Hiscox is a safe bet in insurance – how to play its shares
Hiscox's strategy has allowed it to generate consistent profits, and the stock is very reasonably valued. Here's how to play the share price
Insurance company Hiscox is benefiting from a volatile global backdrop that means firms want to make sure that their assets – from their factories to the goods and services they sell – are properly insured. Meanwhile, the rise of the digital economy has created new types of insurance, such as protection against cyberattacks.
It may not be glamorous, but some of the best investment opportunities are in industries that may seem dowdy, but are solid, profitable and crucial to the global economy.
Hiscox (LSE: HSX) focuses on three areas. It provides large-scale insurance through its membership of Lloyd's of London, the main insurance market in the world. It also offers reinsurance, whereby it takes on a portion (or all) of the risks in policies originally written by other insurance companies.
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Both of those businesses have been successful, with Hiscox boasting a strong record of striking a balance between risk and return in its investments, which has allowed it to generate consistent profits. However, the most interesting part of Hiscox is its growing retail division, which offers insurance policies to small companies in the UK, US and Europe.
Hiscox's growth strategy is working
Thanks to advertising and a strong reputation for customer satisfaction, Hiscox has been able to burnish its brand and grow the retail part of the company faster than the other two segments: the retail side now accounts for around half of sales. The market is competitive, but Hiscox seems to have a sensible plan for maintaining this growth, including new products; striking deals and partnerships; and acquisitions to expand its presence outside the UK.
Hiscox's revenue grew by around 50% between 2020 and 2025, with earnings per share more than tripling between 2021 and 2025.
Both sales and profits are set to keep growing. Hiscox has also been able to increase its pricing power: operating margins more than doubled to 15%. This has enabled it to grow its dividend consistently since 2022. The stock nonetheless remains very reasonably valued, trading at only 12.8 times projected 2027 earnings, and offering a solid dividend yield.
This combination of strong profits and low valuations has started to attract interest from potential buyers. In May it was reported that Canada's Intact Financial had been exploring a potential bid for Hiscox. While nothing has been formally announced, Zurich Insurance Group agreed in March to purchase rival Beazley, demonstrating that the UK insurance sector is on global companies' radars.
In any case, Hiscox's share price seems to have plenty of momentum behind it. Hiscox has been the eighth best-performing share in the FTSE 100 over the past six months, gaining a third. It is also trading above its 50-day and 200-day moving averages. I would therefore go long at the current price of 1.861p at £1.50 per 1p. In that case I would put the stop loss at 1,261p, which gives you a downside of £900.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
