Goshawk Insurance Share Discussion Threads

[alexandrews] 18/10/2005 10:07

PaddyFool, EC: Thanks, as I suspected.

handycam: Your post comparing and contrasting the RNS statements from Brit and Hiscox was a little too subtle for me - could you be a bit more explicit, maybe on the Brit or Hiscox thread?

Alex

[empirestate] 18/10/2005 08:59

certainly am when price stability comes

[jsaleem] 18/10/2005 08:43

Fool or what .....

I have took the plunge last night and bougt just under 80,000 shares in GOS at 14.5p - I wonder if I have been a bit hasty ???!!

I'm hoping that GOS can survive or even be a takeover target. Any others out there who are looking to buy in to this share ????

JS

[dayjob] 17/10/2005 22:31

handy,
i'm not sure you aren't confusing gross and net.

[effortless cool] 17/10/2005 22:18

The initial move down today was way underdone, given the gravity of the news - hence I upped my short still further first thing.

The rating downgrade is now surely inevitable, which will trigger any downgrade clauses. The company will have to provide for the costs of run-off and buy reinsurance to cover the run-off on its unearned exposures. This will be very expensive.

Goshawk must be in breach of its banking covenants now, which will cause it further problems and put power in the hands of the debt holders, rather than the equity holders.

Delisting is likely in the longer term, since there's not much point in a company in run-off maintaining the costs of a full listing.

Overall, still happily short.

EC

[effortless cool] 17/10/2005 21:56

There could be something in your theory - Hiscox are notoriously economical with the truth when it comes to forecasting. I'd hesitate to endorse your use of Brit as an exemplum of "a real company", however.

[handycam] 17/10/2005 21:41

Thnak you too, Mr. Cool, for encouraging me to double down (the short). As soon as I saw Phoenix say no to Board representation I hit the bid and then I tucked into your thesis. I still stand by my statement that this company has absolutely no friends.

Happily, we may all be able to repeat this trick since Hiscox have been telling porkies.

A real company puts out a statement like this:-




BRIT Insurance Holdings PLC
28 September 2005

REGULATORY RELEASE

28 September 2005

FOR IMMEDIATE RELEASE





Brit Insurance Holdings PLC



Hurricane Katrina/New Orleans Flood and Rita estimates



Brit Insurance Holdings PLC ('Brit' or 'the Group'), the UK general insurer,
announces a preliminary estimate of £145m for claims arising from Hurricanes
Katrina and Rita and the New Orleans Flood ('NOF'). This comprises £125m for
Katrina/NOF and £20m for Rita, net of reinsurance recoveries and reinstatements,
based on currently available information. Brit's claims are expected to arise
primarily in its US direct property, reinsurance, retrocession and energy
portfolios.



Brit believes that the net impact of the above estimate from the two Hurricanes/
NOF on 2005 pre tax profits will be approximately equivalent to Brit's pre-tax
result for the first six months of 2005 of £112m.



The financial strength ratings of the Group's principal subsidiary, Brit
Insurance Limited, remain 'A+' (Strong) with Fitch and 'A' (Excellent) with A M
Best, in each case with Stable Outlook.



The Group has now had the opportunity to conduct extensive modelling on
Hurricane Katrina/NOF and a ground-up review of all exposed contracts and has
recently received initial reports from its loss adjusters to complement those
available from industry agencies. There remain significant complexities in
establishing a final cost of Hurricane Katrina/NOF, including the unprecedented
flooding, limited access by claims adjusters and the potential legal and
regulatory issues, and the response of reinsurance policies. However this is our
best estimate given currently available information.



Hurricane Rita appears to be a less complex event and for this reason Brit is
giving a provisional estimate early.



Dane Douetil, Chief Executive Officer, stated:



'On 6 September we announced that it was too early to give a provisional
estimate of the impact of Hurricane Katrina/NOF. Now that some meaningful data
is becoming available by zip code, the Group is in a position to provide an
initial estimate. We believe that the extraordinary flood element makes this
largest ever loss to the industry, although there is still some uncertainty as
to how state and federal government will deal with this element of the loss.



