July 2016
After sterling fell to 30-year lows against the US dollar a unique buying opportunity has presented itself to those looking to buy a piece of the London market.
Following the UK’s vote to leave the European Union on 23 June, the pound fell as low as $1.32 – a drop of more than 10 percent. The currency made some recovery but still trades far beneath pre-Brexit levels, and was at $1.33 as of market close on 4 July.
With foreign investors now able to get more for their money, the spotlight falls once again on the London-listed Lloyd’s carriers – some of the most sought-after insurance assets in the market.
In the aftermath of the vote, Lancashire, Beazley, Hiscox and Novae saw double-digit falls in their share prices. The stocks have since recovered, with only Beazley and Novae still behind pre-Brexit levels as of market close on 1 July.
“It’s a truism that sterling assets are now more affordable for overseas would-be buyers,” said Nick Johnson, equities analyst at Numis Securities. “The possibility of M&A is marginally increased following the Brexit vote.”
However, the allure of a bargain is dulled by the political and economic uncertainty that surrounds the UK and the London market. There are still big questions to be answered on EU passporting rights, and whether Lloyd’s will be able to maintain the status quo through other means.
Furthermore, price-to-book multiples at the Lloyd’s carriers are still some of the highest in the global (re)insurance market, at an average of 1.75x – which is perhaps an expensive play, given the major uncertainty.
