Title: P&C Stocks Worth Owning: The AI Hedge with Ryan Tunis | The Real Eisman Playbook Episode 74 Show: The Real Eisman Playbook (YouTube channel "Steve Eisman"), host Steve Eisman Guest: Ryan Tunis — property & casualty insurance analyst, Cantor Fitzgerald ("Cantor" per the video description) Date: 2026-09-07 URL: https://youtu.be/4m6174aphVA Length: 47:56 Note: YouTube auto-transcript scraped from the watch page's "Show transcript" panel (Stephen's logged-in Chrome). Fillers (um/uh) and stutters removed; wording otherwise verbatim. Sponsor reads at 19:08-21:49 (Arca Wealth, Horizon3.ai) and 35:25-37:26 (Wharton Online / Wall Street Prep FP&A certificate, ZipRecruiter) kept verbatim but carry no analysis. Caption mis-hearings corrected in place: Caner/Kenter -> Cantor, PNC -> P&C, Chub/Job/Trump's -> Chubb/Chubb's, reinssurer -> reinsurer, Papa/popping casualty -> property casualty, Marsher -> Marsh or, Corbridgeidge -> Corebridge, Hanover -> Hannover, Swisserie -> Swiss Re, Renery -> RenRe, true panard/Jupion/Traanion -> Trupanion, Kinsell/Kinsel/Kale -> Kinsale, Johnson talcum -> Johnson & Johnson talcum, soul rating -> sell rating, ENS -> E&S, renumeration -> remuneration, banish -> benefit, extension -> Accenture, lines car -> lines carrier, goodiz -> good-size, Warden -> Wharton. Left as heard: "Travel[ers] is about 24 and Chubb is about two" (price-to-book, likely 2.4x vs 2x); AIG "80 something like that 780" (likely ~$78); "reinsurance broker is my top subgroup" (context = insurance brokers); "Larry" at 39:07.
00:05 Hi, this is Steve Eisman and welcome to another episode of the real Eisman playbook. So, every group has within it
00:13 subsectors and every group within the subsectors has growth, some are
00:19 cyclical, some are stable. So, if you were to divide up the entire financial services sectors, you would have divide
00:26 it this way. the big banks, the regional banks, some of the trading companies
00:31 like NASDAQ and ICE, asset managers, alternative asset managers, specialty
00:38 finance, and then you would get life insurance and property and casualty
00:43 insurance. Of all the sectors within financials, property and casualty
00:49 insurance is unique and a world unto itself. Yes, it is cyclical, but it's
00:55 not cyclical with the economy. Its pricing cycles go according to its own rhythm. And so, as a result, during
01:02 periods where people want a lot of growth in their portfolios, they're not going to own property and casualty
01:07 stocks. But in periods where you're looking for something more stable, people are going to own property and
01:13 casualty stocks. So, we're going to explore all this with Ryan Tunis, who is the P&C analyst at Cantor, and we're
01:22 going to do this very comprehensively. and afterwards, I'll be back with some lessons learned.
01:28 [music] Hi, this is Steve Eisman and welcome to another episode of the real Eisman
01:35 playbook. So today we have as a guest Ryan Tunis, property and casualty
01:41 insurance analyst of Cantor. Welcome Ryan. Thanks Steve. pleasure to be here.
01:46 Thank you. So we've never done anything in the property and casualty sector. So I'm going to take this as an opportunity
01:52 really to do a deep dive with you. So before we even get to any specific
01:57 companies and what you like and what you don't like and we'll get to that. Why did you divide up the sector into its
02:04 component parts? What how many parts are there to the property and casualty sector and what are the dynamics of
02:10 each? Okay. Yeah. So I'll try to take a very broad view. A broad view. So yeah, like you've got
02:16 the company level and what I cover. So P&C is anything not related to life insurance. It's kind of risk in its
02:22 purest form. but there's a sub- sector kind of tilt to it. So you've got
02:28 first of all commercial lines insurance. That's companies purchasing insurance to protect
02:36 risk of damage to property or liability. Okay. Personal lines, which I think everyone's
02:41 most familiar with like an All State or Progressive Homes. Correct. And you could get into some
02:48 other ancillary products like pet insurance or renters or whatever. But there's that.
