Citi initiated coverage of Beazley at ‘buy’ on Thursday, while Hiscox and Lancashire were started at ‘neutral’.
The bank said that after four years of subpar returns, it is time for the UK specialty Property & Casualty insurers to deliver.
“We expect ROEs to improve to 12-16% but with plenty of uncertainty over large loss activity, recessionary positioning and social inflation trends,” it said. “At this stage in the cycle, underwriting portfolios continue to be re-underwritten, which is somewhat surprising as management teams adapt to a dynamic environment rather than play offense on capital deployment.”
Citi said there is a sense therefore that the growth normally associated with a hard market is passing them by.
“On book multiples of 1.2-1.5x we see valuations mostly discounting improved returns while being vulnerable to loss cost trends and now slowing rate momentum.”
Citi said the exception is Beazley, where casualty and cyber rate increases can continue and where a 15%+ return on equity (ROE) is available for 1.3x book.
