Beyond the premiums: how the global insurance market is evolving in 2024

Juliet Schooling Latter 26/06/2024 in Specialist investing

Most of us regard insurance as a necessary evil. Some policies, such as car cover, are a legal requirement, while others are required for peace of mind. You can buy protection for everything, from losing mobile phones and being burgled, to having cold feet before a wedding or getting abducted by aliens!

And while no-one likes paying for something which (hopefully) won’t be used, they’ll be grateful to have it in place should the unthinkable happen. That is the point of National Insurance Awareness Day: reminding everyone to review the policies they have in place and act if they’re underinsured. While its origins are unclear, the annual date on the calendar – which this year falls on Friday, June 28th – gives us a great excuse to look at this multi-trillion dollar sector.

Overview of insurance market

Let’s start with an overview. Insurance is one of the most powerful sectors of the global economy, with thousands of companies involved around the world. In fact, the international insurance industry grew by an impressive 7.5% in 2023 – the fastest rate since before the global financial crisis, according to a report from Allianz*.

“Insurers worldwide amassed €6.2 trillion in premiums across life, property and casualty, and health segments. However, high inflation contributed decisively to these gains; the real growth rate has been a modest 0.7% since 2020,” they reported.

Looking ahead, Allianz believes all of these areas will continue to expand, albeit at different rates, with health at 7.3% a year and life expected to accelerate by 5.1%*. “The global insurance market is expected to maintain a steady growth rate of 5.5% annually over the next decade, matching the growth rate of the global GDP.”

Attractive qualities

The business models of insurance companies also make them attractive for unpredictable environments, according to Nick Clay, manager of the TM Redwheel Global Equity Income fund.

In a recent interview, he highlighted the pricing power of insurers, especially those providing motor and household cover that are on short cycles.

“Every year you renew your insurance policy so they’re able to put prices up quickly,” he explained. “In most cases it’s legal so you have no choice but to pay, so it’s a great environment.” Such qualities have been recognised in the US. “The share prices of companies like Progressive have done very well, whereas in other areas, such as the UK, they’ve been left behind a bit,” he added.

However, Nick has recently bought into Admiral, Beazley and Hiscox, all established UK-listed insurance companies that have the ability to increase premiums**. “They have pricing power and can cope with inflationary and/or slowing economic backdrops,” he said. “Those are the characteristics we’ve begun to look into more recently.”

Trends and risks

Of course, nothing is a guaranteed route to riches. It’s fair to say that the insurance industry is constantly adapting to an ever-changing environment. “Close regulatory scrutiny, disruptive technology and growing pressure from investors are forcing insurers to rethink their priorities,” says EY insurance.

Their annual Global Insurance Outlook study noted how multiple macroeconomic and geopolitical trends, including interest rates, supply chain disruptions, skills gaps and trade tensions, continue to create widespread uncertainty***. “As a result, individual insurers must prepare for a broad range of outcomes and developments in all markets where they operate. Expecting the unexpected is in order.”

How to get exposure

There are two main ways to invest in the insurance sector. The first is through buying shares in insurers. This will give you the purest exposure to the industry. However, it’s also the riskiest. Your prospects will be reliant on the company – or companies – whose shares you have bought.

The second option is via an investment fund. This route will give you a more diversified approach to the insurance arena, with a professional manager making the asset allocation calls.

If you favour the fund option, you’ll have a further decision to make: do you want to invest in a specialist insurance portfolio or one with a broader remit?

Four funds for your consideration

Let’s first take a look at a specialist offering. The Polar Capital Global Insurance fund aims for an attractive return – irrespective of the backdrop – by investing in international insurers. Its manager, Nick Martin, boasts vast experience in this area. In fact, there are few managers with a more intimate knowledge of their chosen markets. The fund has 74% exposure to the US, with 12% to the UK and the remainder mainly split between Canada, Asia and Europe***. Arch Capital, a Bermuda-based insurer, is the largest individual holding at almost 10% of the portfolio***. Commercial, meanwhile, has the most significant sector exposure***.

Of course, you don’t need to buy a specialist insurance fund to get exposure to the sector. Many broader portfolios will have some insurers among their holdings.

For example, the Jupiter Financial Opportunities fund has 16% of its assets in insurance. The portfolio, which is managed by the experienced Guy de Blonay, is made up of a concentrated collection of ideas from the financial services arena. The businesses he owns, which have included stock exchanges and online payment companies, are generally those with sustainable growth characteristics.

Then there’s the Invesco Asian fund. Manager William Lam primarily invests in companies within Asia and Australasia with this concentrated, value-orientated portfolio. Current holdings include AIA Group***, the Hong Kong-based multinational insurance and finance corporation. It also has a 3.7% position in Samsung Fire & Marine Insurance***, a South Korean insurance company that’s based in Seoul whose portfolio includes vehicle, long-term and general cover.

Elsewhere, the JOHCM Global Opportunities fund, which is run by Bob Leyland, has insurance-related stocks among its largest holdings and roughly 16% of the portfolio allocated to financials*** more broadly. These include UnitedHealth, which offers a range of health benefits, and Intact Financial***, a Canadian multinational property and casualty insurance company.

*Source: Allianz Global Insurance Report, 23 May 2024

**Source: Redwheel Asset Management, 20 June 2024

***Source: fund factsheet, 31 May 2024

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