02:53 So that's so it's commercial lines, personal lines. What else is there? big part of it is that reinsurance. So, this
03:00 is a little bit this is where it gets a little bit abstract, but believe it or not, insurance companies purchase
03:07 insurance themselves largely to it's balance sheet protection. But think about they're
03:12 trying to protect themselves they're either trying to scale down their risk
03:17 or more commonly they're protecting themselves against something catastrophic. That's called reinsurance.
03:24 So an insurer will buy insurance from a reinsurer. That's correct. That's correct. And then
03:30 the last So those are the balance sheet businesses. And the last segment which is a little bit yeah I
03:38 mean it's a little more hybrid between you call it infoservices and insurance is the insurance brokers.
03:43 Okay. And when we talk about the insurance brokers, we're talking about not so much on the personal line side. We're
03:49 talking about the brokers that sit between the commercial customer and commercial lines and the commercial
03:56 lines underwriter or insurer. So, let me ask you a question on that. So,
04:03 Chubb, let's say what do I need a insurance broker for?
04:10 Like, let's say there's a company, call it IBM, and IBM is looking to buy
04:16 insurance on Casualty and on all its properties. a big thing. Why does IBM hire an insurance broker or how does
04:22 this work at why does why don't they just go directly to Chubb? So I think
04:28 this is definitely a really interesting question I think especially when we start talking about some of the
04:33 AI disintermediation risk type chatter but let's first of all think about it
04:39 let's we'll think about it from the point of view of the customer and then we'll think about it from the point of view of Chubb so let's start with Chubb
04:46 what do your shareholders want you to do they want you to grow your premium and you're relying on a relatively
04:52 small segment of brokers So what do you really have to gain to
04:58 try to disintermediate a brokerage model by trying to go direct? Is that actually
05:03 going to lead to better topline? Right? I think the other thing that Chubb might think about is they might say the heck
05:10 with these brokerage commissions, I get this all the time. This question of, you know, are brokers overly compensated.
05:16 Where Chubb and where the industry does not where the carriers don't get a lot of heat from shareholders is on their
05:23 expense ratio. They all they run somewhat undifferiated. Now, Chubb's a little bit better, but somewhat
05:29 undifferentiated 30% expense ratios that shareholders are happy with. Define what's an expense. Expense ratio is it's your
05:37 general operating expenses and your commissions as a percentage of your premium
05:43 every quarter, every year. Yeah. Okay. Right. So, and you're saying that runs around 30%.
05:48 Around 30 and these aren't companies that are being pressed to try to push that lower. So
05:54 from Chubb's standpoint, you really wouldn't benefit a lot if you tried to go direct. I think you'd probably end up
06:00 in a worse place. And why do you think you'd end up in a worse place? I think that you would end up alienating
06:06 the rest of the brokerage community around which you are, like I said, relying on
06:12 a decent sized panel, but somewhat concentrated. and
06:19 your shareholders are going to give you a small round of applause for improving your expense ratio, which isn't
06:24 something they necessarily asked you to do. So, I think that's one thing from the carrier side. Now, from
06:30 the customer side, I think it's important when you think about the insurance buying experience from a
06:36 from if you're a customer, it's a missionritical thing to get right. It's
06:43 a relatively small portion of your overall expenses which is what is also
06:48 the purchase of insurance right to protect against your you know IBM buying insurance right so it's
06:56 something really small you don't want to get wrong right from a cost standpoint so it's not the type of thing where
07:03 you're going to be sitting there you criticizing okay like what type of commissions are we paying a broker it's
07:09 something you want to make sure you get it right but that also asks the question if did want to go to go direct. How
07:14 would you ever be comfortable that you were getting the right price if you're only looking at one market?
07:20 Oh, okay. So, direct works in one market within P&C in the United States. And we
07:27 all know it. It's personal auto with the Geico and the Progressive. And I think that's a really unique situation where
07:32 the customer is satisfied with the price they're getting from one market because both of those companies have spent tens
07:39 of billions of dollars over the past two decades reminding you could get it cheaper. You can get it cheaper. Right. Right.
07:45 All right. So, let's turn it to since you brought it up, let's talk to the personal lines business. Talk
07:51 to us about there are two companies that go direct. Tell us who they are. Everybody else has some combination of
07:57 direct and indirect. Mhm. What's the dynamics of that business and what are the fundamentals like today?
