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(Sharecast News) - Berenberg reinstated coverage of London market insurers Hiscox, Beazley and Lancashire on Friday, saying they continue to present a compelling investment case, underpinned by supportive valuations, disciplined underwriting, and evolving business models that are well-positioned for future growth.
Hiscox and Beazley were reinitiated at 'buy' with price targets of 1,450p and 1,150p, respectively, while Lancashire was reinitiated at 'hold' with a 670p price target.
"Despite a more mature pricing environment at Lloyd's, we believe profitability can be supported by market discipline and structural advantages," it said.
"Moreover, with sector valuations still below historical averages and the potential for renewed M&A activity, London market insurers screen as attractive takeover candidates."
Berenberg said that Beazley - its top pick across the London market - can surprise to the upside on cyber insurance.
"Pricing in cyber has been declining for the past two years, being now down 16% since the peak of summer 2022, but still over 70% higher than four years ago," it said. "We believe that cyber is approaching an inflection point in terms of pricing, driven by market growth, evolving risks and underwriting discipline, while the global market could double in size during the next five years.
"Beazley, as a well and long-established primary carrier in cyber, should be a net beneficiary from this development."
As far as Hiscox is concerned, it said it believes the insurer's accelerating retail growth can offer a robust earnings outlook.
"Hiscox's Retail business, its crown jewel, came to the fore after company's first-ever capital markets day in May 2025," it said.
"The acceleration of Retail business growth means the division will gradually become a bigger part of the overall group. Hiscox's small retail market shares in its key geographies leaves it with ample room to grow faster than the underlying market.
"Retail is less volatile than Hiscox's big-ticket business, and with the planned $0.2bn cost savings, the outlook is encouraging for the group's profitability, which we believe can be sustained in the mid-teens range (through-the-cycle)."
Berenberg said Lancashire has made good progress in recent years in diversifying by growing its non-catastrophe-exposed, specialist lines of insurance.
The company's expected loss from the LA wildfires of 2025, while larger relative to its size than the losses of its peers, will have a significantly smaller effect on the combined ratio than it would have done a few years ago.
The profitability target of 2025 is likely to be achieved, the bank said, but the special dividend is likely to be lower year-on-year.
"While valuation is undemanding (6.6x 2026E P/E), we believe the risk-reward profile is balanced," it said.