Lloyd’s predicts Ukraine war will prove ‘major claim’
Insurance market says financial losses should be manageable and not create solvency challenges
Lloyd’s of London, the city’s specialist market for insurance, has warned that the war in Ukraine will represent a “major claim” this year as it swung back to profit last year.
In annual results announced on Thursday, Lloyd’s said the market had made an aggregate £2.3bn pre-tax profit last year, as higher premiums and much-reduced losses from the Covid-19 pandemic had outweighed a costly year for natural catastrophes.
That marked a recovery from the £900mn loss in 2020, when Lloyd’s was stung by billions of pounds in pandemic-related claims and expected claims in areas such as business interruption and event cancellation.
The run-up to the results has been characterised, however, by mounting anxiety within the market over the impact of Russia’s invasion of Ukraine and the wider economic fallout.
Areas such as aviation insurance and trade credit are expecting billions of dollars in claims as a result of unrecoverable planes and soured debts resulting from the conflict. The Financial Times reported earlier this month a preliminary estimate of Lloyd’s taking a hit of $1bn-$4bn, net of reinsurance, according to a person familiar with the matter.
But the crisis is rapidly evolving, and analysts’ estimates of the potential claims in each area are rising.
Lloyd’s did not put a number on the market’s overall potential Ukraine exposure on Thursday, but said it was “in close dialogue with market partners” to get a sense of the scale of it.
But it added that direct and indirect claims relating to the conflict were “expected to fall within manageable tolerances and will not create solvency challenges”.
“In a world buffeted by increasingly complex and connected risks — from the pandemic to a geopolitical conflict — the Lloyd’s market is standing by its customers and supporting their recovery when things go wrong,” chief executive John Neal said.
The market’s combined ratio for the year — claims and expenses as a proportion of premiums — came in at a profitable 93.5 per cent, after the lossmaking 110.3 per cent in 2020.
Lloyd’s puts its turnround down to a “keen focus on underwriting profitability” and insurers’ ability to drive through price increases, with 16 consecutive quarters of rate rises. Premiums were up almost 11 per cent during the year.
A drive to improve efficiency at the insurers within the market had resulted in a 1.7 percentage point boost to its aggregate expense ratio, which measures costs as a proportion of premiums.
The market’s overall capital levels also increased over the period. Its central solvency ratio, which shows its capital as a proportion of its regulatory requirement, rose from 209 per cent in 2020 to 388 per cent at the end of 2021.
DAX:
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MDAX:
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SDAX:
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- Deutz (DEZ TH) +2.2%
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- SGL FY Sales Revenue EU1.01B Vs. EU919.4M Y/y
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>>> Up
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* Orsted Raised to Hold at Jefferies; PT 750 kroner
* OVB Holding Raised to Buy at SRC Research; PT 30 euros
* OVB Holding Raised to Buy at SRC Research; PT 30 euros
* Rightmove Raised to Sector Perform at RBC; PT 630 pence
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>>> Down
>>> Down
* Alcoa Cut to Equal-Weight at Morgan Stanley; PT $100
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* JDE Peet's Cut to Sell at Berenberg; PT 24 euros
* L'Oreal Cut to Underperform at Jefferies; PT 314 euros
* Lufthansa Cut to Hold at Deutsche Bank; PT 7.90 euros
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>>> Initiation
>>> Initiation
* Aker BioMarine ASA Rated New Buy at Nordea; PT 60 kroner
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* Freenet Rated New Neutral at Oddo BHF; PT 25 euros
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>>> Call
* Scatec Rated New Hold at Arctic Securities; PT 140 kroner
>>> Call
* European Utilities Stocks Facing ‘Defining Moment’: Jefferies
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* Rightmove Upgraded at RBC on Confidence It Can Meet Expectations