08:03 Sure. So, the direct model to be clear is it's what Steve was just talking about. It's a carrier that goes
08:09 straight to the customer. That's Geico. That's Progressive. those are
08:14 the two doing it. And just as a reminder, the personal lines market, it's big. It's probably half a
08:21 trillion dollars of premium in North America, which is probably 80% auto, 20%
08:27 home. the auto piece is the part where people go direct. and what
08:33 you've seen over the past I don't know 15 years or so is
08:40 the direct market has taken share of the you know agents, right? Whether it's a
08:47 captive agent like All State, like an agent that will sell just the All-State product or an independent agent that can
08:53 sell products from multiple carriers. You've seen the direct channel
08:58 take share take maybe a point and a half a share over time. Doesn't mean that the mean a year a year, right?
09:04 What today what percentage of the market is direct? I want to say it's a little over 30%.
09:12 Okay. And still increasing. And still increasing. Correct. Okay. So simple question.
09:17 Why has that happened? Well, I think the biggest reason it's
09:23 happened is again you have two really good carriers that even if you
09:29 were to run through an independent agent, I think you'd still probably on balance be finding the coverage you need
09:36 and the price you need, right? So I think that's part of it. Some of it has to do with just you know auto
09:45 as a product is what's called an involuntary product. It's something you're forced to buy. You'll just go out
09:50 and you'll get the coverage you need. It's you're not protecting an asset. So
09:55 I what I'd contrast that to is homeowners for instance has is a market
10:01 that has been proven to be pretty impenetrable from a direct standpoint. That's when you're actually really protecting an asset and that's when
10:08 folks actually start that, you know, that's the standard where folks thus far have started to say, I want to know
10:15 what coverage I actually need. So, it works in the auto space.
10:20 doesn't work well in the home space. It hasn't worked so far yet in the home space, but Progressive does sell homeowners
10:28 insurance. Progressive sells homeowners insurance. I don't want to call it a loss
10:34 leader, but they're in the wheels business. So, this is another big part of personal lines distribution because I
10:39 think another question could be why do we still have agents or like where does this direct market share get, right?
10:46 A lot of the personal lines market is it's bundled. You bundle the home and auto,
10:52 right? And you need a real agent to usually put together that bundle the right way,
10:58 right? So, like if you're leading with the sale of the home, a lot of times you'll be able to bundle on the auto and
11:03 that's why it works for you know, that's why a company like a Travelers or
11:09 something like that is still doing well. For a Progressive, they haven't had that much success, believe it or
11:14 not, Steve, selling. They've had trouble selling home beyond states where people
11:19 don't want to sell home. So, broadly, say that again. I'm not quite trying to say what that means. Where they have scale selling homeowners
11:26 insurance are in has been largely on the coast, a lot of which was in Florida. It's a totally different game. Everyone
11:33 would like to sell homeowners in Michigan. That's when you start to need those deeper client relationships.
11:39 so that's where I would differentiate. Why is so why has Progressive had such a hard time doing it outside of the coast?
11:46 because when you get to agent independent agent-based business, this is true at
11:52 personal lines. This is true at agency commercial lines as well. The
11:59 relationships between these you know call it main street brokers and the
12:04 carriers are formed over a long period of time. There's you know there's
12:09 some profit sharing commissions there. There's things like that. It's just not it's not easy to burn your way
12:16 in to that part of the market as an underwriter. like the relationships matter a ton in Florida from time to
12:24 time. you know, I obviously there's been well documented capacity issues and things like that.
12:31 Progressive is not going to have such a difficult time, right? But trying to move beyond that gets complicated. Okay. So, let's dig down into some
12:37 stocks. Sure. You're not recommending Progressive. I'm not.
