24th October 2025
Following the animation of the last two Fund Crescendos, which tackled the thorny issues of investment trust capital allocation and issuance at a discount, I thought I’d take it down a notch or two this week and write about insurance. Click bait it isn’t, but we are genuinely excited by our allocation to the sector which we think also sheds light on the way in which we approach individual investment decisions and fund selection.
Starting with the latter, Polar Capital Global Insurance is a fund we know well and one that we’ve owned for much of the last 15 years. Managers Nick Martin and Dominic Evans have deep sector expertise, the discipline to adhere to their well-honed quality focused investment process and the pain threshold to stick to their knitting through episodes of more difficult relative performance. As meaningful personal investors in the fund, they are also well aligned with fellow unit holders, ticking important soft boxes for us.
Following a brief spell on the sidelines we re-established a position in the fund earlier this year, drawn to the sector’s attractive fundamentals. Although premium pricing has softened a bit recently, the compound growth delivered since 2017 supports extremely strong underwriting margins where an increased focus on bespoke, specialist policies is supporting pricing and deterring opportunistic capital from entering the sector. Improved underwriting margins are complemented by the 2022 increase in front end bond yields which effectively enhance the returns insurers have been able to earn on the ‘float’ (cash premiums received up front, claims paid later down the line). In combination these factors have seen a step change increase in the sector’s earnings power. Reflective of the improved operating environment, the portfolio delivered book value growth of 21% and 19% in 2023 and 2024 respectively, well ahead of the 10% long term average.
Looking ahead, the managers are guiding to book value growth of 16%+ which, judging by guidance beats in previous years, may well prove to be conservative. This is important as over the very long term the fund’s unit price tends to track changes in book value. Shifts in valuation inevitably have an impact, but assuming these remain unchanged then the fund should deliver mid-teen total returns so long as book value growth expectations are on beam. Forecast errors are always a possibility of course, although in the case of insurance these are heavily mitigated by the way premiums are recognised in the accounting which helps provide unusually good visibility on earnings.
Turning to valuations, the portfolio at the end of September traded on 1.6x price to book (P/B), a multiple that has almost certainly headed lower in October given share price weakness. This is 14% higher than the 1.4x P/B long-term average, but in our view this small premium is entirely justified by the current portfolio’s 60%+ superior earnings power which compares well with the aforementioned 10% compound book value growth delivered over the 25+ year history of the fund.
The anticipated book value growth and fund price returns of 16% are comfortably ahead of the long run nominal performance generated by broader equity markets but look even more compelling when considered through the prism of risk-adjusted returns. The insurance sector is relatively defensive, selling a critical non-discretionary service that results in low economic sensitivity. These characteristics are reflected in risk-return metrics where the fund exhibits lower beta, lower drawdowns, lower volatility and a higher Sortino ratio than global equities. Attractive absolute returns that should be delivered within a narrower range of probable outcomes has obvious appeal.
Regular readers will know that the Hawksmoor Funds are constructed from the bottom up, essentially a collection of individual investments with positively asymmetric return profiles which are then combined with a sensible and sharp eye on overall portfolio diversification. We believe Polar Capital Global Insurance epitomises these twin attributes. Base case returns of 16% are predicated on book value growth coming through as anticipated with no change in multiple. A downside scenario assuming a normalisation in book value growth to 10% and a de-rating to the long-term average valuation imply positive returns of 5%, whilst investors would breakeven on normalised earnings even in the case of a de-rating to 1.2x book over a three-year holding period. We won’t spell out the bull case here other than to reiterate we think the probability of book value growth beating on the upside is more likely than missing guidance on the downside. Meanwhile, the fund’s historic correlation (10yrs) with MSCI World is 0.61, significantly lower than the 0.96 of the IA Global sector. Convexity and diversification benefits abound!
As a theme, insurance perhaps doesn’t have the headline appeal or narrative draw of disruptive AI, but slow and steady often wins the race. A portfolio with strong fundamentals, attractive valuations and positive asymmetry managed by well aligned and highly experienced managers hits all the right spots for us. If funds had engine rooms, Polar Capital Global Insurance would sit at the heart of ours.
Ben Mackie – Senior Fund Manager
For professional advisers only. This document is issued by Hawksmoor Fund Managers which is a trading name of Hawksmoor Investment Management (“Hawksmoor”), the investment manager of the MI Hawksmoor Distribution Fund (“Fund”). Hawksmoor is authorised and regulated by the Financial Conduct Authority. Hawksmoor’s registered office is 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. Company Number: 6307442. The Fund’s Authorised Corporate Director, Apex Fundrock Ltd (“Apex Fundrock”) is also authorised and regulated by the Financial Conduct Authority. This document does not constitute an offer or invitation to any person, nor should its content be interpreted as investment or tax advice for which you should consult your financial adviser and/or accountant. The information and opinions it contain have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. Hawksmoor, its directors, officers, employees and their associates may have a holding in the Fund. Any opinion expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represents the views of Hawksmoor at the time of preparation and may be subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested. FPC25560.
