Each week, a professional investor tells us where he'd put his money. This week:Nick Martin of Polar Capital Global Insurance.
Mention insurance and many people's reaction is a tale of woe: either a bad experience when making a claim or dealing with vast amounts of unintelligible literature when buying a life assurance policy or taking out a pension.
However, for some astute investors, the non-life insurance industry has been a bedrock on which to build fortunes. Perhaps the most notable is Warren Buffett's Berkshire Hathaway, which owns some of the world's best insurance firms, including GEICO, the third largest US motorinsurer, and General Re and National Indemnity, both large reinsurers.
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The non-life insurance industry has a wide variety of companies of varying quality, which provides excellent opportunities for stock pickers. Success largely rests on identifying strong management teams who think as owners, and who are indeed underwriting with their own money through stock ownership. As Buffett has said: "Insurance is an industry which amplifies talent or the lack of it."
Chubb (New York: CB) is a global leader in the non-life insurance industry. The group today is the result of ACE buying the legacy Chubb business last year in a $28bn deal. The ACE management team astutely decided to keep the Chubb brand, which is arguably the leading personal insurance franchise in the US. It has particularly strong positions in US high-net-worth homeowners' insurance, in professional indemnity globally, and is growing its presence in Asia and Latin America. With a geographic footprint spanning 54 countries and a portfolio of more than 200 products, Chubb isuniquely positioned to capitalise on underwriting opportunities as they occur, while remaining disciplined in pricing.
Markel (New York: MKL) is a US-based specialty underwriter, meaning that it insures or reinsures non-standard risks. Management view their shareholders as partners and the founding family continue to have a large equity stake. Importantly, management think about and invest for the long term, which can be increasingly challenging in a world of accelerating change and continuous technological innovation. Over the last 20 years Markel has compounded book value per share, the best metric in assessing long-term valuation creation for a non-life insurer, at 14% per annum. This roughly doubles value for shareholders every five years.
Validus Holdings (New York: VR) is a Bermuda-based insurance and reinsurance group formed in 2005. Having initially concentrated on becoming a leader in property reinsurance, it is now more diversified with a growing insurance portfolio. These include operations in the US through its Western World speciality underwriting subsidiary and also its ownership of Talbot, a leading franchise in the Lloyd's of London insurance market. Validus trades today at a modest premium to its net assets, despite growing its book value at a compounded 12% per annum since its formation.
