Institutional investors sell reinsurers ahead of earnings
Ahead of results from the global reinsurers, we have used securities lending flow data to show that institutional investors, who lend, have consistently reduced their holdings, deterred by a record number of claims and a new trend as insurance companies seek to minimize costs by buying less reinsurance. We look at investor sentiment towards the reinsurance companies which are also due to report earnings this week including Munich Re (ETR:MUV2), Swiss Re (VTX:SREN), Allianz Se (ETR:ALV), Hannover Re (ETR:HNR1) and Zurich Financial services (VTX:ZURN).
UK insurance companies are also reporting earnings below analysts’ expectations following a quarter of increased claims due to a series of natural catastrophes. While stocks such as Amlin and Hiscox see little short interest, institutional investors have also been reducing their holdings in the run up to earnings. This trend was mirrored by shareholders of Catlin. Ahead of its results on Thursday, we have seen some short covering to only 1.8% of the total shares out on loan, but perhaps more significantly, funds who lend have sold 6 million shares in the six weeks running up to results, reducing their holdings to 30% of the company.
Munich Re reports earnings on Thursday, and earlier last month the German reinsurer estimated global economic losses from natural catastrophes in the first half of the year at the highest ever annual loss in a six month period. Securities lending activity in this stock is limited with low demand to borrow, which currently stands at only 1.1% of total shares outstanding. Institutional ownership of funds who lend has declined by 3.3% over the past month to 40 million total shares. The stock still offers a 6.3% dividend yield in contrast to Swiss Re which is not paying out a dividend.
Investor sentiment from the short side of the market has been more prominent in Swiss Re. Short sellers began to build their positions as the share price reached annual highs in late February, and peaked in April at an annual high of 2.7% of total shares. This represented over 60% of the total lendable supply. However, short covering followed this peak and has continued to 1.5% of stock on loan as the share price falls close to annual lows. Institutional ownership of funds who lend has declined by 5% over the past month.
Allianz Se report earnings on Friday and the Wall Street Journal has reported that the company is expected to announce a 13% rise in net profit for the second quarter. Investors will be looking out for an update about the hit the company will take from the bailout package for Greece. Similar to Munich Re, short interest is low and flat in this stock at 2.2% of total share outstanding on loan and institutional ownership has held steady at 110 million total shares. A spike in short interest was observed in May which appears to be based on dividend enhancement trading.
The share price of Hannover Re is currently trading close to annual lows ahead of its earnings report. The world’s third largest reinsurer slashed its full-year net profit outlook in May following heavy claims from the Japan and New Zealand earthquakes. It has also reported that less than 1% of the company’s overall assets are exposed to the European sovereign debt crisis, with no further exposure to Greece. Short interest is low standing at 1.25% of total shares outstanding after having declined 20% over the past month. Institutional investors reduced their holdings by 5.5% in the last month alone following a period of consistent increases since the start of the year. The company is still paying out a dividend yield of 6.8%.
Finally, the share price of Zurich Financial Services Ag has tumbled to new annual lows ahead of its earnings date after peaking in late February. Short interest has also declined over this period to an annual low of 0.8%. Institutional investors have been increasingly bearish towards this stock as the share price has declined and over the second quarter, have reduced their holdings by 7% to 40.5 million shares.
