Listed Lloyd’s of London insurers are expected to be the subject of takeover interest, analysts have said, following news that foreign rivals are circling Hiscox.
Bermuda-based Hiscox’s shares rose as much as 14 per cent on Monday after Insurance Insider said Japan’s Sompo and Italy’s Generali were considering making bids for the FTSE 250 company.
Hiscox declined to comment when approached by City A.M. If the company were actively involved in takeover discussions, it would typically be required to report them.
Sompo and Generali also declined to comment.
Analysts have said a potential offer would come as no surprise, with London-listed specialist insurers continuing to trade at a heavy discount compared to pre-pandemic levels.
Hiscox’s share price plunged at the start of the Covid-19 pandemic, and it was later forced to make significant payouts after being accused by thousands of policyholders of avoiding paying out on business interruption claims. The episode triggered the resignation of long-serving chief executive Bronek Masojada.
“We have written about M&A across the insurance sector in the recent past and highlighted the Lloyds’ names as being vulnerable,” Abid Hussain, an analyst at Panmure Liberum, said in a note. “The sub-sector has seen takeover activity in the previous hard market.”
“The other listed names are also vulnerable to takeover given the low price to tangible net asset values and high returns on equity,” Hussain added.
Still, William Hawkins, an analyst at Stifel-owned KBW, said Generali’s potential connection with Hiscox was “odd” as the company has “frequently ruled out the UK and US as regions for expansion”.
Hussain said Sompo has “the balance sheet and inclination” of the two reported suitors. He added that Sompo might dispose of Hiscox’s “slow-growth” retail business as part of any takeover to access the “fast-growing and profitable” property and speciality lines.
M&A in the Lloyd’s market has been quiet since the last major deal in 2017. The number of listed Lloyd’s insurers fell from 10 in 2007 to three from 2017 onwards – Beazley, Lancashire and Hiscox.
“We see all three players as potentially being attractive targets for M&A,” said JPMorgan analysts led by Kamran M Hossain. “The main Beazley and Hiscox syndicates are among the top 10 largest individual syndicates at Lloyd’s, making them some of the most obvious targets, in our view.”
The CEO of Japanese group Mitsui Sumitomo, which acquired UK insurer Amlin in 2016, told the Financial Times in February that acquisitions were “on the table” again as part of its international push.
JPMorgan analysts noted said any Lloyd’s transactions would likely bring “synergies on costs, capital and reinsurance for the major Japanese insurers who already have a large presence in the London market”.
More broadly, firms listed on the London Stock Exchange have been relentlessly targeted by takeover bids this year, driven by their cheap valuations, particularly relative to overseas rivals.
Belgian insurer Ageas walked away from its effort to acquire British rival Direct Line after it rejected two bids, valued at £3.1bn and £3.2bn respectively, calling them “highly opportunistic”.
“Regardless of whether this turns out to be substantiated or not, we are not surprised by the emergence of M&A speculation within the sub-sector,” said Nick Johnson, an analyst at Deutsche Bank. “Fundamentals are strong, cash is plentiful within the industry, and UK valuations are inexpensive.”