Insurance cos pitched as ‘good investment option’
Fund manager says as long as there are “just enough” catastrophes this year, market for insurers will remain good
A run of recent catastrophes has pushed down share prices for insurance companies in this market after investors headed for the doors, leading one fund manager to say it presents an investment opportunity.
Kokkie Kooyman, managers of the Sanlam Global Financials fund, said events such as the flood in Thailand, earthquake in Japan, the Chilean earthquake and others have led to a fall in share prices for catastrophe insurance companies to the point where they are significantly underpriced.
2011 saw some of the highest payouts in a single year, with the capital reserves of the companies substantially reduced. However, a run of catastrophes leads to a rise in people seeking insurance so premiums increase considerably.
That said, Kooyman said a lack of catastrophes can also lead to a drop in profits. “If there are no catastrophes then companies make good profits but renewal premiums are lower. The key is getting the balance of just enough catastrophes.”
He added, “I’m amazed at how many investors are only just waking up to the fact that insurance companies are mispriced.” One reason for this, he said, is the fact this is a niche area.
Kooyman, who has nearly a quarter of his fund invested in catastrophe insurance companies, said the dividend yield has also been steady, of more than 6 per cent.
However, he said that investing in a company that has a diverse spread across geography and catastrophes is crucial, or one disaster can wipe out a company’s profits.