Lloyd's Novae remains "confident" about Brexit as profit soars

Novae, an underwriting business at Lloyd’s of London, has access to the single market. Following the UK’s decision to leave the EU, Novae said Lloyd’s is focused on maintaining access to the single market with regulatory passporting rights.

The company said that its premium income from EU member states does not represent a significant part of its current business as it accounts for less than 10% of total gross written premium.

Novae said: “Expectations are that volatility for investment assets will remain raised for the near future as details emerge around the negotiations of Britain's exit from the EU. Novae's investment strategy includes a dynamic asset allocation overlay, managed by BlackRock, which is designed to enable swift action to be taken in such periods as circumstance dictate.

“Novae remains confident that a London insurance company outside of the EU will continue to flourish, and the longer-term impact on the group is not currently anticipated to be significant”.

For the six months ended 30 June, profit before tax and foreign exchange rose significantly by 31% to £37.9m compared to the same period last year.

Gross written premiums for the first half of the year increased by 11% to £513.1m, 6.4% at constant rates of exchange.

The attritional loss ratio was down to 47.9% and the combined ratio was at 96.1%. Weighted average rates on renewal premium reduced by 3.9% .

Positive foreign exchange movements on retranslation of the balance sheet of £25.9m were up 114%, due to a weak pound, which contributed to an overall increased profit before tax of £63.8m.

Net investment income increased to £28.4m from £3.8m in 2015.

The interim dividend was also increased to 7.5p per share from 7.3p last year.

Chief executive Matthew Fosh, said: "In what was an eventful first half of the year for the industry Novae has shown its growing resilience. Improvements to our underwriting portfolio have delivered an enhanced attritional loss ratio in a softening rating environment... Our investment portfolio successfully withstood a period of heightened volatility and reserving remains prudent. Overall this market requires careful handling, but selective opportunities for profitable growth continue to present themselves."

Shore Capital analyst Eamonn Flanagan said: “A real mixed bag from Novae this morning in respect of its first half of 2016 performance. The underwriting result was disappointing but the operating profits were bailed out by an excellent investment performance. The dividend growth was disappointing but the circa 14% increase in the net tangible asset value (NTAV) per share ex-dividend in the first half of 2016, boosted to a significant extent by forex, was well ahead of our expectations.

“As a result of the latter, we upgrade our 2016F NTAV by circa 10% to 608p and by a similar amount for 2017F to 650p but we reduce our dividend growth forecast for 2016F to circa 5% as opposed to the previous 10%.

“The drop in the attritional loss ratio was impressive but the disappointing overall combined ratio holds us back from turning more positive on the stock at this stage. The stock offers good upside potential, especially considering its recent underperformance against it peers since the Brexit vote. For now, however, we reiterate our hold recommendation on Novae”.

Shares in Novae were down 1.78% to 798.50p at 1257 BST.