12:42 But one could argue it may be the best insurance company in the world or it's
12:48 certainly up there. Agreed. So what's going on in the personal lines businesses today that gets you to
12:56 have a neutral rating as opposed to a buyer? Yeah. So that's the bigger issue. I mean a little bit of it is
13:03 the bigger issue is the personal line subgroup which I've not been more negative on in and you know in my
13:10 career. and there's a few dynamics here that really give me pause. I think first of all,
13:18 all those rate increases that we all know we got on our auto policies, we're all probably paying 60% more than we
13:23 were three or four years ago. It turns out these autoinsurers probably only needed to increase your rate by about
13:29 40%. They got 60% greedy. I don't think they got greedy. They
13:35 they overestimated how much inflation how much So
13:40 So they push price more than they needed to more than they needed to. And what that leads to is retrospect. In retrospect,
13:45 okay, everyone's over earning. Everyone, with the exception of Progressive for multiple years, wasn't growing and now
13:52 everyone's piling back in to grow. M so what you have is sort of a once in
13:58 a generation personal line soft market for and this is not really a product
14:03 personal auto that tends to be that cyclical but the last time we saw something like this happen was in 2006
14:09 where you get a market where carriers are actually taking rate decreases like that on average is what
14:16 everyone is getting from a Progressive or an All State is lower rates so you've got this deflationary component tons and
14:23 tons of competition and we're still in a situation where yeah we're actually nowhere close to being you know
14:31 in a situation where these companies are no longer over earning they're still over earning like I think we'll probably
14:36 be having a conversation just like this through the end of 2027 if I had to guess. Okay. And then the other issue I have
14:45 with the personal lines is it's more of a structural one and you know
14:50 it's but it does come back to this whole issue you have with deflation where the
14:58 look the good thing about the personal lines market it's a gigantic TAM it doesn't really grow though I don't know three $400 billion so it's a great TAM
15:05 company like Progressive why they were a winner is overtime they took market share taking market share that's a could be a
15:11 really good business. But what if you start calling into question the size of that market?
15:17 And there's some, and this is where I just get a little bit, you try to put on my generalist hat a little bit. I get a
15:23 little bit concerned. So, what we've had over the past couple years
15:28 are declines in the frequency of automobile collisions.
15:33 We've had declines. We've had pretty sharp declines. Why? A lot of it is it's attributable to
15:40 something called ADAS, which is automatic driver assisted devices. Okay. So, the car stops if you
15:46 about to hit somebody. The level two, level three stuff. It Yeah, it kind of it does a little bit more than just break. It kind of pushes
15:53 you back into the whatever. You know, that's on like I don't know 40% of new vehicle sales nowadays, which
16:00 I understand. And three or four years ago it was 15 and that's just rising. So, we've always kind of had this like
16:06 this threat of the autonomous car and what that means for the personal auto liability risk on the horizon. My
16:13 point is to a certain extent it's here. It's here today, right? Because the reason you have that $350 premium
16:20 addressable market is that it's a measure of exposure units in the auto
16:25 industry. Fewer exposure units means you just don't have that TAM. So, I'm worried about how that theme is going to
16:31 develop over the next several years. Okay, let's switch gears. Yeah. And let's go to
16:38 commercial lines. So, the big names here would be Travelers,
16:44 Chubb, AIG, the Hyperscalers. Hyperscalers. Yeah, [laughter]
16:50 right. Hyperscaler, property casualty. It's not fair that some other group got to come up with this really cool name.
16:58 So, we already spoke about the brokers. tell us what the cycle is like generally in commercial insurance and then let's
17:04 dig I mean these are big companies Travelers AIG I mean look I mean AIG
17:10 used to be a lot bigger market cap but what's going on
17:16 what are the fundamentals like these days and you know right now you're recommending Travelers
17:22 you're not recommending Chubb you I think you are recommending AIG I am recommending AIG so
17:27 and full disclosure everybody I own AIG he owns AIG okay though I'm hoping I want to hear good things
17:33 recently. I have great recently hear good things but let's first talk more
17:38 general like what's the dynamics now of the commercial lines businesses. Yeah.
17:43 So I think this is probably a good time to just kind of talk about what makes P&C cyclical and why it's
17:50 different than Yeah. A lot of companies out there are cyclical because they know their cost of goods sold. They don't
17:57 really know what revenue they're going to get off of whatever they're producing. That's different. As you know, Stephen, financial services,
18:03 we have the opposite. We know what the revenue is. We don't know what the cost of goods sold on. So, you have this dynamic in property
18:10 casualty in that dynamic naturally creates cycles whenever you have one of those two that are unknown and property
18:16 casualty insurance. So, just to for viewers, when we say cost of goods sold, we mean losses,
18:22 right? So problem tell me if you would agree with the problem with let's say a commercial lines business is you've
18:28 written underwritten business to a certain level of losses and then something really bad happens
18:34 that you didn't really a hurricane a plane crash whatever and the losses
18:40 are much higher I think yeah I think even a better way to do it is more continuously that if
18:46 you have a million dollars of premium and you estimate at day one it's going to be $700,000 of claims and you write
18:52 that policy, if the next year you only collect that million dollars, but
18:58 there's inflation, then you're going to expect more than $700,000 of claims. Correct.
