Investors could be forgiven for choosing to swerve exposure to those firms who run syndicates at Lloyd’s of London, especially as the appearance of Hurricane Beryl, a category five storm, so early in the season seems to confirm the worst fears of many meteorologists and ecologists when it comes to the issue of climate change.

Yet chatter in highly respected trade publication Insurance Insider that Italy’s Generali (G:MI) and Japan’s Sompo (8630:T) are both considering a bid for the FTSE 250 index constituent Hiscox (HSX) may only serve to highlight how cheap the specialist non-life insurers and Lloyd’s managers may be, despite the risks.

This in turn helps to reinforce our faith in long-term holdings Beazley (BEZ) and Lancashire (LRE).

Higher claims thanks to natural disasters, higher repair costs thanks to inflation, and higher costs of capital are all undeniable challenges for non-life insurers (and reinsurers) such as Beazley and Lancashire as they seek the best risk-adjusted return from the Lloyd’s syndicates they manage.

But this combination is also taking capacity out of the insurance market at a time when demand is increasing.

As a result, for those players strong enough and smart enough to withstand the storm, headline insurance rates are rising and savvy specialists are generating good profits, strong cash flow and high returns on equity as a result.

Such financial performance is not going unnoticed within the industry, even if stock market investors are relatively unmoved, given how Beazley trades on less than seven times forward earnings and Lancashire barely six times, for 2024.

Beazley is expected to return the equivalent of nearly 13pc of its stock market capitalisation, or some ￡600m, to its shareholders via dividends and buybacks this year.

Lancashire is forecast by analysts to pay out ordinary and special dividends that put it on a yield of almost 12pc. the FTSE 250 member has a long track record of supplementing regular payments with specials, having already done so on ten occasions since its 2005 listing, including in 2023.

Intriguingly, Hiscox is more expensive on an earnings basis, on nine times forward earnings, and comes with a lower “cash yield” of just over 5pc once you add up its forecast dividend payment and ongoing $150m share buyback scheme. That the more expensive stock is the one allegedly attracting attention can only serve to highlight the valuation of Beazley and Lancashire, especially if a predator does pounce for Hiscox.

However, investors do need to consider the different industry mixes and risk exposures that their managed syndicates run.

This is an industry where waves of consolidation are by no means unusual. Amlin, Brit Insurance, Catlin, and Novae were all taken over between 2015 and 2017, when business was booming and returns on equity were high, so a repeat is quite possible.

As a final indication of the value that Beazley and Lancashire may offer, they currently trade on 1.5 times and 1.4 times historic net tangible asset value (TNAV) per share. Hiscox trades on 1.8 times TNAV.

Both Beazley and Lancashire are scheduled to release their first-half results for 2024 on 8 August.

Questor says: hold

Ticker: BEZ; LRE

Share price at close: ￡6.67; ￡6.16

Update: Hunting

A fourth consecutive upgrade to earnings forecasts alongside last week’s trading statement is enough to keep us interested in oil equipment and services specialist Hunting (HTG), especially as the company’s order backlog continues to burgeon.

Hunting’s backlog is now $700m, up from $565m at the end of 2023, boosted by those Kuwaiti orders and strong capital investment in offshore drilling. This is driving demand for Hunting’s expertise in subsea hydraulics and modules, as well as casings, piping, and tubing.

The shares did little in response to the good news, which was enough to make us ponder whether it was time to take profits. However, the $870m stock market valuation still represents just 1.1 times the value of the company’s tangible assets, which include $671m in equipment and working capital.

That still gives us a degree of downside protection, as does a balance sheet that carries very little debt.

In addition, earnings per share exceeded 40p in 2012, 2013 and 2018. They also got close to that level in 2006. If they ever get there again, Hunting’s shares would still look cheap, and the more orders that come in and the higher the backlog goes the more inclined analysts will be to upgrade their earnings forecasts.

The first-half results are due for release on 29 August.

Questor says: hold

Ticker: HTG

Share price at close: ￡4.22