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Barclays upgrades Hiscox following $460m capital raising
7th May 2020 08:17
(Sharecast News) - Barclays has upgraded specialist insurer Hiscox to 'equal weight', arguing that its risk profile was now more balanced.
The bank, which had an 'underweight' rating on the insurer previously, lowered its price target, however, to 903p from 996p.
Barclays said: "Hiscox has a unique speciality business, with a high net worth retail business that diversifies the group and would be hard to replicated. Upcoming market hardening should leave Hiscox well positioned to participate, if the capital buffer is not eroded by outsized claims.
"Our bull case scenario sees 26% stronger 2022 estimated earnings on the back of rate hardening in London Market, and 15% volume growth in retail." London Market is Hiscox's Lloyd's of London syndicate.
Earlier this week, Hiscox announced a capital raising to respond to "future growth opportunities" and to "prudently position the group to withstand a range of downside scenario".
Commenting on the move, Barclays noted: "After having raised $464m, Hiscox only covers the $150m solvency hit from capital markets in the first quarter of 2020, and a $200m to $225m Covid-19 impact, ending up with similar buffers to the year before.
"However, it substantially reduces the tail risk of rating downgrade, allowing the company to benefit from market hardening in big ticket business.
"While uncertainly on both earnings and balance sheet remains, we believe upside and downside risk are more balanced, and upgrade Hiscox."
As at 1445 BST, shares in Hiscox were trading nearly 4% higher at 786.2p.
The bank, which had an 'underweight' rating on the insurer previously, lowered its price target, however, to 903p from 996p.
Barclays said: "Hiscox has a unique speciality business, with a high net worth retail business that diversifies the group and would be hard to replicated. Upcoming market hardening should leave Hiscox well positioned to participate, if the capital buffer is not eroded by outsized claims.
"Our bull case scenario sees 26% stronger 2022 estimated earnings on the back of rate hardening in London Market, and 15% volume growth in retail." London Market is Hiscox's Lloyd's of London syndicate.
Earlier this week, Hiscox announced a capital raising to respond to "future growth opportunities" and to "prudently position the group to withstand a range of downside scenario".
Commenting on the move, Barclays noted: "After having raised $464m, Hiscox only covers the $150m solvency hit from capital markets in the first quarter of 2020, and a $200m to $225m Covid-19 impact, ending up with similar buffers to the year before.
"However, it substantially reduces the tail risk of rating downgrade, allowing the company to benefit from market hardening in big ticket business.
"While uncertainly on both earnings and balance sheet remains, we believe upside and downside risk are more balanced, and upgrade Hiscox."
As at 1445 BST, shares in Hiscox were trading nearly 4% higher at 786.2p.