Thanks for a great writeup... how do we know that the 2016-2019 relative multiples were not the "right" multiple and therefore we are back to FV? Don't we need to compare ROE and growth rate then and now or vs the index to get a sense of what multiple they "should" trade at (thinking Dupont equation or something like that"? thanks again
Thanks for a thoughtful comment. You are right to question what the “right” spread should be; no one truly knows. We argue the direction of spreads should, all else equal, favor Nordic P&C in light of current macroeconomic backdrop, given the durability of fundamentals (superior underwriting, high retention, limited reliance on investment returns). For context, UK insurers tend to show higher cyclicality given their greater dependence on investment returns (lower pricing power, and weaker customer loyalty, etc.), meaning ROE gets flattered in “risk-on” markets and compressed in “risk-off” ones. Nordic insurers, by contrast, deliver more stable results, which tends to be rewarded as risk appetite fades.
To your point though, forward growth and claims uncertainty (ROE impact) are potentially muddying the picture a bit. We expect this to resolve as the DCCA review concludes (formal investigation launched last week) and claims trends normalize.
Not sure if you catch my drift, otherwise I am happy to elaborate!
Thanks for a great writeup... how do we know that the 2016-2019 relative multiples were not the "right" multiple and therefore we are back to FV? Don't we need to compare ROE and growth rate then and now or vs the index to get a sense of what multiple they "should" trade at (thinking Dupont equation or something like that"? thanks again
Thanks for a thoughtful comment. You are right to question what the “right” spread should be; no one truly knows. We argue the direction of spreads should, all else equal, favor Nordic P&C in light of current macroeconomic backdrop, given the durability of fundamentals (superior underwriting, high retention, limited reliance on investment returns). For context, UK insurers tend to show higher cyclicality given their greater dependence on investment returns (lower pricing power, and weaker customer loyalty, etc.), meaning ROE gets flattered in “risk-on” markets and compressed in “risk-off” ones. Nordic insurers, by contrast, deliver more stable results, which tends to be rewarded as risk appetite fades.
To your point though, forward growth and claims uncertainty (ROE impact) are potentially muddying the picture a bit. We expect this to resolve as the DCCA review concludes (formal investigation launched last week) and claims trends normalize.
Not sure if you catch my drift, otherwise I am happy to elaborate!
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