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Twelve Capital sees “once-in-a-decade” undervaluation of insurance equities


Global insurance equities, so the shares (or stocks) of insurance and reinsurance companies around the world, are currently undervalued to a degree not see for a decade, presenting an attractive time to allocate to the market, investment manager Twelve Capital believes.

Twelve Capital logoTwelve Capital, the Zurich headquartered catastrophe bond, insurance and reinsurance linked investment fund manager, sees a number of catalysts that, alongside undervaluation, make insurance related equities a good trade right now.

The investment manager believes that tail risks are reducing in the sector as the COVID-19 pandemic comes increasingly under control in the major economies of the world and insurance and reinsurance firms exclude specific exposure to it from their products.

The asset manager explained, “As the uncertainties and tail risks associated with Covid-19, financial market turbulence, and uncertain regulatory intervention recede, Twelve Capital sees the resultant once-in-a-decade level of undervaluation as an attractive opportunity for equity investors to rotate meaningfully into insurance industry exposures.”

At the same time the market is firming, across insurance and reinsurance, meaning there is an improving earnings outlook for the insurance and reinsurance market.

In addition, Twelve Capital believes that insurance and reinsurance in general is well-positioned to ride the global reflation trade, which it believes makes all insurance-linked assets attractive at this time.

So with equities in the sector seen as undervalued, compared to the broader market, while Twelve Capital also sees a mismatch in valuations of private and public market valuations, made evident by an active M&A environment, the investment manager believes investors should be looking to the insurance market at this time.

“This historic level of under-valuation persists even as capital positions have remained robust, dividend credentials largely intact, and the forward- looking earnings outlook continues to improve,” the investment manager said.

Adding, “The (re)insurance market represents an economically significant and important industry characterised by steady revenues, a cyclical product demand, strong dividend yields, and high barriers to entry. These have all remained true throughout the Covid-19 pandemic.

“Moreover, it is increasingly clear that the global (re)insurance industry is entering a period of particularly strong fundamental tailwinds as 2021 progresses.”

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