We’ve had QBE and SUN in the direct equity portfolio for quite some time, and had wanted to include IAG, but were waiting for the investor day, expecting a potential downgrade due to a timing mismatch between premiums going up, and inflation impacting the cost of claims today.

That has come and gone, and although IAG noted such pressures, painted a fairly positive story about profitability and longer run return targets. As such, it is “derisked” in our view, somewhat.

The job of an insurance company first and foremost to write sensible policies, such that it earns an underwriting profit. We can see with IAG that underwriting profits, after a few difficult years, are back on a more typical footing.

Those underwriting profits are a function of gross written premiums increasing (note the difference to net earned premiums, which reflect the sharing agreement with Berkshire)…

….and keeping administrative costs, operating expenses, and claims (losses) proportionately low.

Given that bond yields have repriced, we can expect a higher level of investment income.

Which overall should add up to reasonable insurance margins/returns over time.

That’s a solid tailwind for all participants that make a return to float.

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