As at 31 December 2023 HLI reported $247m in excess capital...

As at 31 December 2023 HLI reported $247m in excess capital (relative to max of board's PCA target range). This is likely to have been roughly the same at 31 March 2024, as PCA was unmoved at 1.86x. During 1q24 $26.6m was spent on buying back shares.

As excess capital was flat during 1q24 despite the buyback activity, this suggests $26m of additional excess capital was generated (capital released from business runoff minus capital set aside for new business written). Using the same $26m of capital generation for each of the remaining three quarters of FY24 suggests another $78m of excess capital, which added to the $247m brings total excess capital over max board target to $325m.

In 2q24 the buyback purchased approximately $13m, reducing max excess capital to $312m. Assuming the same spend on the buyback in 2h24 (ie $13m per quarter, or $26m in total), this reduces expected max excess capital to $286m at 31 December 2024.

Having $286m of excess capital above max of the board's PCA target range leaves room for the announcement of a 30-35cps special at each of the next three years’ full year results (with the low end roughly matching the $90m cost of FY23's special dividend - see page 43 of the annual report).

At yesterday’s close of $3.79, the ‘promised’ sustainable ordinary dividend of 28cps per year implies a 7.4% yield. Add a 30-35 cps special dividend, and the yield increases to 15.3% to 16.6% for each of the next three years.

Blazing saddles indeed.