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1. Company Snapshot

1.a. Company Description

Hiscox Ltd, through its subsidiaries, provides insurance and reinsurance services in the United Kingdom, Europe, the United States, and internationally.The company operates through four segments: Hiscox Retail, Hiscox London Market, Hiscox Re & ILS, and Corporate Centre.It provides commercial insurance for small-and medium-sized businesses, personal lines cover, including high-value household, fine art, luxury motor, and classic car through brokers, partners and direct-to-consumer using both traditional and digital trading models.


The company also offers property insurance; marine and energy insurance; aviation insurance; casualty insurance; specialty insurance; kidnap and ransom insurance; and other specialty insurance, such as contingency, terrorism, personal accident, and product recall.In addition, it provides healthcare and casualty reinsurance services, as well as investment services.Hiscox Ltd was founded in 1901 and is based in Pembroke, Bermuda.

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1.b. Last Insights on HSX

Hiscox Ltd's recent performance is driven by its attractive financial prospects, record profits, and strategic growth initiatives. The company's FY 2024 earnings beat expectations, with revenue increasing 9.0% to US$4.03 billion and net income rising. Hiscox's record profits, despite a £134m hit from LA wildfires, demonstrate the company's resilience. Additionally, the launch of a new Financial Institutions offering and partnerships with growth-oriented brands, such as Carlin Consumer Health and Hiscox USA, indicate strategic growth initiatives.

1.c. Company Highlights

2. Hiscox Delivers Strong H1 Performance

Hiscox reported impressive financial results for the first half of the year, with revenues increasing by 5.7% to reach $160 million. Operating profit before tax amounted to $262 million, resulting in a robust operating return on tangible equity of 14.5%. The company's investment performance was also strong, generating $235 million in returns thanks to a growing asset base and higher bond yields. Notably, Hiscox's Best's Capital Adequacy Ratio (BSCR) stands at a healthy 239% at the half-year mark.

Publication Date: Aug -08

📋 Highlights
  • Operating Profit Growth:: Operating profit before tax surged to $262 million, achieving a 14.5% return on tangible equity.
  • Combined Ratio Performance:: Maintained a robust 92.6% combined ratio, with London Market hitting 87.9% (fifth consecutive year in the 80s).
  • Capital Returns:: Share buyback expanded to $275 million, alongside a 9% increase in interim dividend, reflecting strong capital generation.
  • Wildfire Impact & Reserves:: California wildfires impacted Re & ILS with a 99.5% combined ratio, but 60% of $170 million reserves already paid out.
  • Marketing & Growth Initiatives:: Marketing spend doubled to £100 million, driving brand awareness and reducing customer acquisition costs, supporting U.S. middle-market expansion.

Retail Segment Shows Strength

Hiscox's retail segment led the charge with a 6% growth in premiums, driven by robust performances in the UK, Europe, and the US. The undiscounted combined ratio improved to 92.7%, fueled by lower claims and administrative expenses. This segment's success reflects the company's effective strategy of policy by policy improvements, new distribution partnerships, and increased marketing spend.

London Market Navigates Micro Cycles

The London Market segment saw a 3% increase in premiums, demonstrating resilience in navigating micro cycles within the market. The company's active portfolio management has resulted in a fifth consecutive year of combined operating ratios in the 80s, reaching 87.9% in the latest period. This consistent performance highlights the segment's ability to adapt to fluctuating market conditions.

Re & ILS Focus on Growth and Profitability

Hiscox Re & ILS experienced a 7.9% growth in net premiums, primarily driven by strong performance in specialty and pro rata lines. While the undiscounted combined ratio reached 99.5% due to the impact of California wildfires, the company is strategically managing its exposure through focused growth initiatives and careful retention level adjustments.

Capital Management and Outlook Remain Positive

Hiscox remains committed to returning excess capital to shareholders, increasing its ongoing share buyback program to $275 million and declaring a 9% hike in its interim dividend. The company projects continued growth, aiming for a figure exceeding 6% in constant currency for the full year. This outlook, coupled with strong capital generation and a commitment to shareholder returns, positions Hiscox favorably for continued success.

3. NewsRoom

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AM Best Affirms Credit Ratings of Hiscox Ltd and Its Subsidiaries

Nov -13

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UK SMEs overlook underinsurance risk, despite major protection gaps

Nov -13

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FTSE 100 hits new high on electricity generator SSE spark and gold gains

Nov -12

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Why Analysts See a Changing Story for Hiscox as Optimism Builds on Upgrades and Results

Nov -08

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Why the Narrative Around Hiscox Is Shifting After Analyst Upgrades and Strong Results

Oct -25

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How Analysts See the Hiscox Story Changing Amid New Growth and Market Uncertainties

Oct -10

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Insurtech company Elysian raises $6m in seed funding

Sep -05

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Elysian Raises $6M Seed Round to Redefine Insurance Claims Services with AI-Native Platform

Sep -04

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (2.40%)

6. Segments

Hiscox Retail

Expected Growth: 3.0%

The direct-to-consumer insurance market is expected to grow faster than the overall industry, driven by increasing demand for personalized products and digital channels. Hiscox Retail is well-positioned to capitalize on this trend, with a strong brand and distribution network. The segment's focus on commercial insurance also provides a growth opportunity, as businesses continue to seek insurance products tailored to their needs.

