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(Reuters) — Insurer Hiscox Ltd. on Friday warned that rising potential claims from last year’s Typhoon Jebi in Japan and Hurricane Michael in Florida would hurt first-half underwriting profit, sending its shares down almost 6%.
The Lloyd’s of London insurer said it had increased its reserves for the natural disasters by roughly $40 million.
Shares in the company dropped nearly 6%, their steepest one-day fall in 7½ years, trading at the bottom of Britain’s blue-chip index by 0727 GMT.
“The scale of deterioration has been significant, with industry loss estimates having increased materially since these (Typhoon Jebi in Japan and Hurricane Michael in Florida) events,” Hiscox said.
Hiscox forecast first-half pretax profit would be between $150 million and $170 million but said $150 million of that will come from investment returns. It made pretax profit of $163.6 million in the comparable period in 2018.
“Although we expected both Jebi development and mark-to-market gains, the mix is slightly different and our underwriting expectations should be coming down,” KBW analysts said in a note.
The company, part of the oldest insurance market in the world, also forecast $60 million more in tax provisions for the half year, but added that it would not affect the full-year results.
The first-half update follows a strong full-year report from Hiscox in February as the industry found some relief after facing record insurance losses in 2017 from hurricanes, typhoon and wildfires.
Hiscox, which underwrites a range of risks from oil refineries to hijackings, said on Friday that conditions were improving with good rate momentum for most lines in its London market. It is due to report first-half results on July 29.
“In terms of where we’ve seen good progress … we’ve seen in areas like hull and cargo good price movement as well. We have also seen areas like property good price movement,” Chief Executive Officer Bronek Masojada said.
“I think because prices have been going up in the first half of the year, we have a positive attitude. But the second half of the year is when the hurricanes tend to happen, and so forecasting for the full year at this stage would be difficult to do.”
Bronek Masojada joined Hiscox Ltd. in 1993 as group managing director and became CEO in 2000. He served as a deputy chairman of Lloyd’s of London from 2001 to 2007 and was chairman of the Lloyd’s Tercentenary Research Foundation from 2008 to 2014. Mr. Masojada recently spoke to Business Insurance Reporter Matthew Lerner about the market, mergers, technology and other topics. Edited excerpts follow.