Hiscox: British Niche Insurance Opportunity

Hiscox (LSE: HSX) is a speciality insurer covering unique risks that mainstream insurers usually avoid. Its share price still has not fully recovered from the free-fall it entered in January 2020, but barely three months ago the Lloyd's of London insurer was boasting record profits. Considering this, how does Hiscox stand out compared to its competitors?

On the surface, compared to other insurers, it looks like a bargain. Hiscox trades at a PE of 9.46, which looks like a steal compared to other British insurers like Aviva (PE: 26.56), Admiral (PE: 15.39), and Direct Line (27.45). However, this could be misleading. Being a speciality insurer, its offering is remarkably different compared to those companies. Hiscox, insures art, companies against cyber attacks, crisis, marine, and so on. This would make it much fairer to therefore compare it to companies like Beazley, AXIS Capital, and Lancashire Holdings, who have PE ratios of: 7.28, 9.98, and 6.12, respectively. Hiscox therefore seems to sit towards the more expensive end of its competitors, but not outrageously so.

And its with this in mind that leads me to ask: is there anything special about Hiscox? I think there is, and it's found in their cyber offering. In recent weeks the UK news has been littered with stories of high-profile cyber attacks taking place against big names including M&S. As digital becomes ever more important, so too will the associated threats like cyber attacks. Hiscox seems to recognise this, as shown by their ad campaign in the City of London at stations like Bank, and broader marketing, of their products to support businesses with navigating and recovering from cyber attacks.

While other firms may offer similar products - Beazley is an undeniable cyber powerhouse - Hiscox offers highly credible expertise, a similar dividend yield, and a unique advantage in small business lines, the latter of which represents a major growth engine for the firm. Hiscox represents a sensible approach to a conservative investor.

What sweetens the deal is the underlying fact that as of the end of 2024, Hiscox's earnings per share had been increasing by 52% per year for three years, but the share price only increased on average by 10% per year. This is a fine figure, however, represents an incongruence with the company's earnings growth, suggesting Hiscox could be rather undervalued. With Hiscox offering a unique product offering in cyber that will undoubtedly see strong growth, the company's future looks bright. I therefore have confidence in Hiscox's recent announcement that it is targeting double-digit retail premium growth by 2028, while it enacts other changes to optimise efficiency and support its bottom line.