Hiscox London Market

Expected Growth: 2.8%

The London Market is a significant hub for global insurance and reinsurance business, and Hiscox London Market is a key player in this market. The segment's expertise in specialist insurance products, such as property and marine insurance, is expected to drive growth. The ongoing demand for complex and bespoke insurance solutions is likely to support the segment's growth prospects, albeit at a moderate pace.

Hiscox Re & ILS

Expected Growth: 3.2%

The reinsurance and ILS markets are expected to grow faster than the overall industry, driven by increasing demand for alternative risk transfer products. Hiscox Re & ILS is well-positioned to capitalize on this trend, with a strong reputation and expertise in reinsurance and ILS products. The segment's ability to provide complex and bespoke products to clients is likely to drive growth.

Corporate Centre

Expected Growth: 2.4%

The Corporate Centre segment is not expected to be a significant growth driver, as it is primarily focused on supporting the other business segments. The segment's costs are expected to be managed in line with the overall group's growth prospects, with a focus on efficiency and cost control. A defensive growth figure of 2.4% is assumed, in line with the global revenue growth hypothesis.

7. Detailed Products

Professional Indemnity Insurance

Protects professionals against claims of negligence, errors, or omissions in their work.

Public Liability Insurance

Covers businesses against claims of injury or property damage to third parties.

Employers' Liability Insurance

Protects businesses against claims of employee injury or illness at work.

Cyber and Data Insurance

Protects businesses against cyber-attacks, data breaches, and ransomware attacks.

Office Insurance

Covers business equipment, furniture, and buildings against damage or loss.

Business Interruption Insurance

Covers businesses against loss of income due to unexpected events.

Directors' and Officers' Liability Insurance

Protects company directors and officers against claims of wrongful acts.

Commercial Vehicle Insurance

Covers business vehicles against accidents, theft, and damage.

8. Hiscox Ltd's Porter Forces

Forces Ranking

Threat Of Substitutes

Hiscox Ltd operates in the insurance industry, where there are many substitutes available to customers. However, Hiscox's strong brand reputation and customer loyalty mitigate the threat of substitutes.

Bargaining Power Of Customers

Hiscox Ltd's customers have some bargaining power due to the availability of alternative insurance providers. However, Hiscox's strong brand reputation and customer loyalty reduce the bargaining power of customers.

Bargaining Power Of Suppliers

Hiscox Ltd has a diversified supplier base, which reduces the bargaining power of suppliers. Additionally, Hiscox's strong financial position and reputation reduce the dependence on any single supplier.

Threat Of New Entrants

The insurance industry has high barriers to entry, including regulatory requirements and capital requirements. This reduces the threat of new entrants to Hiscox Ltd.

Intensity Of Rivalry

The insurance industry is highly competitive, with many established players competing for market share. Hiscox Ltd faces intense rivalry from other insurance providers, which can lead to pricing pressure and reduced market share.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 18.62%
Debt Cost 5.83%
Equity Weight 81.38%
Equity Cost 7.36%
WACC 7.07%
Leverage 22.89%

11. Quality Control: Hiscox Ltd passed 4 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Hanover Insurance

A-Score: 6.8/10

Value: 7.3

Growth: 4.8

Quality: 6.6

Yield: 4.0

Momentum: 8.5

Volatility: 9.3

1-Year Total Return ->

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Stock-Card
RLI

A-Score: 6.5/10

Value: 6.0

Growth: 6.9

Quality: 8.2

Yield: 7.0

Momentum: 1.5

Volatility: 9.3

1-Year Total Return ->

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Definity Financial

A-Score: 6.4/10

Value: 4.2

Growth: 7.2

Quality: 7.0

Yield: 2.0

Momentum: 9.0

Volatility: 9.0

1-Year Total Return ->

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Hiscox

A-Score: 6.3/10

Value: 3.6

Growth: 6.0

Quality: 8.5

Yield: 3.0

Momentum: 8.5

Volatility: 8.3

1-Year Total Return ->

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Stock-Card
Loews

A-Score: 6.1/10

Value: 6.2

Growth: 6.8

Quality: 5.3

Yield: 0.0

Momentum: 8.0

Volatility: 10.0

1-Year Total Return ->

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White Mountains Insurance

A-Score: 4.7/10

Value: 4.5

Growth: 5.3

Quality: 7.6

Yield: 0.0

Momentum: 2.0

Volatility: 8.7

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

13.13$

Current Price

13.13$

Potential

-0.00%

Expected Cash-Flows