The hedge fund investors who made millions of pounds betting the UK banks would fall, have now gambled tens of millions that household-name insurers will plummet, causing concerns over the insurance sector’s financial strength.
Written by Jessica Summers
Lansdowne, founded in 1998 by Paul Ruddock and Steven Heinz, spent three years gambling on the collapse of Northern Rock, and made huge profits when the bet paid off in the fourth year.
Now however, with insurers’ shares continuing to fall, the shrewd investors have disclosed that it had a short position in Prudential, Britain’s second largest insurer, worth about £10.5 million; a £26.2 million bet against Aviva, who own Norwich Union; and further gambles against Legal & General (L&G) and Old Mutual.
Landsowne’s fellow hedge fund, Odey Asset Management, run by Crispin Odey has also revealed a short position in L&G.
ECONOMIC PRESSURE
Although the short positions are relatively small, it is a worrying insight into impending trouble for insurance giants. Many critics argue short-selling has the power to undermine a sector - as demonstrated by what happened with the banks.
Even the Financial Services Authority, the city watchdog, has taken steps to safeguard insurers’ investments if markets go against them causing greater concern about the impacts of economic pressures on insurers.
Aviva, the Pru, L&G and Standard life in response with the regulator have all strengthened their capital bases, dispelling worries over defaults in their corporate bond portfolios.