Insurance Brokers (MMC, AON, AJG, WTW, BRO)

[dealraker]

11 hours ago, coffeecaninvestor said:

Thanks Dealraker for the story. 50% of the reason I bought the membership was for your commentary.

 

You have been following the industry much longer than I have. Has there been competitor or new entrant that has tried to threaten then industry, but been unsuccessful? 

coffeecaninvestor I am reasonably cautious as to making a statement on that even given that there are new entrants (relatively new anyway) such as RYAN, Baldwin (BRP), and Goosehead that have obviously attained some success.  I did for a short time have a small investment in BRP, but sold and am not following it.  I do not follow these three just listed though so you'll have to read here (past posts) as to those and our posters views- views I'd give positive credit too for sure.  longterminvestor, spekulatius, and gfp...I'd read their stuff if you haven't.

 

Some time ago Fairfax's (they owned 40%) even listed on the NYSE for a short time.  That was the most successful shorter term investment I've ever made - unfortunately Fairfax/Prem decided to sell it - so yes your statement and question above has merit.  As longterminvestor mentioned on RYAN....well, there are opportunities.

 

That's why I occasionally post - keeping this thread alive should be a profitable endeavor with little long term risk of capital loss.  So we should occasionally come aboard here to mention things, and of course that's what I'm trying to do.  We have some quite capable posters here, some good sound investing should come of it.  

 

I just love a good business, a long term business to hold and discuss.  I get attached my wife says, I don't like to let go.  She says I have not only "relationships with people" that are meaningful, but also "relationships with things, concepts, and models" that I stay with.  

 

Rambling, good night.  

 

 

[coffeecaninvestor]

45 minutes ago, dealraker said:

coffeecaninvestor I am reasonably cautious as to making a statement on that even given that there are new entrants (relatively new anyway) such as RYAN, Baldwin (BRP), and Goosehead that have obviously attained some success.  I did for a short time have a small investment in BRP, but sold and am not following it.  I do not follow these three just listed though so you'll have to read here (past posts) as to those and our posters views- views I'd give positive credit too for sure.  longterminvestor, spekulatius, and gfp...I'd read their stuff if you haven't.

 

Some time ago Fairfax's (they owned 40%) even listed on the NYSE for a short time.  That was the most successful shorter term investment I've ever made - unfortunately Fairfax/Prem decided to sell it - so yes your statement and question above has merit.  As longterminvestor mentioned on RYAN....well, there are opportunities.

 

That's why I occasionally post - keeping this thread alive should be a profitable endeavor with little long term risk of capital loss.  So we should occasionally come aboard here to mention things, and of course that's what I'm trying to do.  We have some quite capable posters here, some good sound investing should come of it.  

 

I just love a good business, a long term business to hold and discuss.  I get attached my wife says, I don't like to let go.  She says I have not only "relationships with people" that are meaningful, but also "relationships with things, concepts, and models" that I stay with.  

 

Rambling, good night.  

 

 

I’ve basically have worked in insurance for my entire career so far and it’s always amazed me how well these brokers get paid, and how little disruption there is.. it’s pretty rare to even see a change in broker. From what I can tell it is mainly relationship driven which is hard to for me to wrap my head around moat wise. I should probably take a hint and just buy some brokers, and add to them over time.. I missed Copart when I worked at The Hartford and used their services on a daily basis. It would have compounded at a 30% CAGR over the past decade…let’s not compound the stupidity of missing two great businesses. 

[Hektor]

10 hours ago, gfp said:

one of the reasons I have religiously looked at form 4 insider purchases every day for my entire career is that you can get alerted to a drop in price followed by insiders bingeing on share for companies you wouldn't have noticed or been aware of any other way - you also get to know insiders in certain companies that are always great signals.  Selling gives you no real useful information but an insider purchasing additional shares in the open market with their own after-tax hard earned cash - when they likely already have a significant portion of their net worth tied up in the stock - can be a really great screener or lead generator or whatever

@gfpthank you. Do you track form 4 for the businesses you are interested in? Are there places to look up for all form 4 filed each day?

[gfp]

8 hours ago, Hektor said:

@gfpthank you. Do you track form 4 for the businesses you are interested in? Are there places to look up for all form 4 filed each day?

 

The point is to look at all of the Form 4's for purchases every day.  That is the way you come across things you don't specifically know to look for in the first place.  I've been doing it for a while, so I primarily use this old website because that is what I am used to:

https://www.insider-monitor.com/insider_stock_purchases.html

(on the above site, you click the date of the filing to get to the source document at sec)

 

Most people these days use 

http://openinsider.com

 

dataroma has some insider purchase information at the bottom of the home page but it is only purchases on "guru" stocks or whatever they call it.

