LONDON London-listed insurers Lancashire (LRE.L) and Hiscox (HSX.L) on Monday confirmed insurance prices are still falling, and Lancashire said it would return 213 million pounds to investors rather than deploy it in a softening market.
Lancashire's special dividend of 86 pence per share marks the first direct return of capital this year from the London-listed non-life insurance sector, which has allowed surplus cash to build up rather than write business at inadequate profit margins.
Rival Novae (NVA.L) has also committed to handing back spare cash to shareholders, with an announcement expected before the end of the year, and analysts reckon shareholders could also get a payout from Amlin (AML.L).
Insurance and reinsurance prices have been falling across most business lines for two years, reflecting intense competition between well-capitalised insurers and a comparative dearth of major catastrophe-induced losses.
Hiscox on Monday said it expected prices to come under additional pressure in the run-up to key annual policy renewals in January, blaming an absence of major storms during the June-to-November hurricane season in the United States.
Insurance and reinsurance prices typically jump after big hurricanes as a welter of claims eats into insurers' capital, forcing less well-funded players to retrench and freeing those still in the market to charge more.
WAIT AND SEE
Hiscox did not comment on its capital position but Chief Executive Bronek Masojada told Reuters in July that the company would consider returning any surplus capital at the end of the year.
Analysts say that while most property and casualty insurers are sitting on a surplus many will be reluctant to commit to cashback programmes until the impact of the European Union's new Solvency II capital requirements for insurers becomes clear.
"I can see an argument for capital returns in theory as there is a lot of capital around and there are limited opportunities to use it," said Oriel Securities analyst Tom Dorner.
"However, I'm a little sceptical."
Some insurers may choose to hold onto their capital because low interest rates threaten to erode investment returns, while others could use surplus cash to make acquisitions.
Lloyd's of London insurer Beazley is pursuing rival Hardy Underwriting after an initial 155 million-pound bid approach was rejected last month.
Bermuda-based Lancashire has a track record of returning large sums to shareholders. Its latest special dividend comes on top of a 263 million-pound payout last year, and the company also bought back 136.4 million pounds of its shares in the first nine months of 2010.
(Editing by Greg Mahlich)