Stocks in Asia struggled back from early lows after a tough session for global equities, while oil turned lower as investors assess the risks of rising inflation and the impact of the war in Ukraine. Treasuries held losses. An MSCI Inc. gauge of Asia-Pacific equities fell for the first day in three as equities in Japan declined. The Hang Seng erased losses, though Tencent Holdings Ltd. weighed on tech stocks after reportingits slowest pace of quarterly growth on record. U.S. futures edged higher after the S&P 500 erased the prior session’s gains, and European contracts fluctuated. Treasuries look shaky again, and resumed their slide to unprecedented losses. Investors returned to the market in U.S. trade, snapping up a sale of 20-year bonds and driving the benchmark 10-year yield back to 2.3%. The dollar edged higher. Oil reversed its earlier advance to trade around $113 a barrel amid reports that the U.S. and European Union are close to a deal aimed at slashing Europe’s dependence on Russian energy, while President Joe Biden’s prepares to announce new sanctions on Russia. The extreme volatility in commodity markets caused by the conflict and global response is sapping liquidity, according to some of the world’s biggest trading houses. the Biden administration plans to reinstate exemptions from Trump-era tariffs on about two-thirds of Chinese products that were previously granted waivers, most of which expired by the end of 2020. European gas prices swung sharply and the ruble staged its biggest one-day gain in years after Russian President Vladimir Putin pushed on with plans to demand that dozens of countries use the local currency for natural gas purchases. US After Hours OXM +8.3%, FUL +4.2% higher on earnings; COOK -15.5%, KBH -4.4%, SCS -4.1%, OLLI -2.3% lower on earnings
Nikkei +0.25% Hang Seng -0.25% CSI -0.46% Shanghai -0.50% Shenzen -0.69%
Eur$ 1.0983 CNH 6.3852 CNY 6.3719 JPY 121.49 GBP 1.3197 CHF 0.9323 RUB 98.1875 TRY 14.8239 WTI$ 114.51 - 0.37% Gold 1,940 -0.20% BTC 43,200 +2% ETH 3,055 +2.45%
S&P +0.33% Nasdaq +0.46% EuroStoxx +0.11% FTSE +0.08% Dax +0.11% SMI -0.10%
Macro :
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Keep an eye on :
Keep an eye on :
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Should foreign owners of UK property worry about new registration rules?
Requirement for overseas companies to declare ownership, raises tax issues
People from all over the world own UK property and those who want to protect their privacy often do this through an overseas entity, usually a company.
There are currently 93,877 properties owned in this way in England and Wales according to Land Registry data. During the past 10 years, 58,426 such properties have been added.
Keeping your name off public records comes at a cost: non-resident companies automatically pay 15 per cent Stamp Duty Land Tax (SDLT) when buying residential property of over £500,000. Personal buyers pay the maximum rate of 12 per cent on property values of £1.5m though most personal buyers in the UK pay just 2 per cent or 5 per cent.
There is nothing wrong with owning UK property via an overseas company, as there can be legitimate commercial or personal protection reasons involved.
Nor is such ownership blocked by new rules which, after a hiatus, the government is now introducing rapidly.
The Economic Crime (Transparency and Enforcement) Act 2022 received Royal Assent this month: the aim is to increase transparency, something which remains high on the government agenda.
In addition to changing the rules about sanctions, the Act introduces a new requirement for overseas entities owning UK property to register at Companies House and provide details of beneficial owners. Criminal offences may be committed by those who fail to comply or who provide incorrect information.
The register will be publicly available at Companies House. However, HM Revenue & Customs will have access to more details than are publicly available and will be able to cross reference this against other government databases.
It is therefore prudent to check that both companies and beneficial owners are UK-tax compliant in all periods since the property’s original acquisition.
The new law builds on a 2016 requirement for corporates to declare at Companies House who exerts significant influence and control. The intention is to make it easier for everyone to know who is the ultimate beneficial owner of overseas entities with UK land interests and dissuade those planning to buy UK property with illicit funds.
HMRC, the police and other enforcement agencies consider that overseas entity ownership of a UK property can be used to conceal crime, such as tax fraud and money laundering, so will take a keen interest in the companies that now register. HMRC will feed the information into its Connect system, the data mining technology used to analyse all taxpayer data.
This includes the Common Reporting Standard data on financial accounts and transactions from overseas banks and open source data to identify cases for further investigation.
For example, HMRC is likely to investigate if individuals living in the property are UK-resident for tax purposes. If they are, UK tax may be due on their worldwide income.
HMRC can also assess whether there were taxable “remittances” (usually money transfers) to the UK by non-UK domiciled individuals. Questions about the source of funds to purchase a property can often arise. Overseas landlords will be taxable on UK rental income.
HMRC will also want to check whether any annual tax on enveloped dwellings (ATED) is due; this is generally payable on residential property with a value of more than £500,000, where an individual occupies a UK property and is connected to the company that owns it.
