August 27, 2014

In The Red

Despite the lack of natural catastrophes, it has been a shaky start to the second half of the year for investors in reinsurance equity.

Unlike insurance linked funds, the value of reinsurance equities are affected by investor opinion of that particular share, the reinsurance market and the stock market in general.

The dramatic rise of insurance linked funds has largely been driven by the success of one argument: it is possible to access reinsurance returns in ways that are uncorrelated with the market sentiment and these types of investment should have a lower cost of capital than equity investments.

As earnings season drew to a close last week it was clear that the markets were not particularly excited about the prospects of companies that sell reinsurance. Just eight of the 30 stocks that Aon classifies as reinsurance companies have outperformed the S&P 500 financial index (which was down 2.2%).

Four of the eight out-performers are already trading below their tangible book value. One is QBE which has lost 35.2% in the last 12 months. Another is Berkshire Hathaway which has been making dramatic reductions in its reinsurance portfolio for several years.

To read the full report on what has happened to reinsurance stock prices since q2 results were announced and a graph of how price to tangible book value has varied over the years, visit Insurance

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Source: Insurance Linked


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