Over the last few months, Helios has transformed itself. Having raised £64m, and acquired over £10m of additional capacity, it has greatly increased its ability to add to its exposure to its desired Lloyds syndicates. It can do this through continuing to acquire new vehicles, increasing its retention by reducing its quota share arrangement, or obtaining tenancy agreements with existing syndicates. The timing for doing this looks ideal: after several years of losses, premium rates have been increasing strongly since 2018. Notwithstanding the recent COVID-19-related claims, the prospects for improved underwriting results are very good.
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- Strategy: Helios has aims to build a portfolio of exposure to high-quality syndicates at Lloyds of London. Its primary method for executing this has been to buy out Names through the limited liability vehicles (LLVs) through which they now conduct their business, generally acquiring these at a discount.
- 2020 interims: The interim results reflected a mixed pattern. While the 2018 and 2019 underwriting years showed a positive development, reserving for COVID-19 losses in 2020 reduced underwriting income to £154,000. Helios made a small loss of £96,000.
- Valuation: Post the November fundraise, the adjusted NAV per share was 151p. Helios currently trades at a 13% premium to this book value. Helios management views NAV per share as a key metric, and aims to grow it over time. It will take a little while to see the financial benefits of the increased balance sheet.
- Risks: While increased premium rates bode well for underwriting profitability, and Helios has reinsurance protection, it is still subject to the usual variations in claims. The final effect of COVID-19 remains uncertain in some areas, and there are the usual ongoing risks of large adverse events.
- Investment summary: Although it will take a couple of years for the full effect of the larger balance sheet to come through, Helios appears to have increased this at the right time in the insurance cycle. With the benefits of premium rate increases to come and increased share liquidity, we believe it has some attractions for investors.