The new law applies to overseas companies, partnerships and foundations. Overseas trusts owning UK land directly — without another entity in the ownership structure — are not required to register with Companies House. These trusts already register and declare beneficial owners under the HMRC’s Trust Registration Service.
The requirement to register will apply to freehold property and land, and leaseholds of longer than seven years. When in force, overseas entities must register before acquisition. Transitional rules broadly require registration within six months of the rules coming into force.
Under the Act, officers of overseas companies must take reasonable steps to identify any registerable beneficial owners and provide the information to Companies House, complete an annual return and request removal from the register at the appropriate time.
Overseas entities must issue “information notices” to anyone that they know or have cause to believe are beneficial owners, and the recipient must respond within one month. Share ownership or voting rights of more than 25 per cent will put someone in the “beneficial owner” category, along with all directors.
Failure to register is a criminal offence for the overseas company’s directors. Other offences can be committed by the beneficial owners for failure to comply.
For those who have not complied with tax rules, full voluntary disclosure to HMRC is the best approach. It is sensible to take expert tax advice: there may be penalties but disclosure usually minimises these.
Current UK tax rules mean that where a property is sold by an overseas company, there will be UK tax issues to consider from capital gains tax for the company to possible ATED charges. If the owner wants to “de-envelope” the property and hold it in their own name in future, then there is also the stamp duty to consider and possibly an income tax charge if the property is simply transferred to the owner -likely to be treated as a dividend “in specie”.
The new register will give the authorities more data to track UK property and its owners than ever before. An increase in resources for Companies House and the Land Registry will be crucial to ensure the processes are smooth.
HMRC and other enforcement agencies will also need more skilled investigators to “join the dots”. There are always methods and places for criminals to hide in the world, but this will make it much harder for UK property to be used for such ends.
Top oil traders warn prices could breach $200 a barrel
Boycott of Russia since Ukraine invasion will have a lasting effect on energy markets
Some of the world’s most respected oil traders have predicted crude prices could climb beyond $200 a barrel this year owing to a growing international boycott of Russia and a lack of alternative sources of supply.
Pierre Andurand, one of the sector’s best-known hedge fund managers, said supplies of Russian oil into Europe would disappear in the aftermath of Vladimir Putin’s invasion of Ukraine, leading to a lasting reshaping of global energy markets.
“Wakey, wakey. We are not going back to normal business in a few months,” he told the FT Commodities Global Summit in Lausanne. “I think we’re losing the Russian supply on the European side for ever.” Crude could even hit $250 barrel this year, double current levels, he said.
Other veterans of the oil market speaking at the conference agreed that Russian crude and refined products such as diesel would not return to the European market any time soon, even if a ceasefire with Ukraine were agreed.
Analysts have estimated as much as 3mn barrels a day of Russian oil could be lost from the market.
Doug King, head of RCMA’s Merchant Commodity Fund, predicted that oil prices would soar to between $200 and $250 a barrel this year. “This is not transitory. This is going to be a crude supply shock,” he said.
Brent, the international oil marker, hit $122 a barrel on Wednesday ahead of a meeting between EU and Nato leaders in Brussels on Thursday that may result in fresh sanctions on Russia. Prices stretched as high as $139 immediately after the invasion of Ukraine, and even after the pullback from there, they stand 90 per cent above their level at this point last year.
“I don’t think given the way things are going, this is a temporary problem,” said Alok Sinha, global head of oil and gas at Standard Chartered. “You now have to deal with this as a long term issue which means you need to find alternative supply growth.”
Daniel House, senior crude trader at Socar, the Houston-based trading division of Azerbaijan’s national oil company, said the US shale oil industry was unlikely to ride to the rescue by cranking up production to pull prices down.
[Even] if they wanted to speed up, it’s a 12-month process,” he said, adding that some producers could take as long as 18 months to bring on new oil. “The cavalry is not coming as quickly as it did when we had previous incentives for them to grow”.
The US shale industry was once known for its debt-fuelled production binges but executives have since pledged not to outspend cash flow and burn through capital on costly projects.
King said oil prices in the futures market would need to rise significantly before the US shale industry could increase production and deliver the cash returns expected by investors. The contract for US benchmark WTI, for delivery in December 2024, was trading below $80 a barrel on Wednesday.
