Greenwood storms into insurance stocks

Investing in insurance stocks in the wake of Hurricane Katrina is a way to capitalise on kneejerk valuations, says Iimia growth manager Nick Greenwood.

Greenwood has invested a portion of the 15m Iimia growth portfolio in the Hiscox insurance portfolio fund, which invests globally in insurance companies and has a one-third exposure to insurers affected by hurricane claims.

In August, the Hiscox fund returned -4.4 per cent, reflecting a sell-off in the asset class.

Greenwood believes insurance stocks look cheap and will increase his stake in the fund if valuations fall further. He says, in times of high inflation, insurers can generate returns by investing the profits from writing policies but lower inflation has forced insurers to improve efficiency and reduce underwriting risk, bringing a marked improvement in the businesses which has not been reflected in their valuations.

Greenwood says: “We are still in the middle of the hurricane season and if there is another storm we may see another kneejerk reaction in insurance valuations. These businesses are having to improve to survive and, in the long term, storms are good for business as people recognise the need for insurance.”