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Hiscox’s imminent ejection from the FTSE 100 caps a difficult few months

A-grade students lose momentum, world-class soccer teams have bad runs and every ship must occasionally navigate through stormy weather.

And if you’re a perennially top-performing London market (re)insurer you will inevitably at some point stumble.

Hiscox’s dismal share price run these past four months will this week lead to its ejection from the FTSE 100 after just a year of inclusion on the gilded panel.

Its stock fell another 1.2 percent on Monday, having declined by 7.6 percent between just before the trading update on 4 November and Friday’s close, as the FTSE 100 gained 0.6 percent. The (re)insurer, the largest of the three listed London market carriers, began its descent in late July.

Hiscox’s ousting from the FTSE 100 means an end to its involvement in the many index tracker funds that cleave to the London stock market’s benchmark. But it’s also a symbolic blow to a company already fighting fires on several fronts.

More cautious reserving and higher claims are expected to push the combined ratio of Hiscox Retail, its largest unit and growth engine, above the targeted range, with remediation work likely to keep it above the carrier’s preferred 90-95 percent band until 2022.

Large claims within the London market operation are giving it grief, while nat cat claims from events in September and October have bust its second-half cat budget, with more losses to come from the California wildfires. It’s also taking a cautious stance on a capacity deployment at Hiscox Re & ILS, and recently decided to exit casualty reinsurance.

But what is slightly baffling is Beazley’s relative share price resilience, with the stock initially rising sharply on 7 November after it declared that casualty claims would push it to an actual underwriting loss this year.

And theoretically Beazley had further to fall, trading at a book values 2.54x the week before the duo issued trading statements, compared with 2.06x for Hiscox. 

The disparity seems to reflect the longevity of remediation efforts, with Hiscox’s three-year timeline at its largest unit contrasting with a warning of a single-year underwriting loss at Beazley.

The stage of preparedness may also tip in Beazley’s favour – with the carrier communicating last month that it had been reserving for mounting US casualty losses since early last year, prompting Jefferies to declare it “ahead of the curve”.

Hiscox’s run of difficulties comes amid several key changes towards the upper echelons of Hiscox management, including the departure of alternative distribution managing director Gary Head for Axa, the exit of Hiscox London Market alternative risk head Adam Holberry for Beat Capital, and the resignation of Hiscox Re & ILS COO Richard Lowther.

Meanwhile, group CUO Richard Watson, a 33-year Hiscox veteran, will retire in February, with current retail CUO Joanne Musselle to replace him at year-end.

The slew of departures comes as underperforming London market carriers look to fill top jobs, with Convex and other start-ups across both insurance and broking also ready and willing to poach top talent, and Hiscox, a company known for the stability of its top team.  

All the while the elephant in the room remains the timing of CEO Bronek Masojada’s eventual departure after more than 19 years at the helm and 26 years with the carrier, which is still yet to be determined.

Countering Hiscox’s woes is the pricing fillip the carrier is experiencing in the London market, where rates were up 9 percent in the first nine months. What is more, Hiscox’s Syndicate 33 is expecting to deploy almost 20 percent more capacity next year.

It will be hoping that smoother waters beckon as this price momentum feeds through decisively into the bottom line.

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