 

Over time you will learn to read the filings and understand which are meaningful and which are just share grants, option exercises, people like Horizon Kinetics / Murray Stahl who buy the same securities every single day, CEF arbitrageurs, etc..

Edited May 28 by gfp

[oscarazocar]

21 minutes ago, gfp said:

 

The point is to look at all of the Form 4's for purchases every day.  That is the way you come across things you don't specifically know to look for in the first place.  I've been doing it for a while, so I primarily use this old website because that is what I am used to:

https://www.insider-monitor.com/insider_stock_purchases.html

(on the above site, you click the date of the filing to get to the source document at sec)

 

Most people these days use 

http://openinsider.com

 

dataroma has some insider purchase information at the bottom of the home page but it is only purchases on "guru" stocks or whatever they call it.

 

Over time you will learn to read the filings and understand which are meaningful and which are just share grants, option exercises, people like Horizon Kinetics / Murray Stahl who buy the same securities every single day, CEF arbitrageurs, etc..

 

Dataroma has a good search site for insider buys that shows a running list of form 4 info and you can filter for various things.

 

https://www.dataroma.com/m/ins/ins.php?t=m&po=1&am=10000&sym=&o=fd&d=d

[Hektor]

47 minutes ago, gfp said:

The point is to look at all of the Form 4's for purchases every day.  That is the way you come across things you don't specifically know to look for in the first place.  I've been doing it for a while, so I primarily use this old website because that is what I am used to:

https://www.insider-monitor.com/insider_stock_purchases.html

(on the above site, you click the date of the filing to get to the source document at sec)

 

Most people these days use 

http://openinsider.com

 

dataroma has some insider purchase information at the bottom of the home page but it is only purchases on "guru" stocks or whatever they call it.

 

Over time you will learn to read the filings and understand which are meaningful and which are just share grants, option exercises, people like Horizon Kinetics / Murray Stahl who buy the same securities every single day, CEF arbitrageurs, etc..

Thank you @gfp

[Hektor]

26 minutes ago, oscarazocar said:

Dataroma has a good search site for insider buys that shows a running list of form 4 info and you can filter for various things.

 

https://www.dataroma.com/m/ins/ins.php?t=m&po=1&am=10000&sym=&o=fd&d=d

Thank you @oscarazocar

[dwy000]

Citizens Insurance in Florida is seeking another mid teens increase in rates.  That sucks for Florida property owners but bodes well for the brokers, especially those concentrated down there. 

[dealraker]

2 hours ago, dwy000 said:

Citizens Insurance in Florida is seeking another mid teens increase in rates.  That sucks for Florida property owners but bodes well for the brokers, especially those concentrated down there. 

So at our weekly centuries old house porch sitting Sunday which was enlarged by a birthday party my brother-in-law/cousin (adoption not incest) business partner, not even looking at me, jawbones me with, "Hammerhead (that's his name for me)....you got cha some Navidia?"  And immediately adds, "DAMN that stock has tripled for me....of course I ain't got much of it."

 

As a guy (that's me) who both is almost 50% insurance brokers and the one who put his (my bro in laws) entire 401K into BRO I surrounded and conquered the amicable bastard with, "Dude....tally what you've made since buying that techie puppy with your gains from Brown and Brown."  He leans his head over sideways and backwards giving me the 'you win asshole' look and responds, "Made more money with that stock that nobody knows or cares a damn thing about...."   

 

And so it goes.  He has a damn BOAT LOAD of BRO.  So do I!  Go Florida.

 

Gotta end somehow though.  This insurance cycle is crazy.   Stocks like BRO messing about - stocks that nobody knows or cares about while thay all talk Navidia and and we discuss Fairfax.  

Edited June 20 by dealraker

[Gregmal]

LOL yea been having a few of those moments with people last month or so. "What do you think are good AI investments?"..."how come we dont own NVDA?"..."do you think we should look at some tech stocks"....and its so pleasing to just dismissively answer....No, nope, nothing, not interested, thanks!

[longterminvestor]

NVDA is the world's distraction so we can sit patiently watching, learning, awaiting the next opportunity that makes sense as a business with a long runway and valuation.  

[dealraker]

Today since I'm in the chatty mode online I'll re-tell the AJ Gallagher story of my Lexington Investment Club.  This is not my personal story of owning AJG (since 1994), this is my suggestion to the club, something worthwhile to think about today given the valuation of AJG is quite "firm" so to speak LOL.

 

The year was about 2015 or so (too lazy to look) and AJG for whatever reason had fallen to $35 per share and was yielding 3.8 percent or so.  The "PE" based on earnings had fallen to about 15 or so and the free cash earnings had it substantially less.

 

Our club, a club with value investing obsessions, decided to go for it and buy the stock.  But, as was always the case, in a club of 25 and a portfolio of over $1 mil the $20k that was suggested to me was a disappointment.  

