Lloyd’s insurer’s £7.4m loss is lower than its peers’

Novae could attract buyers if it continues to perform well, according to chief executive Matthew Fosh.

But low valuations in the listed Lloyd’s sector generally and at Novae in particular are likely to prevent any deals in the near term.

“There is no one particularly beating a path to my door, but if we keep doing the right things well enough for long enough then we will attract attention,” Fosh told Insurance Times following the release of Novae’s full-year 2011 results.

“It has always been the case that we would have no reluctance to do a deal as long as the shareholders get a price they can live with.”

Fosh has previously stated publicly that mid-tier listed Lloyd’s insurers, including Novae, need to merge and get much bigger to attract greater investor interest, allowing them to take full advantage of their listed status. Larger-cap listed companies find it easier to raise capital through new share issues, for example.

Novae made an after-tax loss of £7.4m in 2011, compared with 2010’s profit of £24.6m. The company’s combined ratio was pushed to a loss-making 101.5% from 91.4% as 2011’s natural catastrophes added 13.2 points to the ratio.

But the company has fared better than some of its peers: Hardy, for example, reported a loss after tax of £34.6m and a combined ratio of 120.9%. The company opted not to pay a dividend.

Fosh said Novae’s 2011 results were bitter-sweet, as it was disappointing to lose money but pleasing to have lost so little in such a difficult year. “I’m not exactly punching the air, but I’m far from tearing my hair out,” he said.

While Novae is open to buyers, Fosh is keen that the company does not go cheaply. “We don’t want to sell the business at an inappropriate price.

“Trading down here where we are doesn’t reflect the true value of the business, and I’m pleased to say shareholders agree with us.”

Novae’s stock price closed at 346.50p on 1 March, the day its results were announced. This is a 16% discount to its 2011 net tangible asset value per share of 411.70p.

The company would also be keen to buy, but has yet to find a suitable target. Novae withdrew from talks to buy Omega, and is not interested in Hardy.

We say …

● Novae sits between two distinct groups among the remaining listed Lloyd’s insurers. It has performed worse than big hitters such as Hiscox, Beazley and Catlin, but better than its peer group, which includes Hardy and Omega.
● Chief executive Matthew Fosh has earned admirers among analysts, but work remains to be done to put Novae firmly on the map.
● Low valuations are keeping a lid on M&A. Omega has failed to find a buyer. Hardy has several suitors, but valuation is a likely sticking point.

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