19:03 And you're going to have margin deterioration. Correct. That's the part that causes the cycle.
19:08 I see. Okay. So, where are we now? Hi, Steve Eisman here. It's midnight.
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21:49 No commitment required. Results in hours, not weeks. So, where we are now,
21:54 by the way, so the two big parts of the business are property. the property like you know you're insuring an
22:01 office building a little more intuitive and casualty which would be liability
22:06 sometimes liability and I've never actually looked at numbers like this but I a very
22:11 large percentage of p you know legal private plaintiff settlements are probably paid by insurance companies
22:18 think about like that right think about it like that like for example the Johnson & Johnson talcum settlement that just
22:24 took place almost certainly was paid for by insurance right that's Right. So where we are now
22:30 is so P&C is different than banks I think because these cycles you tend to see a hard and a soft market at least
22:36 once during a decade. It can take a little bit longer in other financials. It's not the difference is the bank
22:42 cycle is economically driven. In other words, if the country goes into a recession, there going to be
22:47 more losses. The P&C loss cycle is sort of a world unto itself.
22:53 World unto itself. That's correct. So what we're coming out of or what we had was kind of a historically long hard
23:01 market. Define hard market. Hard market is when carriers are able to push for rate. Whether or not that means
23:08 you're getting excess rate, meaning you're expanding your margins or just
23:14 catching up. It means that the it's a sellers market in insurance. And
23:19 we could get to they're able to basically raise price at will. able to raise price at will.
23:25 I don't know usually maybe two or three years out of 10 are a hard market and the rest are soft. we've been in a
23:31 seven-year hard market, right? So a very long time. The market started to transition
23:37 about a year ago where we to soft at this juncture.
23:44 We're seeing softening and it is looking like what you'd expect in a classic type of market where what I'd
23:50 call a capacity line. large ticket property, things that are
23:56 easier to get on where you don't need that agent relationship. You need capital and a checkbook and a
24:01 typewriter. I mean, I'm exaggerating, but you can burn your way in. That's softening
24:06 and you're no longer having the same level of uncertainty that you did around
24:12 inflation of those claims, right? So now it's starting to naturally leak.
24:18 Companies are having a harder time growing, right? it's starting to leak its way into casualty lines. So
24:25 I think there's sort of two real questions everyone's grappling with on or we are at least on the commercial side. I think number one how
24:32 do you think about investing in a group now that the market's soft and it hasn't been a long time and number two what's a
24:38 reasonable expectation for how long it could be like this because it sounds like it's just the beginning. Yeah it seems like it's not a whole
24:45 lot of fun. So I think that those are the two things folks are reckoning with. So why
24:52 of the big three that you cover? You're recommending Travelers, you're recommending AIG. Let's take that
24:59 last because it's kind of its own bizarro world. And you're not recommending Chubb, which
25:06 I would argue is probably the best property casualty company on the commercial side.
25:12 Wouldn't disagree. Okay. So you wouldn't disagree and yet you're not recommending it. But why you're recommending Travelers, which is
25:18 run by a great a very good CEO. It is. And you're not recommending Chubb, which is also run by a very good CEO.
25:25 Yeah. So, I there's a few things to this. I think
25:30 that the early soft market playbook, the companies that are the least the
25:38 first kind of blush thing that matters, companies that are the least exposed, I think, to a softening rate environment
25:43 are those that have that main street agent-based exposure. It's the middle market part of commercial and the
25:50 small pricing. Just it's hard, like I said, it's harder to burn your way into that.
25:56 It's easier to kind of manage the cycle in the middle market. In the middle market. So
26:01 middle market meaning companies. Yeah. Right. Rather than you know large global corporates etc. So that's
26:07 Travelers footprint. Chubb has I don't want to take away from Chubb. they have a you know a
26:13 good-size business there as well but
26:18 they also have a good amount of that large account type stuff and that is the
26:25 stuff that ends up facing kind of the most competition right so I
26:30 think that's one distinguishing factor like between the
26:37 two is I you know relative small relative preference for business makes Travelers versus Chubb.
