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(Sharecast News) - Hiscox announced an equity placing on Tuesday to take advantage of market conditions, as it warned it could take a hit of between ?10m and ?250m from business interruption insurance.
The insurer said it was placing new ordinary shares of 6.5p each. In addition, certain directors and members of senior management plan to subscribe for new ordinary shares at the placing price, to contribute around ?600,000. Together, the total number of placing and subscription shares will not exceed 19.99% of the existing ordinary share capital.
"Hiscox expects opportunities for profitable growth in wholesale and reinsurance markets as a result of capital contraction and rate improvement across the market following the uncertainty caused by the Covid-19 pandemic," it said.
Capital, liquidity and funding positions remain robust, the insurer said, with sufficient capital available to meet liabilities from exposures to the coronavirus pandemic.
Hiscox said net proceeds from the capital raise will enable it to "respond to future growth opportunities and rate improvement in the US wholesale and reinsurance markets, as well as prudently position the group to withstand a range of downside scenarios".
News of the placing came alongside a trading update in which the company said gross written premiums rose 2% at constant currency in the three months to the end of March, to $1.18bn. It noted "strong" growth in Hiscox Retail, driven by the US and Europe, while Hiscox London Market benefited from continued rate momentum.
Faced with potential legal action from a group of policyholders who claim it has failed to honour coronavirus-related business interruption claims, Hiscox insisted its UK property policies do not cover business interruption as a result of general measures taken by the government in response to a pandemic.
Nevertheless, the company said it had provided a risk scenario which models the impact of a 12-week lockdown, with a range of outcomes between ?10m and ?250m net of reinsurance.
Hiscox said it was able to withstand a loss equivalent to the modelled UK business interruption risk scenario, while maintaining a regulatory coverage ratio of between 165% and 170%, which is consistent with an S&P A rating.
Chief executive Bronek Masojada said: "In the first quarter, Hiscox has seen continued growth in our Retail and London Market divisions. Hiscox Re & ILS remained cautious.
"We are paying claims for event cancellation and abandonment, media and entertainment and travel which are covered by our policies and in the UK we welcome the positive steps by the FCA to resolve disputes in the industry over the application of property policies relating to business interruption."
Last week, the Financial Conduct Authority said it was seeking an urgent court ruling on disputes between insurers and firms over claims for loss of income due to the coronavirus crisis.
The regulator said it wanted clarity on cases where insurers are refusing to pay out even though customers have taken out business interruption policies. It said it was bringing "key relevant cases" as soon as possible to get an independent view on the disputed policies "if there remains unresolved uncertainty".
Of the ?10m to ?250m hit, RBC Capital Markets said it was "a relatively low number at one end of the scale given the sheer number of customers affected and limits of up to ?100,000".
"Hiscox's scenario is likely to benefit from savings made by businesses from government relief and other wider business trend adjustments, in our view."
It added: "The rationale for the capital raise is to allow the company to participate in what it expects to be highly attractive market conditions especially in wholesale lines due to increases in uncertainty and capital contraction across the industry.
"Whilst we agree that market conditions are likely to improve, this feels a little more bullish than the views of most company management teams."
The insurer said it was placing new ordinary shares of 6.5p each. In addition, certain directors and members of senior management plan to subscribe for new ordinary shares at the placing price, to contribute around ?600,000. Together, the total number of placing and subscription shares will not exceed 19.99% of the existing ordinary share capital.
"Hiscox expects opportunities for profitable growth in wholesale and reinsurance markets as a result of capital contraction and rate improvement across the market following the uncertainty caused by the Covid-19 pandemic," it said.
Capital, liquidity and funding positions remain robust, the insurer said, with sufficient capital available to meet liabilities from exposures to the coronavirus pandemic.
Hiscox said net proceeds from the capital raise will enable it to "respond to future growth opportunities and rate improvement in the US wholesale and reinsurance markets, as well as prudently position the group to withstand a range of downside scenarios".
News of the placing came alongside a trading update in which the company said gross written premiums rose 2% at constant currency in the three months to the end of March, to $1.18bn. It noted "strong" growth in Hiscox Retail, driven by the US and Europe, while Hiscox London Market benefited from continued rate momentum.
Faced with potential legal action from a group of policyholders who claim it has failed to honour coronavirus-related business interruption claims, Hiscox insisted its UK property policies do not cover business interruption as a result of general measures taken by the government in response to a pandemic.
Nevertheless, the company said it had provided a risk scenario which models the impact of a 12-week lockdown, with a range of outcomes between ?10m and ?250m net of reinsurance.
Hiscox said it was able to withstand a loss equivalent to the modelled UK business interruption risk scenario, while maintaining a regulatory coverage ratio of between 165% and 170%, which is consistent with an S&P A rating.
Chief executive Bronek Masojada said: "In the first quarter, Hiscox has seen continued growth in our Retail and London Market divisions. Hiscox Re & ILS remained cautious.
"We are paying claims for event cancellation and abandonment, media and entertainment and travel which are covered by our policies and in the UK we welcome the positive steps by the FCA to resolve disputes in the industry over the application of property policies relating to business interruption."
Last week, the Financial Conduct Authority said it was seeking an urgent court ruling on disputes between insurers and firms over claims for loss of income due to the coronavirus crisis.
The regulator said it wanted clarity on cases where insurers are refusing to pay out even though customers have taken out business interruption policies. It said it was bringing "key relevant cases" as soon as possible to get an independent view on the disputed policies "if there remains unresolved uncertainty".
Of the ?10m to ?250m hit, RBC Capital Markets said it was "a relatively low number at one end of the scale given the sheer number of customers affected and limits of up to ?100,000".
"Hiscox's scenario is likely to benefit from savings made by businesses from government relief and other wider business trend adjustments, in our view."
It added: "The rationale for the capital raise is to allow the company to participate in what it expects to be highly attractive market conditions especially in wholesale lines due to increases in uncertainty and capital contraction across the industry.
"Whilst we agree that market conditions are likely to improve, this feels a little more bullish than the views of most company management teams."