Typically, there is a reshuffle in the lineup every quarter FTSE250 and FTSE100. It’s a bit like football leagues, in the sense that some companies move up from the FTSE 250 to the FTSE 100 for good performance. Others are relegated. In the latest review entitled Hiscox (LSE:HSX) received a major index subpoena. What will happen now? Here’s what I think.

The journey back to the top

To be clear, this is not the first time Hiscox has been gigantic enough to leave the FTSE 250. It has fluctuated between both indexes over the years. In 2020, when the pandemic hit, the company dropped out of the FTSE 100. Fast forward to 2024, and a 12% share price enhance lifted its market capitalization to £3.57 billion. This is enough to return to the top league.

Before I can fully explain where I think this stock is headed, it’s critical for me to understand how it has performed in the recent past.

The pandemic was not a good time for Hiscox, which specializes in diminutive business insurance. In the 2020 financial year, there were claims worth over £350 million. Most of them related to event cancellations and business disruptions. As a result, it recorded an annual loss of £293 million.

However, it may work well since then. After all, the pandemic shock was a black swan event. Under normal business circumstances, insurance is a viable and proven operating model.

The engines are running fully

Hiscox has performed well over the past year. Interim results published in August show that pre-tax profit was up 7.1% compared to the first half of 2023. The split of revenues across divisions has likely given investors confidence going forward as no one area has an advantage over the others.

Retail is doing well, which is also emphasized by the CEO “With the best real estate market conditions in a decade continuing largely through 2024, we committed more capital to our reinsurance business at the beginning of the year.”

Let’s not forget that Hiscox has operations all over the world, including in the US and Asia. So even if the UK market underperforms, it can offset this with other areas.

Thoughts for the future

Despite the enhance in share prices, the price-to-earnings ratio is only 6.95. I consider this an underestimate given that I exploit a factor of 10 as a fair benchmark. Therefore, a rise in the FTSE 100 could assist the stock continue to rise as it attracts more attention from value investors.

One risk is that the company’s shares will disappear from the FTSE 100 index due to other, larger competitors. These include, among others: Admiral, Prudential, Legal and general informationjust to name a few! This could hamper share price momentum as investors may already have sufficient exposure to the sector.

Ultimately, I believe the future is brilliant for Hiscox and I am considering adding it to my portfolio.