26:44 The other thing that I think is good so soft markets I think are easier for stock picking because the one
26:50 thing that happens in a hard market is it becomes difficult for companies to make mistakes right because
26:55 because prices so you're just doing great and I think all these underwriters Steve
27:01 are good underwriters that's not to say that any of them aren't but what happens in a soft market is the other thing that
27:08 matters other than your business mix which kind of dictates how much your rates decelerate
27:14 is how conservatively are you reserved and like going into that market because
27:19 that actually allows you to absorb a lot of that rate pressure early on. Correct. Travelers' reserve position
27:27 impresses me quite a bit more than the other commercial lines underwriters. Okay. so I feel better about the type of
27:34 profitability they're able So you like the business is not well reserved but I think the Travelers is better
27:39 is a little bit better. Okay. They're both the knock on both of them is they're both
27:46 probably a little bit too expensive. Now we're talking 12 and a half times PE.
27:53 Yeah. And there have been a lot of Travelers downgrades recently that I haven't really agreed with. I don't love
27:59 the valuation of these names, but what I'm saying is what's the price to book of the two? Travelers is about 24 and Chubb is
28:06 about two. All right. So and you know they're doing for banksid mid high teens that you know okay
28:13 with deterioration nothing steep. So let's change gears to AIG. So
28:18 one of my favorite charts in the whole world is to look at the chart of AIG. Oh no that just before the
28:25 financial crisis. So most people don't understand the market cap. Right. Right. Oh no. So
28:31 AIG obviously had problems during the great financial crisis. They had to completely recapitalize. Today the stock
28:36 is 80 something like that 780. At its peak before the great financial
28:43 crisis the stock price was 1,200. Now I am very confident that
28:51 when I die the AIG stock price will not be back to 1,200. I think I can very
28:57 safe on that one. I You concur? I definitely concur.
29:03 Yeah, I definitely concur. But so here's my question. Why don't you tell
29:08 because this has been a very complicated story. You're recommending it now. Why are you recommending it?
29:14 what's I read one of the things that you wrote where you said it's a self-help story.
29:20 Like it's a cheap stock like let's start with valuation. What's the valuation like? Why do you like it? Why
29:26 is a self-help story? So I think that's the first thing is while I'm not saying I'm not prepared to downgrade
29:33 Travelers simply because valuation is a little bit rich I also think we are at a point in you
29:40 know a year into the soft market where you've got to start getting a little bit creative right I mean that thesis of just buying things based on business mix
29:46 is largely played out so part of it is being pushed out onto the curve of like okay like is there something that really
29:53 hasn't worked AIG checks that box it really hasn't worked and why hasn't it worked?
29:59 I think that's actually a reasonably good question. it trades it around book value.
30:07 The business mix is not the right type of business mix for a soft market.
30:13 Like that's something I'll concede. It's a hard market business mix. It tends to be more large account stuff
30:19 where you know where I said Travelers is very much all AIG is very large account. Very large account. So that's kind of
30:25 that's a negative. That's a negative. That's a negative. You're being compensated quite a bit on
30:30 the fact that one, it's cheap. And I think the other thing too, and just in
30:35 terms of a self-help story, like the metrics, they have a new CEO coming in. This will be his first quarter. He's
30:41 already blessed the metrics that the old CEO put in place for 2027.
30:47 And when you kind of go through the numbers, there's not a lot in the numbers are getting you at that
30:53 are really that cyclical dependent. I mean, it's a handful of things. It's expense saves. It's
31:03 reinsurance synergies and buying now reinsurance. What's the ROE of the company right now?
31:08 Low double digits. It's low double reliably 11%. That's not terrible.
31:13 And Steve, the company is I hear what you're saying. I've It's been It's very uncomplicated. I think they got rid
31:20 of their last piece of Corebridge in the insurance business. Just a pure play P&C company.
31:26 Pure play P&C. Pure play P&C. So, it's as simple as it's been. I'll tell you a funny story about AIG.
