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Kempen (Lux) Global Small-cap Fund Investment case: Protector

Last year, Protector, an insurance company in the Scandinavian market, was challenged by a small insect. The eventful appearance of the gray silverfish provided an attractive entry point for long-term value investors. 

“Banks and insurance companies are a valuable addition to our small-cap portfolio”

Jan Willem Berghuis, Head of Small caps

Protector: a fast growing challenger to the Scandinavian insurance market

In July 2018  the Kempen Global Small-cap Fund bought their first position in Protector Forsikring, a Norwegian insurance company. Protector is a challenger to bigger insurance companies in Norway, Sweden, Denmark, Finland and the UK, resulting in strong growth in insurance premiums, driven by its low cost infrastructure and high customer satisfaction ratings from insurance brokers. This entrepreneurial company has grown insurance premiums by 25% per annum in the past 10 years. The company has a strong track record on insurance profits (underwriting margin) and strong investment results (6% average returns on its investment portfolio in the past 10 years). The share price performance also reflected the strong growth and operational performance up until the start of 2018.

Fig. 1 GSC Quarterly

Share price under pressure in 2018

In H1 2018 Protector’s earnings were under pressure due to an increased level of claims, partly due to poor weather. The company acknowledged that it had to raise its insurance prices. These higher insurance premiums would drive earnings recovery, despite short-term earnings weakness. We bought our initial position in July at NOK52 per share, after the stock had dropped more than 40% in 2018.

Unfortunately, in Q3 the company faced an even bigger challenge. The company sells insurance policies that cover claims from buyers of property (‘change of ownership’ product). In a very short period claims on the so-called grey silverfish insects rose sharply from 20 claims in 2016 to 38  in 2017 and a total of 208 in the first 3 quarters of 2018. Like in many other European countries, such as the Netherlands, the insect grew rather aggressively in Norway in just a few years. Buyers of houses claimed the appearance of the insect decreased the value of their property. As a consequence, the company had to increase reserves again in Q3, leading to another disappointment in October 2018. At this point, when the share price had declined more than 50% in 2018, we believed Protector’s valuation had become even more attractive from a long-term perspective.

We had several calls with the company and in October we visited the analyst day in Norway. The company at that point stopped covering the appearance of the vermin gray silverfish in their policies and eventually decided to discontinue the ‘change of ownership’ product. The company was now made up of two parts: the discontinued change of ownership business which had a sizeable book value, but was not generating profits and a growing business that was expected to return to normal profitability in 2019 and beyond. The sum of these two parts was worth significantly more than market cap at that time.

Zilvervisje - small

The challenger is ready to challenge again

While we believed the valuation was attractive, the risk would still be that the claims for gray silverfish would be higher than the company had reserved for. In recent months it became clear that Protector won several legal cases against policy holders, who claimed the value of their property declined. This provides confidence that this book of business is properly reserved for on an adequate basis.

Protector is optimistic on growth opportunities and profit improvement ahead. The company targets 14% growth and 4% underwriting margin for 2019. In subsequent years the company aims to grow premiums by 10-15% with a 6% underwriting margin. We believe Protector clearly was challenged in 2018, but the insurer is now able to challenge its competitors again.



Financials – banks and insurance companies – represent approximately 10% of the small-cap investment space. While financials are sometimes avoided by investors, as they are considered more complex, we believe small-cap financials are a fruitful sector for stock picking.

Though certainly financials can be rather complex businesses, small-cap financials typically are more focused. Management teams tend to be more closely involved in the core niche business. Moreover, the level of disclosure of the activities is more detailed in general. In some cases, even the impact of large single-insurance claims and individual loans are specified, making it easier to assess risks.

We believe this makes small-caps easier to analyse than bigger banks and insurance companies. Examples in our portfolio are American Equity Life (pure player in retirement savings policies in North America), Sparebank SR1 (Norwegian regional bank), RenaissanceRe (niche leader in property catasthophe re-insurance), Beazley (specialty insurance with leading position in cybersecurity).




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This document is prepared by the fund managers of Kempen (Lux) Global Small-cap Fund (‘the Fund’), managed by Kempen Capital Management N.V. ("Kempen‘’). The views expressed in this document may be subject to change at any given time, without prior notice. Kempen has no obligation to update the contents of this document. As asset manager Kempen may have investments, generally for the benefit of third parties, in financial instruments mentioned in this document and it may at any time decide to execute buy or sell transactions in these financial instruments.
The information in this document is solely for your information.
This document is for information purposes only and provides insufficient information for an investment decision. This document does not contain investment advice, no investment recommendation, no research, or an invitation to buy or sell any financial instruments, and should not be interpreted as such. This document is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The views expressed herein are our current views as of the date appearing on this document. This document has been produced independently of the company and the views contained herein are entirely those of Kempen.

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Global Small caps