Dowling & Partners

ALL INSURANCE.
ALL THE TIME.

Comprised of 15 analysts, our Equity Research team is in constant contact with management of both public and private companies to keep our clients abreast of industry trends and new developments. Our boutique model of “all insurance, all the time” allows our dedicated five person sales team to respond to our client’s needs quickly and provide timely access to senior research analysts.

U.S. Defined Contribution Review

Although the U.S. defined contribution business has conventionally been regarded as Asset Management-like and ascribed similar valuation multiples (i.e., low-to-mid teen P/E), our analysis has led us to the conclusion that the underlying business characteristics and far greater operating headwinds do not support such valuation. Despite being viewed as a “simple” fee-based business, most of our covered companies’ defined contribution businesses include a substantial component of spread-based business. Specifically, the median company has 74% of its revenue derived from net investment income (supporting guaranteed rate fixed income and / or fixed annuity products) as opposed to fees. We argue that the fair multiples for U.S. defined contribution providers should be somewhere in the range of a fixed annuity or spread-based writer and a lower quartile asset manager = given the current environment a fair multiple range is 7-10x forward earnings. See our full U.S. Defined Contribution Review.

1/1/25 Reinsurance Renewal: “Late” But Relatively “Orderly.” Risk-Adj. P/Cat Down 5% To 15% (Bias Toward Upper Half).

Overall, this year’s reinsurance renewal has been described as “late” but relatively “orderly”. On property-cat, the market continued to soften as renewals progressed with global blended risk adjusted rates generally down 5-15%+ (bias toward upper half of the range especially later in the renewal). While property-cat demand increased, supply has kept up / exceeded demand (companies seeking growth) = further softening is expected going forward particularly with pricing / expected returns broadly viewed as still being “attractive.” See IBNR#51, 2024 and 1/1/25 Renewal Slide Deck.

2022 Mortgage Insurance Outlook

2022 has the makings of another strong fundamental year for the mortgage insurers, with credit in-line to better than pre-COVID levels, favorable prior period reserve development possible due to strong home price appreciation, new insurance written set for its third strongest year ever, and declining cancellations expected to accelerate insurance in force growth. In addition, the majority if not all the MIs are positioned for meaningful excess capital return, which will reduce the excess drags on operating returns. At a macro level, we believe that a gradually rising rate environment is the best scenario for the MIs and we continue to expect an FHA rate cut and would buy the possible dip as we believe the fundamental implications would likely be limited. See our full MI 2022 Outlook / Q4:21 Preview.

OVERVIEW SPECIAL REPORTS IBNR WEEKLY RESEARCH