Analyst Profile – Ania Aldrich
Throughout the month of March and in celebration of International Women’s Day, we are highlighting female analysts and PMs who are critical to Cambiar’s success.
What’s an investment theme or industry that has you particularly enthusiastic in 2021 and why?
Insurance businesses follow their own cycles, which do not necessarily correlate with the economic one. Strong economic growth, however, is also good for these companies since insurance is a GDP plus growth business. We are at the point of the insurance cycle when price adequacy is returning; improving profitability and revenues are increasing meaningfully. Severe dislocation in the market due to meaningful capacity withdrawal combined with several years of large losses are resulting in accelerating pricing ultimately driving higher margins for the industry. One insurance executive puts it best: “market now offers incredible opportunity to lean and aggressively grow the business”. As more premiums are written, the “float” to invest increases, generating higher investment income. A potential increase in interest rates would also contribute to higher returns. Recent economic rebound similarly benefits the sector as corporations require more protection for their expanding businesses. The sector has been overlooked by investors who do not fully appreciate the magnitude of the projected profit growth for the next few years. As price increases are significantly above loss cost trends, margins are anticipated to expand for several years. Stocks do not look particularly expensive with high-quality names in the sector trading just above book value. During prior periods of expanding margins stocks traded at 1.5x to 2x book value. As profitability improves, stocks should realize expansion in the valuation matrix, representing an attractive investment opportunity.
Learn more about Ania Aldrich.
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