Lloyd’s of London insurers Amlin Plc and Hiscox Ltd. both said they have enough scale to stay independent and see no need to find a buyer amid a flurry of deals in the industry.
Both insurers reported lower full-year pretax profit and return on equity Monday as an influx of capital from hedge funds and pension funds placed pressure on insurance rates. Amlin and Hiscox still each declared a special dividend of 27 pence and 45 pence respectively.
“I have been saying for the last three years that scale is important,” Amlin Chief Executive Officer Charles Philipps said on a conference call. “We have been addressing the issues which are driving mergers and acquisitions. We don’t see an urgent need to participate in such activity.”
Catlin Group Ltd. and Brit Plc have each sought safety this year in a merger with a larger insurer. Bermuda-based Arch Capital Group Ltd. last month cited an emergence of “desperate competitors,” while Fitch Ratings said firms looking to increase scale and diversify will lead to more deals.
“The biggest driver of M&A is companies seeking scale,” Hiscox CEO Bronek Masojada said in a telephone interview. “We feel no need or pressure to deliver scale. We have enough. We’re very happy with the strategy we have.”
Amlin said the influx of reinsurance capital, which hit a record $575 billion, had started to spread to other lines of insurance business. The shares fell 5 percent to 505 pence at 12:30 p.m. in London, the most since April and trimming the gain this year to 6 percent. Pretax profit dropped 21 percent to 258.7 million pounds ($398 million), missing analysts’ estimates of 282.5 million pounds, according to data compiled by Bloomberg.
New Capital
Philipps said Amlin, which reported 2.3 billion pounds of net written premiums in 2014, was “well placed” to deal with the influx of new capital after increasing its stake in specialty fund manager Leadenhall Capital Partners in 2014 to 75 percent. The CEO added that Amlin was “permanently looking at and considering other bolt-on acquisitions.”
Hiscox has also sought to capitalize on the growing demand from pension funds and hedge funds to invest in insurance-linked securities. The insurer’s ILS funds is on track to reach $500 million in capital and are expected to continue to grow in 2015, the company said in a statement.
Masojada said Hiscox will continue to expand its retail business in 2015 to fund dividend payments, with plans to increase the company’s marketing budget in the U.S. and Europe.
“We can grow our business on our own,” he said. “If you can report double-digit returns on equity and grow the top line by single digits or low double digits,” you can make money for shareholders.
Hiscox’s shares gained 0.6 percent to 795 pence, up 10 percent this year. The insurer reported gross written premiums of 1.8 billion pounds in 2014, an increase of 3.3 percent from 2013.