Hiscox upgraded to “overweight” as $200 mln cost plan boosts earnings outlook

Investing.com -- Hiscox (LON:HSX) has been upgraded to "overweight" by Morgan Stanley (NYSE:MS), which raised its price target from 1,280p to 1,460p, in a note dated Wednesday. 

The revision follows the insurer’s Capital Markets Day, where management outlined a strategic plan centered on operational efficiency, capital clarity, and stronger growth in its Retail division.

At the heart of the revised outlook is a $200 million cost savings program to be implemented by 2028. 

Hiscox will spend $200 million between 2025 and 2027 to realize these savings, which are projected to add $160 million to net earnings by 2028, an increase of 26% over 2024 levels. 

Two-thirds of the savings are expected to improve the combined ratio, split evenly between claims and expenses, providing an estimated 3-point benefit. The remaining savings will come from operating expenses.

Retail, which accounts for half of group premiums, is expected to accelerate to double-digit growth by 2028, up from guidance of more than 6% in 2025. 

Recent improvements in U.S. broker and partnership business performance support the revised projections. 

Retail’s combined ratio is forecast to decline from 89.3% in 2025 to 86.8% in 2027, while group-level combined ratios are estimated to fall from 88.7% to 83.6% over the same period.

Capital management plans were also clarified. Hiscox now targets a 190–200% Bermuda Solvency Capital Requirement ratio. 

Capital beyond this range will be returned to shareholders. Based on this framework, Morgan Stanley raised its 2025–2027 buyback estimate by $50 million to $225 million. Even after these returns, a 10–15 percentage point surplus, equal to 3.5–5% of market capitalization, is projected by 2027.

Estimates for reported earnings per share have been revised up by 4% for 2025 and 7% for 2027. 

Adjusted operating profit projections rose by 8% for 2025, 11% for 2026, and 20% for 2027. Dividend forecasts increased by 11–16% following a 20% step-up in the 2025 final dividend.

Despite execution risks, particularly in delivering the full savings and achieving growth targets, Morgan Stanley views the plan as detailed and credible. 

Shares trade at 8.4x 2026 adjusted operating P/E and 1.4x 2025 P/B, levels considered undemanding relative to historical norms.

Upcoming earnings releases are expected to act as catalysts, with management committed to regular updates on plan progress.