This is a gem of a find during our conversations with our independent investment consultants at EXE Capital. Formerly set up by Hiscox in 1998, the lead manager, Nick Martin, joined in 2001 and has been running it ever since. In 2010 it was rebranded from the Hiscox Insurance Portfolio Fund to the Polar Capital Global Insurance Fund.   For 25 years it has produced a compound annual rate of return of 10% pa.

The reason this has a place in a diversified portfolio is that it is uncorrelated to the broader equity markets, being as it is concentrated in the insurance market, with liability risk a non-discretionary purchase often required by law. As such, it offers defensive characteristics in challenging financial markets. Indeed, the rise in specialist catastrophe insurance is likely to raise returns. Furthermore, in an increasingly global complex world with accelerating technologies, the value of insurance is helping to manage risk.

The managers allocate capital to between 30 & 35 underwriting specialists who have a meaningful ownership stake in their businesses. Sectors covered include commercial, retail, reinsurance and brokering. In the latest report from the World Economic Forum on Global Risks, these are identified as extreme weather, AI generated misinformation and distribution, societal and/or political polarisation, the cost-of-living crisis, cyberattacks, pollution, migration and armed conflict. Businesses’ face increasingly complex risks affecting their short-term decision making and long-term strategies. All the aforementioned can cause significant disruptions and dislocations that organisations must be prepared for.

Reinsurance pricing has accelerated throughout 2022 and into 2023. Catastrophe insurance premiums rose by between 30-40% at the beginning of 2023 and have continued to rise. The managers claim that the returns on the fund will likely reflect the underlying book value growth on the companies they invest into. Each company in the portfolio projects forward the next 12 months of expected book value which is revisited every quarter. On this aggregate they expect growth to be 16%+.

The outlook for investors in this sector could be the best in a generation.

The above was taken from an interview we had with the managers on the 18th January this year. All opinions and estimates constitute the best judgement of Polar Capital as of November 2022. All performance figures taken from that presentation. Past performance is no guarantee of future returns. Returns are from launch and include dividends reinvested and are net of the fee paid to Polar Capital. The above does not constitute a recommendation to buy the fund and advice should be sought from your financial advisor as to the appropriateness of this fund in your portfolio