Lancashire's fundraising shows growth potential, JP Morgan says

Lancashire's £277m capital raising demonstrates the company's growth potential and ability to capitalise on a hardening market, JP Morgan said as it reiterated its 'overweight' rating on the Lloyds's of London insurer.

The FTSE 250 company placed shares worth 19.5% of its existing share capital with investors on Wednesday for 700p each - a 3.6% discount to its closing price on Tuesday.

Lancashire shares rose 8.5% to 788p at 16:13 BST and were the biggest gainers in the FTSE 350 index. JP Morgan kept its 710p price target for the shares.

JP Morgan said unlike competitors such as Beazley and Hiscox, Lancashire was not heavily exposed to Covid-19 or high-claim casualty lines. It is therefore in a good position to use extra capital to do more business in a market where prices are rising strongly.

Lancashire said prices for Florida property catastrophe policies rose 20-30% at the start of June and that rates were likely to keep rising into 2021. It also said it saw no sign of deterioration in its previous $35m Covid-19 loss estimate.

"We see Lancashire as best positioned of the London Market players currently, given that it appears to have less/no exposure to COVID-19 and casualty lines that have been the source of high claims for peers, yet may still be positioned to take advantage of a hardening market," JP Morgan analyst Edward Morris wrote in a note to investors. "We therefore see this raise as a stronger-than-expected indication of forward looking growth, and reiterate our OW rating."