'We expect that the unprecedented industry losses arising from Hurricanes
Katrina/NOF and Rita, following on the 2004 hurricane losses, are likely to have
a significant impact on pricing, especially in our energy, property, reinsurance
and retrocession businesses. Brit's strong balance sheet means that we are well
positioned to take advantage of the opportunities that are likely to present
themselves as a result. Meanwhile our UK business, which is becoming an
increasingly significant part of our overall underwriting, continues to develop
well. We believe that 2006 will present significant opportunities for Brit to
continue to develop its ever growing franchise.'

BUT A COMPANY WITH SOMETHING TO HIDE SAYS THIS:-

7 October 2005
For immediate release

HISCOX PLC ANNOUNCEMENT

Impact of 2005 hurricane season

Hiscox plc ('Hiscox') has updated its estimate of losses arising from Hurricane
Katrina and undertaken an initial review of the estimate of losses arising from
Hurricane Rita.

We continue to work at quantifying more accurately the losses from Hurricanes
Katrina and Rita. Very few loss advices have been received to date, so current
estimates remain uncertain. Using information available today, Hiscox plc's
share of the net loss from Katrina is estimated to have increased to $110
million from the $100 million previously advised. This is based on case by case
reserves where possible, or otherwise on an industry loss of $45 billion.

The loss from Rita is currently estimated to be $70 million. The size of this
loss reflects retentions which Syndicate 33 has before the reinsurance programme
is effective. The loss should not materially impact the programmes so there is a
good measure of reinsurance left for the rest of the year.

Based on these estimates we currently anticipate Hiscox plc's pre-tax profit for
the year ending 31 December 2005 will be reduced by £25 million. This update is
being given before the end of the Hurricane season and our full year result will
depend on further hurricane activity and other potential claims in the remainder
of the year.

Following Hurricanes Katrina and Rita, Hiscox Global Markets, the international
business trading through Lloyd's, is seeing good rate rises in many of its core
classes of business. In particular the energy and reinsurance accounts have the
potential for substantial increases. As a result Hiscox has decided to increase
the 2006 premium limit for Syndicate 33 from £775 million to £833 million (2005:
£775 million) subject to Lloyd's approval. Prior to the hurricane season Hiscox
had announced it intended to reduce the 2006 premium limit for Syndicate 33 to
£650 million.

Hiscox UK continues to trade well and the progress of Hiscox Europe seen in the
first half of the year continues.

Robert Hiscox, Chairman of Hiscox plc, said:

'The strong first half of the year has been followed by a second half of well
documented hurricane losses. Feast generally follows famine in the insurance
world and we believe that rates will increase substantially in the reinsurance,
marine and energy areas, and will remain firm in other areas. Our experienced
teams intend to take full advantage.'

- ends -
For further information:
Hiscox plc
Robert Hiscox Chairman


WHY don't they tell us that their exposure is actually three times what they have stated? That would leave them under-reserved.

You heard it here first. I wonder if we get to hear the real state of play before the finals in March?

Yours etc.,

[effortless cool] 17/10/2005 19:34

Scumdog - Thank you.

2magpies - "leave well alone"?! I think you've missed the point.

Alex Andrews - The fact that capital looked at this business and walked, rather than buying it at (apparently) a significant discount, perhaps tells a story about how much value there is in this business in run-off.

Paddyfool - Thank you for putting us all in the picture.

[paddyfool] 17/10/2005 12:54

Just to put you all in the picture. I have seen countless organisations over the past twenty years buy insurers/reinsurers because they see value. However despite the buyers best endeavours there has yet to be a success.

In fact the buyers have dried up, what happens instead is the buyer says 'I'll fund your company for all new business from x date. For that I'll pay a very nominal amount. All the other stuff on your books will be backed into a run-off for which I the buyer will have no liability. What happens then is the reserves are bumped up out of the proceeds of the nominal amount paid (so nothing to shareholders.

Then....a little time the later the reserves are seen as being not enough, everyone in the market rushes to commute there losses and its goodbye run-off. An example of this would be Irontrades being taken over by QBE. The regulators hate this sort of deal but it is the only viable one.

The value in Goshawk is their licences in Bermuda and their transferability. Not much I would say. And why would you buy anything else? The management are clearly not up to it, and therefore the underwriters are not much good either.
Show me a company which has gone into run-off and which has value?

[scumdog] 17/10/2005 11:36

Effortless Cool
You certainly know your onions. Brilliant analysis. Well done.

[quidzinn] 17/10/2005 10:41

Alex,

The answer is SFA (and I don't mean Securities and Futures Association)
Q

[2magpies] 17/10/2005 08:44

Either they should put Rosemont into run-off or leave it well alone.