Ben Luckock, co-head of oil trading at Trafigura, predicted a peak Brent crude price of $150 a barrel this summer and warned that developing economies with less ability to reduce fuel taxes would be hardest hit.
“Whilst the US, western Europe and wealthier countries in the world will be able to afford some of these tax breaks, print some money . . . those poorer nations won’t have the same toolbox,” he said. “These are going to be the people who suffer first and these are some of the unintended consequences of the policies that are likely to come.”
Toshiba shareholders reject management’s plan to split company
Proposal to reopen talks with private equity companies also voted down
Toshiba shareholders have voted down the management’s plan to split the industrial conglomerate in two, handing a fresh defeat to a company that has been at loggerheads with investors for four years.
The pivotal vote on Thursday revealed a sharp division among shareholders and diminished the prospect of a rapid turnround for one of Japan’s most famous industrial names. The vote triggered a heavy sell-off of Toshiba shares, which fell by as much as 5 per cent.
The vote concluded an extraordinary general meeting held in the hope of ending a period of turmoil that has forced the resignation of two chief executives and raised the possibility of the company being taken private in what would have been Japan’s biggest ever buyout.
A plan proposed last year by UBS bankers to split the company into three was strongly opposed by shareholders and later abandoned, with the two-way division then presented as the best and most cost-effective alternative.
But in yet another twist to the saga, shareholders also used the EGM to vote down a proposal from Toshiba’s second-largest shareholder — the Singapore fund 3D Investment Partners — that would have obliged the company to reopen talks with private equity firms and other investors towards a possible take-private deal.
Several of Toshiba’s largest investors, which include the Singaporean fund Effissimo, the US fund Farallon Capital and a variety of smaller hedge funds, have been agitating for a take-private deal. They have argued that at an earlier strategic review the company did not properly explore that possibility.
The rejection of both Toshiba’s and 3D’s proposals appears to create a stalemate, but some shareholders said that the outcome could have positive results. The lack of a clear mandate for action from shareholders could give Taro Shimada, the new chief executive appointed earlier this month, freedom to impose his own potentially radical ideas for a turnround, according to investors.
Shimada did not express his opinion on the proposals during the EGM, saying it was not “appropriate to express my personal thoughts today”. Investors have told the Financial Times that privately he has indicated his support for a take-private option, which could remain a possibility even with the formal vote defeated.
When announcing the vote result, Shimada only said the company will “consider various options to improve our corporate value”.
As the Tokyo market reopened for the afternoon session, Toshiba stock erased morning gains and joined the worst performers on the bourse, at one point falling 5 per cent from the day’s highs and touching ¥4,542.
Satoshi Tsunakawa, the previous chief executive of Toshiba who now serves as the chair of the board, has opposed the buyout option saying it could result in the company losing public orders and warning Toshiba would be forced to sell sensitive segments in its defence and nuclear divisions.
At the meeting on Thursday he told investors that a privatisation would mean that foreign funds will buy the company. “We made the proposal because we wanted to carry out the split on our own,” he said.
After Hours Summary: OXM +8.3%, FUL +4.2% higher on earnings; COOK -15.5%, KBH -4.4%, SCS -4.1%, OLLI -2.3% lower on earningsAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: OXM +8.3% (also increases dividend), FUL +4.2%, SOL +0.1%
Companies trading higher in after hours in reaction to news: STGW +3.1% (authorizes new $125 mln share repurchase program), WIX +1.8% (authorizes $500 mln securities repurchase program), NVS +0.7% (Pluvicto approved by FDA as first targeted radioligand therapy for treatment of PSMA prostate cancer), DGX +0.6% (awarded CDC contract for COVID-19 infection and vaccination seroprevalence research), DDD +0.5% (enters partnership with Enhatch for personalized medical devices)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: COOK -15.5%, KBH -4.4%, SCS -4.1%, ENJY -2.4%, OLLI -2.3% (also launches a store remodel program), EXAI -1.3%
Companies trading lower in after hours in reaction to news: APLS -7.1% (announces $300 mln stock offering), ASND -4.4% (announces $500 mln convertible notes offering), SGHC -1% (stock offering), RIOT -0.4% (enters into a separation agreement with COO), PSB -0.1% (CEO steps down for health reasons), CS -0.1% (says Bermuda court to soon issue judgment against insurance subsidiary)