Insurance one of most attractive sectors in Investment Grade bonds: Twelve Capital

The insurance sector is one of the most attractive in the universe of investment grade bonds right now, with manager Twelve Capital saying that its not just a good entry point, but also a good time to reposition fixed income portfolios towards insurance-linked assets.

As well as managing catastrophe bond and private ILS fund strategies, Twelve Capital manages assets across the insurance and reinsurance return spectrum, from catastrophe bonds, through collateralised reinsurance or private insurance-linked securities (ILS), to equities and also debt and bond instruments.

Right now, while also recommending cat bonds to its clients, Twelve Capital notes that insurance bonds are particularly attractive right now.

The investment manager’s Dinesh Pawar, Head of Insurance Bonds, explained, “The insurance sector has performed well throughout the challenging first half of 2023, especially when compared to the broader corporate landscape. We believe it will continue to be resilient even if markets remain volatile in the second half of the year.

“The first half of 2023 was marked by troubles at US regional banks, the losses imposed to Credit Suisse AT1 holders that led many investors to be more cautious of these structures, as well as Central Banks continued increases in interest rates in order to tame inflation.”

Adding that, “In a recessionary environment marked by higher interest rates, we believe that insurers are better positioned than other corporate sectors, and particularly corporates with higher leverage. Insurance companies have reported robust solvency positions and resilient earnings year to date, solidifying the sector’s position as a defensive stronghold within the current economic environment.”

Debt issuance activity has picked up as well, increasing the supply of opportunities.

Twelve said, “Overall, our expectations for European insurers’ refinancing needs are in the region of EUR 14bn for upcoming quarters. These should provide plenty new investment opportunities.”

The relative value of insurance investment grade bonds looks particularly attractive right now, while the complexity premium associated with them continues to be on offer too, Twelve notes.

As a result, Twelve Capital says, “Given current yields, Investment Grade bonds have become very attractive as an entry point, but also for many investors a way of repositioning their fixed income allocation given the more arduous macroeconomic trends.

“In Twelve Capital’s opinion and observing market tendencies, the insurance sector is currently one of the most attractive within Investment Grade.”