New Zealand earthquake high on list of causes of a downbeat 2010
Global natural catastrophes and the UK freeze will have a big impact on UK-listed insurers’ full-year 2010 results, due to be announced over the next few weeks. However, the stock market will also be paying close attention to the outlook for the coming underwriting year, according to equity analysts.
A lot of the outcome for the full year will depend on exposures to catastrophe losses outside the UK, in particular the earthquake that hit Christchurch, New Zealand last September. Given their more international focus and tendency to write reinsurance, the Lloyd’s companies will be worst hit.
Looking gloomy
“Among the Lloyd’s companies some will have pretty significant exposure to the New Zealand earthquake,” Oriel Securities analyst Thomas Dorner said. “That will in all probability have meant that the second half will have been break-even or loss-making for some of the companies.”
Collins Stewart analyst Ben Cohen added: “I would expect a more downbeat outlook for Lloyd’s insurers than the pure primary companies, because there is more pricing pressure on the Lloyd’s lines of business at the moment.”
What's the full-year forecast?
However, the UK freeze could also have a strong bearing on full-year results of both large primary insurers and Lloyd’s firms alike, as highlighted by the pre-announcements by RSA and Hiscox.
While no further announcements have yet been made, Dorner expects Lloyd’s insurer Brit and the UK divisions of large insurers such as AXA to be hit.
Cohen adds: “It will be interesting to see what the non-UK companies come out with. I think Zurich will probably come out with a pretty big loss in the UK and other companies don’t seem to be talking it up quite as much but maybe they are marginally less exposed.”
A bright side
It will not all be doom and gloom, however. Investment returns could be a possible highlight. “Investment returns will be a lot better than in recent years,” Panmure Gordon analyst Barrie Cornes predicts.
Rising personal lines motor and household rates should also give some companies a boost. “RSA and Aviva will benefit from the motor. They have got 6% and 9% market shares,” Cornes said.
Conditions could worsen
However, commercial lines continue to be soft. Cornes contends the situation has got even worse in some cases.
“What I have been hearing is that some of the larger players out there are chopping rates left, right and centre with mandates to buy business in,” he said.
“It is not a great picture out there.”
