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De-risking the right step for Novae: Peel Hunt

30th June 2017 - Author: Steve Evans

Recent and ongoing steps taken to de-risk itself will benefit Lloyd’s insurance and reinsurance specialist Novae Group, according to analysts at Peel Hunt.

Novae logoNovae “is taking the right actions to ease capital pressure, rebuild tangible equity and crystalize the intrinsic value of the business” the analysts explain, after reviewing the reinsurance de-risking measures taken to-date and the planned reduction of casualty exposures.

The de-risking steps are the right ones to take to improve the capital position of the re/insurer, the analysts say, even though there will be a short-term earnings impact.

Steps such as the Fidelis quota share, which will cover Novae Syndicate 2007’s US Property Catastrophe Treaty excess of loss portfolio for 2017, are positive as they will reduce U.S. peak catastrophe risks at Novae.

“The Fidelis transaction increases our confidence in Novae’s solvency ratio,” the analysts wrote.

RMS

Peel Hunt notes that the previously announced decision to cut casualty by 50% will lower premium income and reduce long tail reserves, which both ease capital requirements. But the analysts say that a “full transfer of non-core casualty reserves to a third party could accelerate the process.”

“Exiting Casualty should improve earnings stability and release capital over time as reserves run-off as well as shortening the tail of the Casualty portfolio which becomes more focused on Cyber lines,” they say.

They also note that casualty premium dip should be offset by cyber lines growth, at least in the near-term.

But any effects of this de-risking will be relatively slow to manifest, the analysts note, saying that improvements to the underwriting quality of the group and the de-risking of peak exposures are more likely to become evident in 2018 or 2019, rather than this year.

But the main story is that Novae is taking positive steps to enhance its capital position, as well as to put in place strategies that will provide future earnings power and growth at a challenging time for the re/insurance market.

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