JPM upgrades Beazley and Hiscox to overweight

27th May 2015 08:08

JPMorgan Cazenove upgraded Beazley and Hiscox to 'overweight' from 'neutral' as it took a look at the Lloyd's insurers."We believe the Lloyd's insurers will continue to re-rate, as in our view the compound benefit of their approach to capital is not yet being fully valued," said JPM.It said the sector currently trades at 1.8x tangible net asset value for an average return on tangible equity of 15%. "In our view a multiple of nearer 2x may be warranted, particularly given the close alignment of earnings and dividends," said JPM.Since the start of 2010, the companies have on average returned 70% of their net asset value to shareholders, and JPMorgan believes capital distributions will remain a driver of outperformance over the medium term.The potential for further M&A should also support valuations, it added.Beazley and Hiscox are its top picks."Both companies are net buyers of reinsurance, implying better insulation from softer rates and a lower risk profile we believe," remarked JPM.It said that Hiscox has a strong retail business that can deliver sustainable growth at attractive margins, while Beazley's capital efficiency and strong track record of returns make it attractive.JPM raised Beazley's price target to 308p from 255p, and upped Hiscox to 950p from 801p.