Excess aviation fears blur strength at Beazley, Hiscox & Lancashire
London market leaders Beazley, Hiscox & Lancashire should be able to avoid crash landings on aviation exposure and secure new respect from investors on the basis of underappreciated strong underlying performance, a top global equity brokerage is telling investors.
“Q1 updates demonstrated continued strong performance from the sub-sector, as multiple years of compounded rate increases and underwriting discipline appear to be paying off,” Bank of America Securities said in its latest research on London Market insurers.
Top-line growth visible in the first quarter of 2022 has proven “strong” as rates remain “positive and above claims inflation assumptions” despite a certain slowdown in gains observed recently, analysts Freya Kong and Michael van Wegen wrote.
The claims experience to date is “proving generally better than expected.” Analysts appreciate the expansion of inflation vigilance into longer-tail lines.
Aviation lines might not be the nuclear threat many had assumed when Russia first expropriated leased aircraft at the onset of sanctions.
“Confidence from management teams seem to suggest impacts should be manageable,” analysts said of their takeaway from the Q1 earnings calls. Losses are coming, but even worst-case scenarios are billed as manageable.
Beazley worked its earnings call to convince analysts that policy cancellations, ahead of the assumed loss-trigger event of Russian re-registration of aircraft, are a time-honoured institution not to be rolled back today. BofA analysts assume lessors will work to date the trigger earlier, but found the Beazley line of reasoning at least “reassuring.”
Lancashire offered no such escape clause, but still said that a worst-case scenario is “manageable” and not unlike any other large specialty loss. Hiscox looks both clean and predictable given the prior exit from aviation lines.
All told, stocks that never visibly overcame Covid and went on to get hit by Ukraine, now look under-priced given strong underlying performance and the manageability of aviation lines, BofA believes.
In the update to recommendations, Hiscox is upgraded to ‘Buy’ with praise as a “high quality insurer with an attractive and growing digital retail franchise.” Risks are said to be “much lower” than for peers and recent share price weakness “unfair.”
Beazley was likewise upgraded to ‘Buy’ on “strong” underlying performance. “Impressive top-line growth” and “better than expected” claims experience. Aviation remains a threat, despite management confidence.
Lancashire was kept at ‘neutral’ as “challenges remain” despite a “positive” outlook and a “compelling upside.”
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