Tyson Fury may not sound like the sort of character whose wellbeing you would want to align the performance of your investments with.
After all, the former world heavyweight boxer is just as famous for his erratic behaviour as he is for his performances in the ring, such as relinquishing his WBO and WBA titles after he tested positive for drug use. 
However, James Henderson and Laura Foll’s investment in Sabre Insurance means they will actively benefit if the company’s clients keep themselves out of trouble – clients including none other than Tyson Fury himself.
The managers of the Lowland Investment Company believe that just as the market tends to exaggerate the good news when companies are doing well, it will also exaggerate the bad news when they are doing badly – which creates a valuation opportunity. And, while Sabre Insurance is not an example of a stock bought for this reason, by offering insurance for the right price to individuals considered too risky for mainstream providers, its strategy bears many similarities to Lowland’s.
“You’d imagine Tyson Fury would be a nightmare to insure,” said Foll. “He’s got a super-expensive car, he’s got some habits that we won’t go into, so he would get a very expensive quote for his car insurance. It won’t be the best-value quote that Sabre would give you, but it will provide good underwriting returns.”
Foll and Henderson (pictured) were initially attracted to Sabre due to its strong historical earnings margins and 7 per cent yield. They were also impressed with the management team’s honesty in admitting they weren’t overly concerned with growth.
“They were saying that if they can’t get an attractive price and an attractive margin, they are just not going to underwrite that business,” Foll explained.
“And that turns off so many people from wanting to invest in it,” Henderson added. “But it is generating real cash. You don’t have to grow too strongly – if you grow insurance too quickly, you don’t generate cash and you end up underwriting stuff you probably shouldn’t underwrite.
“Saying to the market ‘look this is very low growth’ wasn’t the way to get a stellar rating at the start, but as the cash comes through and the profits come through, hopefully we’ll see a re-rating – well, we are already seeing a re-rating.”
Henderson said that just like the best of Lloyd’s underwriters, Sabre is “so disciplined” – if a client refuses to pay the price offered to them, the company simply won’t insure them. And, if it doesn’t underwrite many clients in a certain month, it will not put itself under pressure and cut prices. The manager said that in this day and age, this has been a difficult business model to sell to the stock market.
“The stock market likes to see steady growth,” he continued. “But the end result is that if you take on bad risk, then it hurts you. And Sabre’s combined ratio after all its expenses is 70 per cent – which means for every £100 it takes in, it is making £30. Other really good insurers operate on 97 to 98 per cent combined ratios. So you can write a lot of business, but if you haven’t got that right and you’re actually underwriting at 100 per cent, you’re being a busy fool and you’re not making any money even though you are doing an awful lot of work.
“It’s much better to not do the business or do it at a better price, and you can only hold up the price if you are doing something different to other people. I think there are more people realising that if you do something different and excellently, it protects you.”
Henderson has previous experience of picking winners in the world of insurance. He bought Hiscox for £40m in 1992 following a reconstruction in Lloyd’s, saying that under all the mess and noise, there was “good, disciplined underwriting”. He finally sold out of it earlier this month when the stock was worth £1.5bn.
“It’s been an extraordinary UK success story, a London, City success story,” he continued. “But I sold it in this portfolio and I am reducing it in other places. It’s the one the fund manager wants to buy, you buy it in 1992 and you don’t do anything about it until 2018.”
“And people pay you for doing the job, which is sometimes a nice job to do. The great thing is the discipline it had at the start is still there. The company might have grown and taken on more and more people, but the disciplined underwriting is still there and watching the success of the team grow into creating a company like that is the excitement of doing our job.”
When asked why he decided to sell out now, Henderson highlighted its price/book value of 2.5x, compared with less than 1x when he first bought it. However, he said the main reason is that he has to put pressure on himself to find the next generation of stocks like Hiscox.
“Every day there are new opportunities,” he added. “There are 100 stocks on AIM that we could invest in, there will be big winners on that kind of 20-year view out there, huge winners. And we need to do the work and find them.
“Laura is away for a few months [on maternity leave] and will be back in September, and if we have found one like that by the time she returns, she’ll be well pleased.”
Data from FE Analytics shows Lowland Investment Company has made 673.42 per cent over the past 20 years, compared with 259.44 per cent from its IT UK Equity Income sector and 215.58 per cent from the FTSE All Share.
Performance of trust vs sector and index over 20yrs
Source: FE Analytics
It is on a discount of 6.98 per cent, which is wider than its one- and three-year averages of 6.25 and 4.95 per cent, respectively.
The trust is 11 per cent geared, has an ongoing charges figure of 0.59 per cent and is yielding 3.41 per cent.