THOSE hoping for huge short term gains to be had from shorting companies with significant underwriting and re-insurance exposure to either the Middle East and north Africa (MENA), or to Christchurch may be disappointed. Listed companies are understandably cagey about just how much exposure they have to those areas, and syndicates with underwritten liability are unlisted. At the same time, post Piper Alpha, the insurance industry is no longer singularly exposed to risk in a single company or area, even in the event of huge disasters such as the earthquake that happened in New Zealand last month. After the North sea oil rig disaster, which revealed the huge deficiencies in some exposure monitoring systems, things have changed dramatically, especially with regards to the interdependency of business interruption exposure.
The difficulty in making gains in the short term through the woes of insurers with exposure in the MENA area can, however, be turned on its head for those who wish to capitalise on the steady rise of the insurance sector as a whole. Prudential announces results tomorrow and is expected to show continued strong growth in profits and revenues. IG Index chief market strategist David Jones says: “The insurance sector CFD allows you to take a position towards the sector as a whole, acting in effect like a little unit trust. There is a selection giving exposure to mostly high street insurers including Admiral, Hiscox and Beasley.”
Insurance sector specific CFDs are fairly difficult to come by. GFT quote one containing a dozen FTSE 350 non-life insurance companies and IG Index offer one containing a basket of 120 non-life companies. Despite the lack of a huge range of offerings, according to David Morrison at GFT: “Insurance sector specific CFDs are extremely useful in terms of giving exposure to a whole sector as opposed to risk in one particular company. For example, to avoid the shareholder anger that have arisen as a result of problems with Prudential.”
Events in Luxembourg may also have those going long on the insurance sector further licking their lips in anticipation of juicy rewards. Though the judicial activism that resulted in the European Court of Justice banning insurers from using gender to calculate risk will undoubtedly hit us all hard, both men and women, with increased insurance premiums across the board, market watchers may see insurance companies as the only party to benefit from the decision and as a precursor to an even stronger performance from the insurance sector in the year ahead.