December 8, 2016 / 7:54 AM / a year ago

Novae's shares slump after insurer warns on FY underwriting contributions

(Reuters) - Lloyd’s of London insurer Novae Group Plc NVA.L said larger individual risk and catastrophe losses in the year would lead to its full-year underwriting contribution being lower than it expected, sending its stock plunging.

Shares in Novae slumped as much as 21.6 percent on Thursday, and were poised for their biggest single-day fall in more than 12 years.

Analysts pointed to losses from interrupted production at Tullow Oil’s (TLW.L) flagship Jubilee oil field in Ghana, a SpaceX rocket which burst into flames and destroyed a $200 million satellite owned by Israel’s Space Communication Ltd, two product recalls, Hurricane Matthew and the New Zealand earthquake.

“We believe it has been a bad, but not exceptional, year for large losses at an industry level. Novae is likely more exposed than quoted Lloyd’s peers due to its narrower scope of business,” Canaccord Genuity analysts said.

The brokerage downgraded Novae’s stock to a “hold” from a “buy” rating and cut 2016 EPS estimates by 40 percent.

Novae, which covers property, casualty, marine, aviation and political risk, said its full-year combined ratio was expected to be between 98 percent and 100 percent. Combined ratio is a measure of underwriting profitability in which a result above 100 percent indicates a loss.

Analysts at RBC Capital Markets pushed up their combined ratio forecast for Novae to 99.5 percent from 97.3 percent and cut their 2016 profit-before-tax estimate by 26 percent.

Novae also said a “significant” bond market sell-off after the U.S. presidential elections had hit the value of its fixed-income portfolio.

    Analysts at RBC said that while increasing bond yields are positive for insurers, with the Lloyd’s insurers, the decline in the value of the bonds is recognised through earnings.

    “As a result, the near 30 percent increase in two-year government bond yields since the U.S. election has led to a significant reduction in investment income for Novae in 2016,” the analysts added.

    Novae also said a change in its accounting policies for deferred acquisition costs would result in a non-cash full-year writedown of about 17 million pounds ($21.49 million) and an increased charge of about 5 million pounds.

    Novae’s shares were down 17.6 percent at 688 pence at 0856 GMT.

    Reporting by Noor Zainab Hussain in Bengaluru; Editing by Sunil Nair

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