Ryan Tunis — P&C Stocks Worth Owning: The AI Hedge

Insurers go through "hard" markets (they can raise prices at will) and "soft" markets (competition forces prices down). After an unusually long seven-year hard market, commercial insurance has turned soft. Tunis's point is that not all insurers feel that equally.

Travelers mostly insures mid-sized businesses through local agents who have relationships built over decades — a newcomer can't simply undercut its way in. It also set aside unusually conservative "reserves" (money held for future claims), which acts as a cushion when prices fall. That is why he prefers it, even though the stock isn't cheap.

AIG is the insurer that nearly collapsed in 2008 and spent over a decade cleaning up. Its customer mix — big corporations — is actually the worst kind for a soft market. But the stock trades at about book value (roughly what its net assets are worth), so you are paid for that weakness.

The "self-help" case: a new CEO has endorsed 2027 targets that come mostly from cutting costs and buying its own reinsurance more cleverly — things management controls, not the insurance cycle. It has now sold its last piece of its life business, making it a simple property & casualty company earning about 11% on equity.

Brokers don't take insurance risk — they shop a company's insurance across many carriers and earn commissions. As clients grow and buy more coverage, brokers' revenue rises automatically. Their growth slowed as insurance prices softened, but Tunis thinks it has bottomed at 4–5%, better than the 3% of the last soft market, while the stocks are priced like last time.

On the fear that AI will replace brokers: big companies treat Marsh as their real insurance relationship, and when a claim gets denied (a third are, at first) they want a powerful advocate fighting for them, not a chatbot.

Aon is the other giant commercial broker named alongside Marsh. The same logic applies: commissions that grow with clients' insurance spending, an organic-growth slowdown that looks to have bottomed, and a sell-off on AI fears that Tunis thinks misreads how complicated placing and defending commercial insurance really is. The one area with some genuine AI exposure is the HR and benefits consulting side.

Progressive may be the best-run insurer in the world, but it lives in personal auto, which Tunis likes less than at any point in his career. Insurers raised car-insurance prices about 60% when roughly 40% would have covered inflation, so they are all earning too much — and now everyone is cutting prices to win customers back.

The bigger long-term worry: automatic braking and lane-assist features are on about 40% of new cars and are cutting the number of crashes. Fewer crashes means less insurance needed, so the whole market could shrink.

Chubb is widely seen as the best commercial insurer, and Tunis doesn't argue. He just thinks it has more exposure to insuring very large companies — the segment where competition bites hardest as prices fall — and less of a reserve cushion than Travelers, at a similar price.

Kinsale insures small businesses that standard insurers turn down (the "excess & surplus" market). It underwrites tightly and keeps costs low partly by paying brokers less. That works when insurance is scarce. But when prices soften, brokers move those customers back to mainstream insurers — and a carrier that pays brokers less may be the first to lose them. It has never been tested in a soft market, and the stock is pricier than Travelers.

Trupanion sells pet health insurance. Customers like it and it pays claims, but as a business it barely generates cash (about 2% of revenue), the market is small and it is losing share, and a roughly $1,000-a-year policy suits few households. Tunis would be negative except that buyers have bid for companies in this space at around today's price, which puts a rough floor under the stock. Eisman is more bearish and is short.

Reinsurers are insurers for insurers — they take on catastrophe risk so primary insurers can protect their balance sheets. The industry has consolidated into a handful of giants (Munich Re, Everest, Hannover Re, Swiss Re, RenaissanceRe, Arch), which makes them steadier partners. But reinsurers have a history of accepting poor returns when capital is plentiful, so Tunis calls the group "TBD" — though a lot of bad news is already in the prices.

Allstate sells car and home insurance mainly through its own agents. Two things work against it in Tunis's view: online direct sellers (Geico, Progressive) keep taking about 1.5 points of market share a year, and the whole auto industry is now cutting prices after over-charging — while safer cars shrink the pool of claims to insure.