 

The stock did very well of course, but then as it first approached the high $70's I began to hear the chant.  The club experts (not me) stated:  "AJG stock price is borrowing from the future as the price line in the 22-23x eps range is escalating well above the 15 times earnings line where we bought it."  And then of course the dreaded: "We need to sell AJG and buy Bristol Myers, a cheap value stock that's trading substantially below the 15 times earnings line."

 

We sold AJG at $82 somewhere about 2018-19 and bought Bristol Myers BMY at $63 or so.  Most of use have funds in the club via taxable $ so we also paid tax on our gains with AJG.

 

Six or so years later AJG has gone from $82 to $270 or so and BMY is about where we bought it.  AJG is expensive...and so is Brown and Brown which I know some of you bought.

 

My advice to you who bought Brown and Brown?  Figure out how to live a long life.

 

And keep the damn stock.   

[Spekulatius]

The new kid in town starts trading today - TWFG:

https://www.sec.gov/Archives/edgar/data/2007596/000162828024031867/twfginc-sx1a2.htm
 

 

I looked through the S-1 and there is a similar OpCo - LLC structure than with BRP where I think the public shareholders will pay a lot of taxes, but I could be wrong. They don’t have much debt though. PE looks high - 40x. Worth keeping an eye on, imo.

Edited July 18 by Spekulatius

[dealraker]

Slowly but surely insurance brokers are beginning to get noticed by Wall Street journalism.  

 

https://www.barrons.com/articles/arthur-j-gallagher-stock-price-earnings-b592a35e?mod=bol-social-tw

 

 

[dealraker]

19 hours ago, dealraker said:

Slowly but surely insurance brokers are beginning to get noticed by Wall Street journalism.  

 

https://www.barrons.com/articles/arthur-j-gallagher-stock-price-earnings-b592a35e?mod=bol-social-tw

A.J. Gallagher Earnings Show Insurance Brokers Are Anything but Humdrum

The broker’s CEO says business isn’t slowing down.

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By

 

Teresa Rivas

July 25, 2024 5:18 pm ET

AJ Gallagher’s headquarters in Illinois.

AJ GALLAGHER

Insurance may have a stodgy reputation, but the returns from A.J. Gallagher are anything but. Its CEO says the insurance broker isn’t slowing down either, despite concerns about premiums and interest rate cuts.  

On Thursday, A.J. Gallagher reported second-quarter earnings of $2.26 a share, two cents ahead of the consensus estimate, while revenue of $2.73 billion was in line with what analysts predicted.

Organic revenue grew 7.7% in the quarter, a period that saw a dozen new acquisitions with a combined $72 million of estimated annualized revenue. That’s a key consideration given how M&A propels profit for insurance brokers. A.J. Gallagher said it has a pipeline of more than $500 million of annualized revenue in potential purchases.

Chief Executive Patrick Gallagher spoke with Barron’s Thursday about the results, calling the quarter a “smash hit.” He also says the report shouldn’t come as much of a surprise, given the company’s consistency. “It’s a natural continuation of our incredible number of quarters, years, decades—if you will—of success.”

That success has been shared with investors, given A.J. Gallagher’s total shareholder return of 500% over the past decade, he notes. That should provide some comfort to investors worried about a decline in insurance premiums or interest rates.

As a broker, A.J. Gallagher doesn’t assume any risk or pay out claims like a traditional insurer. The company gets its revenue from the fees paid as a percentage of premiums. Those have been rising with inflation, but some have feared they will slow down as inflation cools. Likewise, a cut to interest rates would lower profitability, given some of the company’s portfolio of highly liquid premiums and claims is invested in U.S. Treasuries.

However, Gallagher says it’s disingenuous to talk about insurance premiums as a monolith, as rates for one kind of coverage often fall as those for another rise. In addition, while higher interest rates do make a difference because the firm holds fiduciary funds, the CEO says he isn’t overly concerned with potential rate cuts, saying “we grew the company quite well for years on zero [and near zero] interest rates.”

Likewise, the company’s acquisition strategy means that its pool of funds will continue to grow, yielding higher interest even in the face of lower rates. “I predict we’ll make up for volume we lose by virtue of lower interest rates,” Gallagher says.

Those factors ultimately lend themselves to smooth and steady growth. He points to how well A.J. Gallagher has performed over time, even when disruptions like the 2008-09 financial crisis and Covid-19 pandemic occur. Its business will only increase as the world gets riskier, as evidenced by last week’s CrowdStrike

outage that highlighted the need for nearly all businesses to carry tech policies—ones that may be beyond the capability of smaller shops who are then more likely to accept acquisition offers from Gallagher.

