Insurance minnow will do well from a bad year

By Author Charlie Gibson Feb 20, 2006

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For insurers generally, disasters such as last year’s Hurricane Katrina can have an oddly beneficial effect, says Investors Chronicle. Although there is an initial hit to profitability, they can then justifiably raise their premiums.

This is especially true of small insurers, such as Hardy Underwriting (HDU, 225p). Already one of the most profitable of Lloyd’s underwriters, with a combined ratio (which compares claims to premium income) of just 83%, Hardy should now “be able to ride the upswing in premium rates that the big reinsurers will set off”.

As a result, stockbroker Numis expects Hardy’s pre-tax profits to “more than double” in the year to December 2006, most of which should drop straight to the bottom line.

This, in turn, is expected to drive a rise in earnings from 10.7p a share, estimated in 2005, to 25.2p in 2006, and puts the company on a cheap nine times forward earnings multiple. It also looks cheap on a multiple of just 1.2 times net assets (competitor Hiscox is on 1.6 times and Amlin on 1.8 times).

Finally, the sale last month by founder and outgoing chairman Peter Hardy of the majority of his stake in the firm removes an obvious stock overhang from the market. Buy, says Investors Chronicle.

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Published in Tips & advice | More articles by Charlie Gibson

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