While there was an initial "pop" in the share price of Insurance Australia Group Ltd (ASX: IAG) after the announcement that the Warren Buffett-led Berkshire Hathaway Inc was taking a 3.2% stake in the group, the overall effect on the insurer's share price has been muted.
As one Morningstar analyst recently commented, the injection of capital will fund more investments across Asia and will allow IAG to pursue growth opportunities in Australia and New Zealand, however, that obviously hasn't been enough to excite investors…
It's probable that the muted response is at least partially because some commentators feel the deal is more favourable to Berkshire Hathaway than IAG. As leading fund manager Geoff Wilson recently observed regarding the investment in IAG by Berkshire Hathaway, "basically, you are paying $1 billion for $2.5 billion of value. For me, it seems like a cracking deal for Buffett but not for investors."
While some studies have found that following Buffett into listed stock positions by buying soon after a Buffett purchase is made public is a smart move, it's not clear that in this instance that will be the case.
As shareholders in QBE Insurance Group Ltd (ASX: QBE) have discovered over the past few years, insurance companies are incredibly complex beasts and are fraught with difficulties when it comes to analysing them. So while insurers receive plenty of attention from investors, arguably there are better, less risky ways to gain exposure to the sector.
A less risky proposition
One of the ways to gain exposure to the insurance sector without directly exposing your portfolio to the risks of owning an insurer is to own one of the listed insurance brokers. Two of the largest players in this space are Austbrokers Holdings Limited (ASX: AUB) and Steadfast Group Ltd (ASX: SDF). At current share price levels, Austbrokers is particularly interesting with the stock having slipped around 10% over the past 12 months.
