Sources suggested that Ascot’s decision might reflect management’s reluctance to run a London-listed public company, considered by some to be a distraction for management and a hindrance to performance.
The news also comes after Canopius in May put its IPO plans on ice, where we expect they are likely to remain for the foreseeable future.
This all comes in a context where the established London-listed market names – Hiscox, Lancashire and Beazley – are still trading significantly below their pre-pandemic levels, and shares of more recent entrant Conduit Re remain below their IPO price.
On this evidence, any London specialty (re)insurer seeking to float in the current environment would need to do a good job of persuading investors who appear to have little enthusiasm for their niche of the industry.
This marks a remarkable turnaround from just over 12 months ago, when Neil Eckert launched a resoundingly successful Day 1 IPO for Conduit Re despite the absence of a cornerstone equity partner.
That market debut was buoyed by an exciting pricing narrative and the paucity of specialty/reinsurance options for public markets investors on the London Stock Exchange. But since then, sources have suggested that this previous fervour has evaporated.
What a difference a year can make.
We examine the current investor sentiment towards the London specialty market – and what would need to change for it to improve.
Lagging behind peers
Over the last 12 months, three of the four London-listed companies – with Beazley the exception – have drastically underperformed their US-listed and Continental European peers.
Some of that difference can certainly be ascribed to the diverging fortunes of public markets in different regions.
Whereas the FTSE 100 index is up approximately 12% year on year, comparable indices in both the US and Europe have experienced much more growth. The Euronext 100 index is up 19% over the same period, and the S&P 500 is up 22%.
But – as the contraction in the share prices of Hiscox, Conduit and Lancashire would suggest – among investors there are specific concerns with the London specialty names themselves.
This becomes even clearer through comparison with other personal lines insurers listed on the LSE.
Aviva – up 24% year-on-year – has now climbed back above the price at which it began 2020, while Admiral’s shares resisted a precipitous decline after the onset of Covid-19 and are currently trading 6% higher than 12 months ago.
Pandemic missteps at Beazley and Hiscox – with capital raised for growth ultimately required to deal with Covid claims deterioration at both carriers – have left some investors reluctant to turn back to those stocks in particular.
And, while equity analysts canvassed by this publication felt that the risk of further claims related to Covid-19 was not a major driver of the current sentiment towards these companies, they were clear that vigilance to the possibility of adverse claims development – and disputes with reinsurers over business interruption claims – remains necessary.
Flight from volatility
The potential for volatility as a consequence of increasing exposure to nat cat risk is also a major drawback, with investors said to largely be of the opinion that the returns available simply do not justify the inherent volatility.
In comparison, the larger European carriers are expected to demonstrate greater earnings stability, according to one analyst.
While Beazley and Hiscox (with their respective strengths in cyber and retail) are seen as more diversified and better able to absorb nat cat losses, Lancashire and Conduit are regarded as particularly exposed – even though the former intends to diversify its book of business over the coming year.
The key question on cat is around rate adequacy. Broadly, investors are unsure whether the recent renewal season increases are sufficient. And, with so little certainty around how to reliably model cat risk in the current environment, they are willing to take a "wait and see" approach.
Turning point
Nonetheless, some analysts surveyed felt that sentiment towards the sector has already started to turn – albeit slowly.
If these companies can report solid financials for the first half of 2022 – and cross their fingers for a quiet six months on the weather front – their outlook could be even more promising.
With Hiscox and Lancashire trading at lower price-to-book ratios than 12 months ago – and Conduit also trading at around book value – the balance of risk and reward may now at least be more attractive for investors who understand and are willing to tolerate the sector’s inherent volatility.
Room for one more?
Conduit is perceived by some investors to have had a slightly disappointing first year as a public company, with the mix of business it has written weighted more heavily towards quota share than it had set out in its IPO prospectus. This is expected to translate into higher-than-forecast acquisition costs.
But despite this slightly lukewarm reception – and Ascot’s decision not to float for the time being – some analysts still feel that there is room for at least one more listed player in the London specialty market.
As well as the difficulty of building a basket of similar investments with only a small number of publicly traded securities available, hesitation on the part of some investors to revisit companies like Hiscox and Beazley which disappointed at the beginning of the pandemic could increase appetite for alternatives.
As it stands, Ascot’s decision not to float for the time being may work out to the advantage of another specialty business – if any are willing to take their chances with the market.
Insurance Insider delivers global wholesale, specialty, and (re)insurance intelligence that enables you to act first. Redeem your complimentary 14-day trial for more premium content from Insurance Insider.
Scan here to download the app