been welcomed by investors.

Share prices of the three underwriting firms have rallied between 12% and 17% so far in February.

The report flags that there are areas of the market which ‘warrant further action’, including firms’ management of conflicts of interest and certain types of contracts between brokers and insurers which might limit competition.

It also says that the FCA will continue to monitor the market, particularly in terms of the impact of the UK’s withdrawal from the EU and in the event of further consolidation.

CLOUD LIFTED

However, the fact that the market and the insurers themselves have been given a clean bill of health has removed one of the clouds hanging over the sector.

There is still the issue of large catastrophe claims which the industry is having to deal with due to climate change, as recently illustrated by results from French insurers Axa and Scor.

Axa reported this week that its fourth quarter earnings were flattened by ‘significant natural catastrophe charges’ including €335m from the California wildfires and €260m from Hurricane Michael in the US.

Scor saw its net profits wiped out by wildfires, hurricane Michael and typhoons in Japan, resulting in a €20m loss for the fourth quarter compared with €260m of profits a year earlier.

Shareholders in Hiscox should be on alert when the firm reports earnings on Monday 25 February, while Beazley is due to issue a trading update with its annual general meeting in March.

Lancashire is expected to next update the market at the beginning of May.

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Issue Date: 21 Feb 2019