Analysts at Jefferies have spotlighted restructuring and reinsurance as two of the best areas of opportunity in the insurance market right now.
Reinsurance prices finally turned in response to several years of elevated catastrophe losses, spurred on by the mounting costs of the COVID-19 pandemic.
“Amidst this rare cyclical turn, the reinsurance sector offers investors rising revenue, higher margins and growing earnings,” Jefferies noted.
In particular, it picked out likely beneficiaries as those re/insurers with the least back book risk, such as Hannover Re, Munich Re, Conduit and Beazley.
“The rapid acceleration of reinsurance price rises provides an attractive entry point, especially where strong reserves mitigate back book risks,” analysts explained.
Hannover Re especially was viewed as having “exceptional reserve strength” and low expenses and back book risk, making it “well-positioned” for growth.
Munich Re could equally benefit from the pricing turn, Jefferies added, due to its leading market position and reserving prudence.
Meanwhile, Conduit has no back book and $1.1bn of capital to deploy into the cyclical turn, while Beazley continues to enjoy good capital strength and recently reported 18.6% growth.
In terms of restructuring opportunies, Jefferies pointed to disposals and de-risking as allowing companies to pivot their businesses away from financial market risk, towards structural growth opportunities.
“The insurance sector features several companies that are materially restructuring their businesses, reducing financial market exposure and refocusing on both underwriting-led business and structural growth opportunities,” analysts said.