Now that they have said it 'might' be put into run-off, who is going to accept their security?

[alexandrews] 17/10/2005 08:40

Hi Effortless Cool,

Only came across your thread this morning, and a very good one at that. As Paddyfool seems to be implying, if Rosemont Re is put into run-off what value is there in the GosHawk business?

Alex

[alexandrews] 17/10/2005 08:20

I see that Mr Ashley James hasn't posted up today's RNS about the likely run-off of Rosemont Re. In fact he doesn't seem to have posted any of the RNS statements since the disastrous loss advice announcement in August. Funny that.

LOL!

So, if Rosemont Re is put into run-off, what is left of the GoshawK business?

Alex

[paddyfool] 17/10/2005 07:40

run=off value 0p

[effortless cool] 14/10/2005 21:42

Goshawk needs to retain its A- rating to continue as a going concern, and it needs at least $160m to retain its rating. Let's consider what might happen ...

Goshawk can't raise the cash from shareholders. the amount needed is more than twice the current market capitalisation, and it's largest shareholder is unsupportive.

For the same reasons, Goshawk can't raise the cash from an equity placing.

That leaves two options, selling the plc or selling Rosemont Re. Who might be buyers?

Insurers. A trade buyer wanting a Bermudan operation is a possibility. Amlin, for example, recently expressed an interest in this area. Insurers have a compelling case for using their capital to support their own underwriting at the moment, so a cash offer is almost inconceivable. A paper offer for the plc is possible.

Private equity. Private equity could look to buy at a discount to NTA, inject capital, and then refloat at a premium in a few years time. This would probably be done through a cash offer for Rosemont, since they are unlikly to have any use for Spencer and the other buffoons that run the plc. Little time is available, however, and significant due diligence will be required to establish the true NTA, and private equity usually moves very slowly.

Hedge funds. Reinsurance is a fashionable area for hedge funds to put their capital at present. This capital would probably buy Rosemont rather than the plc, for the same reason as private equity. They could probably move rather quicker than private equity and are, I suspect, the most likely buyers, if any can be found.

Prospective NTA is about 35p per share, based on concensus projections of a loss of $60m for 2005. That NTA must be regarded as highly suspect, however, given Goshawk's history of under-reserving. Any offer will definitely be a discount to NTA, the question is, how big a discount?

Well, Goshawk is almost a forced seller, so has little negotiating strength, unless there is more than one serious potential buyer. So that's what I think it comes down to: no buyers - this is still significantly over-valued; one buyer - still over-valued; multiple buyers - shorters lose.

Still happily short!

[effortless cool] 14/10/2005 19:52

Oh well, no downgrade yet, but time is getting very tight.

[effortless cool] 07/10/2005 21:45

So we got the profit warning at last. £30m loss forecast for the year, 1/3 wiped off prospective NTA, and capital raising apparently still some way away.

Today's price action was inexplicable (to me anyway), why on earth is anyone buying on this news?

AM Best is now in a dificult position. Rosemont has still got an A- rating that it should never have had, and certainly cannot currently justify. Best's should downgrade immediately unless capital raising is imminent and certain, but if it does downgrade it will destroy the company.

I expect a downgrade next week.

[paddyfool] 07/10/2005 07:09

good bye Goshawk

[effortless cool] 06/10/2005 20:12

Handycam,

Not entirely correct. Goshawk walked away from its Lloyd's Name's losses. Rosemont, however, is still exposed through quota share reinsurances it wrote on the Goshawk Lloyd's syndicate.

[handycam] 06/10/2005 18:47

Goshawk ringfenced Rosemont two years' ago, which left Lloyds having to pay out of central funds for the collapsed UK Goshawk insurance.

With no friends, who is going to stump up?

[effortless cool] 05/10/2005 21:20

On 6 September, Wellington announced estimated net losses of $75m from Hurricane Katrina. Today they increased their estimate to $125m. The increase was entirely due to worse than expected notifications on their reinsurance portfolio.

Interestingly, Goshawk also announced their Hurricane Katrina loss estimate on 6 September and Goshawk write nothing but reinsurance.

[greenpastures] 05/10/2005 15:37

Glad I pulled the plug at 36p. Better late than never. I put the money into a Nikkei call warrant and have seen it double so far.