21st Nov 2022 10:07
(Alliance News) - Lancashire Holdings Ltd may be the next firm in the insurance sector to go cap in hand to investors, taking heart from Beazley PLC's "bold" cash call, analysts at Berenberg predicted.
The German bank said Hiscox Ltd is less likely to do so, however.
Berenberg also hailed a promising outlook at Beazley, calling it "one of the most attractive profitable growth stories in insurance".
Last week on Wednesday, Beazley said it secured GBP350 million in a capital raise.
"We do not rule out further capital raises across London Market. Indeed, we believe the chances of such raises are higher following Beazley's capital raise and given property reinsurance rates could be up 50%," Berenberg analysts commented.
Lancashire may be the next to turn to a cash raise.
"Lancashire could be more tempted to carry out a capital raise, given its strategy and history of doing so at such points in the cycle. However, it previously stated that it is pleased with its property-catastrophe division after expanding it significantly by deploying the equity raised in 2021," Berenberg added.
"In our view, another factor influencing this decision is that Lancashire does not seem to want to give up the diversification it has built up over the past four years across its speciality and catastrophe-light lines."
Hiscox is less likely than Lancashire to raise funds through an equity issue. It may feel less of a need to as its Lloyd's of London capacity is expected to be flat on-year in 2023, Berenberg added.
"In our view, Hiscox is more likely to grow its Re & ILS business with the support of third-party capital from its ILS franchise," analysts at the German bank added.
Re & ILS stands for reinsurance and insurance-linked strategy.
Beazley said its cash raise will help fund its cyber and speciality insurance businesses.
Berenberg added: "In our view, this capital allocation decision is a bold statement about Beazley's confidence in the outlook for its cyber business. We think 2023 will involve a step-up in Beazley's scale: we estimate the company will be 2.7 times the size it was in 2017 in terms of net premiums.
Between the first half of 2022 and the end of 2024, Berenberg expects Beazley's net asset value per share to grow at roughly 24% on a compound annual growth rate, a climb some of its peers will struggle to replicate.
"This makes Beazley one of the most attractive profitable growth stories in insurance," the German bank added.
"We forecast that the uplift in premiums will comprise USD200 million extra premiums retained in the cyber book and USD325 million premiums in property, with the remaining coming from speciality."
Berenberg affirmed its 'buy' rating for Beazley and backed its 750 pence price target.
Beazley shares were 1.0% higher at 629.25p each in London on Monday morning. Lancashire rose 0.9% to 587.00p, while Hiscox climbed 0.9% to 988.60p.
By Eric Cunha; [email protected]
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