London is still an important center of insurance expertise and some of Lloyds of London’s most important players are updating shareholders on their health this week. Though these companies are listed in the UK, they are significant clients of the global re-insurance players. How is this credit crunch resistant sector predicted to perform?
Short sellers are not very active in the UK Insurance sector. Amlin (AML) sees only 1.4% of total shares short so few predicted their 3.5% fall on the announcement of their results. Despite this fall the shares have been on a very good run since June and this coincided with institutional investors who lend increasing their holdings to 26.7% of the shares in issue making them the most widely held UK insurer (including in relation to fund ownership in PRU and Aviva).
Catlin Group (CGL) bears witness to falling short interest and rising ownership from funds who lend. Beazley, Hiscox, Chaucer and others show a similar pattern meaning that in general, investors are generally positive about the prospects for this sector.
A stand out name amongst the crowd is Brit Insurance (BRE) which is in takeover talks with a private equity firm (Apollo Group). It is not a stand out situation due to the volatility or scale of the investor sentiment. Short selling is 0.65% of shares and funds who lend own 24.5% of the issued shares. Rather, it is an example of a very English company (not only through sponsorship of the English cricket team and the Oval) that is happy to sell to the highest bidder to reward management and shareholders.
There is nothing wrong with this as one could never argue that BRE is an asset of national security! That said, management’s willingness to enter talks so eagerly shows that they feel the offer represents fair value – insurance clearly isn’t a scarce commodity that can command rival bidders and takeover rejection in the way potash asset owners can. It also shows that private equities companies are alive and well and looking to spend their money.
A chink the armour of UK insurers is their exposure to the US hurricane season. Is it me or is every year rumored to be “worse than ever”? However, the scale of re-insurance is such that this sector has to be observed alongside the fortunes of the underwriters such as DAX listed Munich Re. This sector has Warren Buffet as a strategic shareholder in General Re.
The sage isn’t predicted to being losing his cool over this sector and the short sellers agree with his positive view. They haven’t been shorting Munich Re despite the shares falling 20% in May. Hannover Re seems to be the firm most exposed to the Horizon oil spill. Short interest is 2.4% of total shares which is higher than the its re-insurance peers but low nonetheless. Far from worrying about BP related risk, institutions who lend have been buying more shares and now own 13% of the company. It seems to be one way traffic for the Insurers….
