The ETF INS ( Lyxor) tracks the Stoxx600 insurance index, which is composed of the 34 largest European companies in this sector, mainly English, French, German, and Swiss.
The top 10 holdings represent 70% of the index market capitalization, are definitely giants such as Allianz, Axa, Prudential and Zurich Insurance Group. Approximately 50% of the companies are listed in Euro, the other half in sterling and Swiss Franc. The insurance sector is largely influenced by macroeconomic environment of which depends directly the demand except for the damage insurance component, which depends on statistical and exogenous factors. Specifically, interest rates are the main driver of performance as they make the insurance products ( including life insurance) more or less attractive. They also largely determine profitability because insurers, as long-term savers, invest premiums primarily in bonds.
In recent years, this low interest rate implies a contraction in spreads that negatively impacts profits. However, only new premiums are invested at lower yields and insurers can rely on the higher rate levels of previous years which allows for some smoothing. When investment returns are declining, insurers clearly need to improve their bottom line and portfolio management becomes the driving force behind performance. The quest for returns requires a gradual return to risky assets or alternative investments. This also implies that geographic exposure has a strong impact on sales depending on the country's macroeconomic environment and also on the balance sheet as insurers tend to invest their assets in the same area as their liabilities. The rise in the sector remains a bet on the rise in long-term interest rates, which seems to be well under way in the United Kingdom, while the euro area is expected to follow, while the ECB provides the first signs of normalisation of its monetary policy, with a view towards progressive reflation of the EU economy.
The expenses of this ETF amount to 0.3%, which is rather in the average. It should be noted that the outstanding amount of this ETF is only € 57 million, compared to, for example, that of BNK (European Banks) which is much higher at € 710 million.
After a very sharp correction during the financial crisis, which has seen INS falling from €26.4 to € on 07/2007 to €6.8 in 03/2009, this tracker then gradually managed to close 2015 at € 33.4, i.e. well above its pre-crisis levels. 2016 was a year of slight consolidation ( -2.5%) due to the fall in yields but so far in 2017 INS turned upwards again ( + 9.4%), a trend which was recently strengthened due to rising interest rates. The outlook is positive.
