Results, deals and updates

Randall & Quilter’s acquisition, Agency Programme Insurance, will fold easily into its Quest subsidiary in Bermuda. A manager of 28 reinsurance cells, reinsuring 8 US insurance and reinsurance companies for a range of risks, is in run-off and modestly but comfortably profitable. As a bonus R&Q will benefit from negative goodwill of $1m, less acquisition expenses.

Charles Stanley’s trading statement covering Q1 was somewhat of a curate’s egg – good in parts. The fall in revenues in “Core Business” was predictable, due to the drop in commissions from client trading, a lower interest turn and the gradual phasing out of ‘trail commission’ and should have been expected to be worse in view of market conditions; however the decline in investment management fees from Q1 of 2015/6 is disappointing.

Beazley once again provided an encouraging start to the insurance interims season. Despite a decline averaging 2% in premium rates on renewed policies (and presumably more on the minority that did not renew), pre-tax profits for the half-year declined only 3% to £150m rather than the 20% that a crude model would predict. Beazley is a class act in insurance because it gives a superior service to its clients. This helps profitability because clients are willing to pay a few extra basis points.

Hiscox is continuing to grow all three divisions, Hiscox Retail covering individuals and SMEs, Hiscox London Market (Lloyd’s etc), and Hiscox Re, with – slightly to my surprise – the strongest growth coming from Hiscox Re at over 20%. The overall message for the sector is that, to the limited extent that we can extrapolate from Beazley and Hiscox, things are less bad than we had feared but the interest rate environment is going from terrible to worse.

After H1 results, our sum-of-the-parts valuation for WH Ireland (ascribing no value to Corporate Broking) is £62m or 240p/share, nearly treble the current price.

Fairpoint Group updated on strong progress by Legal Services and a decision to pursue an orderly wind-down of the debt management plan services, prompted by new FCA regulation which increased costs and made that business appear unviable. This latest news puts them on an attractive prospective FY16 PER of 6.5x and 7.1% yield.

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