 

One year ago, Barron’s recommended shares of A.J. Gallagher, citing its long history of market-beating performance and ongoing success in buying up smaller brokers. The shares have gained some 26% since, compared with around 20% for the S&P 500 over the same period.

Gallagher says that’s likely to continue, given insurance is the “oxygen of commerce…nothing happens without insurance, you can’t build a building or ship a container without it.”

The company’s ‘all-weather model’ makes it particularly attractive during uncertain times, like the recent market slump. Gallagher cites a Fortune 500 executive who recently remarked to him: “I’m beginning to realize that when things are bad they’re good for you.”

And what about when times are good? Gallagher asked the exec. “I know, they’re good for you too,” he replied.

19 hours ago, dealraker said:

 

 

[valueventures]

Any players in the space that people see as reasonable / good value today? AJG and BRO would be my long-term picks, but hesitant to start positions today given how they've run up in price and valuation.

 

 

[sleepydragon]

2 hours ago, valueventures said:

Any players in the space that people see as reasonable / good value today? AJG and BRO would be my long-term picks, but hesitant to start positions today given how they've run up in price and valuation.

 

 

 

Anyone looked at Kinsale (KNSL)? its price is even crazier 

[formthirteen]

31 minutes ago, sleepydragon said:

Anyone looked at Kinsale (KNSL)? its price is even crazier 

 

I gambled on KNSL the day before their latest quarterly earnings report and bought a much bigger starter position than usual. No unique insight, just liked what I saw: experienced management, technology, efficiency, high growth, low combined ratio, growing market. No plans to buy more. Up around 20% right now, might even be a good time to sell, what do I know.

 

 

Giverny Capital owns KNSL since Q3, 2023 and think KNSL can grow for a long time:

 

 

https://static1.squarespace.com/static/5e8f1f2a9432801293f6439e/t/6668a598580f381f3190a30e/1718134168427/2023Q4D.pdf

[valueventures]

IGIC is the only other player that I’ve seen with comparable valuation to Fairfax. I believe it’s at like 1.2-1.3x BV. 
 

KNSL is in my too-hard pile with that valuation. 

[formthirteen]

 

 

[longterminvestor]

More news from RYAN, see attached.  

 

RYAN US Assure - Investor Presentation - FINAL.pdf

[dwy000]

@longterminvestor are you seeing any real tightening of pricing anywhere these days?  I look at the results of both the insurers, reinsurers and brokers and there seems to be a lot of profitability sloshing around right now.  After years of hardening and price increases way above inflation and now great underwriting results across the board I would have guessed we would be in for a round of softening.  Haven't seen it yet but surely this can't keep up much longer without a ton of new capital coming into the market. 

[longterminvestor]

On 7/18/2024 at 6:51 AM, Spekulatius said:

The new kid in town starts trading today - TWFG:

https://www.sec.gov/Archives/edgar/data/2007596/000162828024031867/twfginc-sx1a2.htm
 

 

I looked through the S-1 and there is a similar OpCo - LLC structure than with BRP where I think the public shareholders will pay a lot of taxes, but I could be wrong. They don’t have much debt though. PE looks high - 40x. Worth keeping an eye on, imo.

I will read this in detail and report back.  

[longterminvestor]

On 7/28/2024 at 12:13 PM, sleepydragon said:

 

Anyone looked at Kinsale (KNSL)? its price is even crazier 

KNSL is a risk bearing insurance company, not a broker.  

[longterminvestor]

On 7/28/2024 at 2:03 PM, formthirteen said:

 

 

RYAN's business is overwhelmingly tied to E&S market, RYAN is highly incentivized to grow the E&S market.  And frankly one reason for the E&S growth is because of RYAN sales people hitting the streets to drive more business to E&S.

 

Incentives aside, I do agree the E&S market has a long runway of growth which means the policies purchased by businesses/families will only "increase in complexity" hence a further need to have a trusted "agent/broker" representing the interest of the buyer during the transaction.  "Admitted" or "Standard" is the opposite of "E&S" or "Excess & Surplus".  When comparing admitted Travelers to admitted Hartford, there are slight differences in language however you really cant go wrong choosing between 2 amazing insurance companies/policies like Hartford/Travelers.  However if Hartford/Travelers put out an E&S product, the actual insurance policy (the contract) will be more restrictive in language and an agent will have to explain those differences to client buyer.  

 

Good example of this is with Chubb.  Chubb's "Masterpiece" personal lines policy is amazing.  Its a brand, clients know what it is.  When Chubb writes a personal lines policy in the E&S market, they are not using the Masterpiece policy form, it could just be an ISO HO-3 form with Chubb paying the claim.  The policy form is where the rubber meets the road on how things get paid out, I refer to it simply with our clients as "the promises to pay when things go wrong".