Hiscox Shares Dip (LON:HSX): Double Downgrade on Peer Underperformance

Hiscox shares (LON:HSX) are trading lower today, following a downgrade from Jefferies citing underperformance relative to peers. The insurer's share price is currently down 1.65%, contrasting with a year-to-date gain of 23.81% that had let HSX to near 6 year highs.

The downgrade, issued by Jefferies analyst Derald Goh, lowered Hiscox's rating to ‘Underperform' from ‘Buy', with a significantly reduced price target of 1,068 GBp, down from the previous 1,500 GBp. Jefferies' analysis points to Hiscox's return on equity (ROE) lagging behind its competitors, indicating that the business is “under-earning.” The firm projects that Hiscox will not close the ROE gap until 2028, despite the company's new retail and cost plan announced in May.

This bearish perspective contrasts with an earlier upgrade from Goldman Sachs on July 2. Goldman Sachs had upgraded Hiscox to ‘Buy' with a price target of 1,395 GBp, highlighting the company's balanced business portfolio between commercial property and casualty (P&C) and retail P&C. At the time, the firm believed this balance offered upside potential for retail margin expansion while limiting downside risks from potential softening in the commercial P&C sector.

Price Targets

Adding to the complexity, Hiscox announced an increase in its share buyback program to $275 million on August 6, buoyed by strong first-half performance, especially in the retail segment. Total insurance-contract written premiums rose to $2.94 billion in the first half, up from $2.78 billion a year earlier.

Retail premiums also saw a 6.0% increase in constant currency, with positive momentum across all major markets, particularly in the U.K. and the U.S. The company stated it was on track to deliver retail growth above 6% for the full year.

However, Jefferies' recent downgrade highlights concerns that Hiscox's underwriting risks are higher than suggested by its business profile, and that the company is not achieving sufficient margins to offset these risks. This assessment leads to a projected 20% downside to the current share price, justifying the double downgrade.