Lancashire Holdings Ltd. (LRE) fell the most in three months after JPMorgan Chase & Co. cut its rating on the Lloyds of London insurer for the first time in at least three years, citing softening premium rates.
The shares dropped as much as 5.9 percent, the biggest intraday decline since March 20, and were down 2.6 percent at 762 pence at 12:40 p.m. in London. The volume of shares traded was almost twice the three-month daily average.
“A softening rate outlook across Lancashire’s portfolio will cap underwriting progress,” Andreas van Embden, an analyst at JPMorgan, said in a note. “We see a lack of immediate catalysts for the shares ahead of the hurricane season.”
Property catastrophe reinsurance rates for June have fallen about 15 percent, reflecting the lack of hurricanes in Florida and increased competition, Nick Johnson, a London-based analyst at Numis Securities Ltd., wrote in a note dated June 10.
Catastrophe insurance premiums have eased in the U.S. as no hurricane has made landfall in Florida, the fourth-most populous state, since 2005. This year, there is a 16 percent chance a Category 3 hurricane, with winds of at least 111 miles per hour (179 kph), will hit Florida, Colorado State University researchers forecast in April. That’s down from 21 percent in an average year. The six-month hurricane season began on June 1.
Van Embden cut his rating on the stock to neutral from overweight and lowered his 12-month price target by 7 percent to 800 pence. Van Embden has had an overweight rating on Lancashire since he started covering the insurer for JPMorgan in 2010, according to data compiled by Bloomberg.
Lancashire remains an attractive income stock with a special dividend of 65 pence a share, offering a yield of 9 percent, likely to be announced in the second half, van Embden said. The stock is fully valued compared with its returns, the analyst said.
JPMorgan’s downgrade comes five days after UBS AG initiated coverage with a buy recommendation and added Lancashire to its key calls list of small and medium-capitalization companies.
Lancashire had achieved the highest returns in the industry, coupled with the lowest volatility, between 2008 and 2012, UBS analyst Angela Gu, who set a 12-month price target of 850 pence, said in a note to clients. Its prospective total dividend yield of 10 percent for the next three years was the highest in the industry, she said.
Numis’s Johnson and EVA Dimensions also both upgraded the stock this month. The drop in the share price had left Lancashire’s valuation in line with its competitors, Johnson wrote, upgrading his rating to add from hold. The shares fell 21 percent between March 4 and June 6.
Lancashire’s “nimble strategy and relatively small capital base will enable it to sustain superior operating performance versus peers,” Johnson wrote.
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