The day-to-day life of Hiscox probably won’t change much in the wake of the insurer’s elevation to the FTSE 100 in the latest quarterly reshuffle that was unveiled last night. For investors, though, owning a blue-chip company share should make the world a little sweeter. Aside from the cache of being a member of the premium index, the stock should receive a boost from tracker funds buying to reweight their holdings.
Hiscox was established in 1901 by AE Roberts, an underwriter who put together a syndicate to provide cover for the maritime industry through the Lloyd’s of London market. Today it is headquartered in Bermuda and employs more than 2,700 staff across 34 offices in 14 countries.
As well as offering, through Lloyd’s, traditional protection products covering ships and their cargoes, large commercial properties, natural disaster and terrorism risks, Hiscox also has a rapidly expanding retail division, selling high-end home and car insurance to the wealthy. To add to the mix, it provides insurance to small businesses and is an expert in fine art and jewellery.
Technically, the insurer has earned its entry into the FTSE 100 based on the crude measure of its performance over the past three months, but in reality falls among strugglers in both the lead and mid-cap indices have helped its cause. More tellingly, Hiscox shares have vastly outperformed the FTSE 100 since the beginning of March 2013 and began to pull away from its FTSE 250 counterparts in May last year. As an indicator, while an investor tracking the Footsie will have made a return of just under 9 per cent since March 2013, the owner of Hiscox stock will have an investment that has gained in value by 186 per cent over the same period.
The main reason, aside from the structural growth in the insurance sector, has been Hiscox’s diversity. That, and a backdrop of takeover deals that have removed companies such as Novae and Amlin and left Hiscox one of only three quoted specialist insurers, alongside Beazley and Lancashire Holdings.
Of the just over $3 billion in insurance premiums that Hiscox wrote during the first nine months of the year, its business on the traditional London market accounted for a mere $664 million. Vastly more, at just under $1.6 billion, comes from Hiscox Retail, which includes individual and small business insurance and is one of the two big growth opportunities.
The remainder, at just over $782 million, came from reinsurance, or the process of taking on parts of insurance cover already written by others, and activities in the capital markets, which increasingly are used as a means of passing on risks through structured securities bought by numerous different kinds of buyer, including hedge fund and pension scheme investors.
The other big growth opportunity is America, which sits inside Hiscox Retail. Over the nine months, the United States operation wrote $611.9 million of premiums, 18 per cent more than in the same period last year, making it the fastest-growing of all of Hiscox activities (aside from the direct insurance sales unit in Asia, which remains tiny by comparison). The American potential is vast: Hiscox presently provides cover to 300,000 small businesses in the US, out of an addressable market of 28 million.
There are hazards, of course. Insurance is cyclical and the chances are high that Hiscox will have to pay out large compensation claims. That, after all, is what it’s there for. At the same time, when low claims mean that the insurer is cash-rich, it is happy to reward shareholders with special dividends. The shares, off 32p at £16.52 yesterday, have a premium rating, but deserve it.
ADVICE Hold long term
WHY Efficient and well-run, with attractive and solid long-term growth opportunities
Monks Investment Trust
Try talking to the manager of the Monks Investment Trust about performance over the short term and you’ll be sent away with a flea in your ear. Not because he’s abashed about addressing the issue when things go wrong, but because he believes it’s simply not the point. While it’s true that the £1.74 billion investment trust had a pretty woeful time of it over the six months to the end of October, he has a case.
The trust has been run for more than 80 years by Baillie Gifford, the Edinburgh-based fund manager with a total portfolio of £185 billion. It invests almost entirely in listed companies spread worldwide and aims to achieve capital growth for investors rather than paying an annual dividend, although it does make a small payment each year. The manager since March 2015 has been Charles Plowden, who was brought in after a period of underperformance, which he has dramatically reversed.
First, the setback. Monks lost 0.9 per cent during the first half, against a positive return by its benchmark, the FTSE World Index, of 4.5 per cent. The main reason for the underperformance was share price falls at Naspers, the South Africa-based internet and media group, and Prudential, the FTSE 100 insurer, two of its largest holdings, at 2.1 per cent and 2.6 per cent of the portfolio, respectively.
In response, as you might expect, Mr Plowden and his team are undeterred and, aside from small alterations, such as cutting back its position in Amazon in favour of technology stocks that they believe will generate growth more rapidly, they are sticking with their portfolio.
Monks is well-spread by geography and by sector, with 48.2 per cent in North American shares and a little under a third in financials, although this consists of a broad range of companies from Mastercard and Visa to savings companies and without exposure to banks.
Judged, as it would prefer, over the longer term, Mr Plowden’s team have generated a return of 56 per cent since they took over, ahead of the FTSE World Index’s 46.7 per cent gain. The shares, down 17p at 783p yesterday, have risen by 82.4 per cent over the period. It’s impressive.
ADVICE Buy long term
WHY Diversified portfolio well placed to perform long term
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