Goldman Sachs downgrades Hiscox, upgrades Lancashire

Goldman Sachs has downgraded non-life insurer Hiscox and upgraded sector peer Lancashire as part of its review of the European insurance sector.

After introducing a new valuation framework to its calculations, the bank has cut its rating on Hiscox from 'neutral' to 'sell' and raised its stance on Lancashire from 'neutral' to 'buy'.

Goldman said the sector's "attractive" fundamentals remain intact despite insurance stocks underperforming the wider financials space over the past 12 months.

"Sector fundamentals remain in good shape: the average 2026e total return yield is c.8.5% and dividends remain well covered on both operating capital generation (1.6x) and free cash flow (1.4x)," the bank said in a research note on Wednesday.

Valuations across the sector do not look stretched, with the average price-to-earnings ratio at just 10.

"We introduce a new valuation framework based on an IFRS 17 adjusted tangible book value multiple vs [return on average tangible book value]."

For Lancashire, Goldman cited the "structural improvement in underwriting volatility supported by diversification into less volatile and capital-light non Prop-Cat lines coupled with a strong balance sheet and excess capital returns."

However, for Hiscox, retail premium growth has remained at the lower end of the 5-15% target since 2019, and the bank believes it could take longer than expected to consistently return to the middle of that range.

Goldman reiterated its ratings across the rest of the UK-listed insurance sector, holding Aviva at a 'buy', Legal & General at 'neutral', and Phoenix at 'sell'.