31:33 Couple years after the financial crisis, I was out to dinner with some friends and they brought along another couple,
31:39 okay, who subsequently we've become very friendly with, no names. And so, I'm talking to the guy. So, like, you know,
31:46 what is what do you do? He's a management consultant, you know, like for what? He says mostly financials.
31:51 So I start to pay attention. So he says he's doing management consulting for AIG.
31:56 So I think, okay, now I got to talk to this guy. So we're talking and we're
32:02 just talking about all the problems that AIG had. This is just after the financial crisis. And he says to me, you
32:08 know, Hank Greenberg when he ran the company basically ran in a completely decentralized way. like he would
32:15 say to you to Ryan go start a business to do X and you would go out
32:22 and you would create an entire business from scratch including your systems and
32:27 so he says because of that did you know that AIG has 200 operating
32:33 systems in the company I said I didn't know that I said what's that like
32:38 for you because it's like a full employment act [laughter] it took AIG like 10 years to work
32:46 through all of this. That's how badly run they used to be. Yeah, maybe even a little longer than 10
32:51 years. I think they're in a pretty good place now. I mean, where they are now is the underwriting was also really
32:58 bad for it took a long time to reverse the culture and to being a good underwriting company. We got there maybe
33:03 overshot a little bit. Now it's about getting the company to be able to underwrite well and to grow
33:10 and to grow. Okay, I got it. Let's turn to reinsurance. Yeah,
33:16 it seems to me, correct me if I'm wrong, that reinsurance is not a great
33:21 business. Like there's no What's the franchise value? It's just a balance
33:27 sheet. You know, Chubb is buying reinsurance from somebody
33:33 and you know, pricing could be good, it could be not so good, but long term, I just don't get the what's the franchise value to ever owning a reinsurance
33:40 stock. What do you think? So to that question, and believe me, I've had this thought plenty. I
33:46 think there's more franchise value now than there's been because there's been so much consolidation. And
33:53 I don't know if that makes them better investors. There used to be many, many, many reinsurers. Many, many, many. And maybe
33:59 they were better investments when they were many because they could cycle manage. And now it's like Munich,
34:04 Everest, Hannover, Swiss Re, RenRe, Arch.
34:11 They're less nimble, but because they're bigger. Because they're bigger. Okay.
34:16 But I think that they're more reliable, stable, longerterm capital partners,
34:21 right? So I think there's a little bit more. I don't know exactly what that's worth, right? I mean, the bigger issue is
34:28 it certainly isn't even in that scenario as much of a franchise type business as
34:34 what you get an insurance broker or a commercial lines carrier or a personal lines. Right. So, I hear your point.
34:40 The bigger issue is we've seen this industry
34:46 willing to accept returns that are unacceptable. And currently
34:52 returns are okay, but yeah, I think that there's real reason
34:58 to question the discipline there. So, it's a TBD on the reinsurers. I think fortunately there's a lot of negativity
35:04 priced in terms of where things are in the soft market from a pricing standpoint, but I totally hear your
35:12 point. And Okay. All right. Let's go on to insurance brokers. Yep. do you like any? And if you do, it's
35:19 I mean, it's a soft market, so that hurts. what's going on? Do you like
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37:26 Meet your match on Ziprecruiter. Yeah. So, reinsurance broker is
37:31 definitely my top subgroup without a doubt. and I think what I'd say
37:38 about the and you know the if you think about how a reinsurance broker makes money, it's basically you latch onto a
37:45 company, you have great retention, as the company grows, they buy more insurance premium and you
37:51 get more commission, right? So the way it scales is sort of automatic. It
37:56 the pricing environment does impact the brokers. I think in particularly it has the past year, but there's an economic
38:03 component to that. There's a real component to that. What's been
38:09 what I think is important with the brokers is we've gotten to a place where
38:15 I think we've seen the worst of what the pricing environment is going to do to them. In other words, I think there's evidence we've seen organic growth
38:22 bottom and it's bottomed at a level that's higher than it did in the last soft market. So results call it four or
38:28 5% is where it's bottoming. Last soft market it was three and the stocks are trading at kind of
38:34 multiples that were in line with where they were the last soft market. We can get into the AI risk and things like that as well. But
38:40 let's get into that. Yeah. Is there AI risk? So just for viewers to
38:45 know few months ago there was like a some report that AI was going to get somehow into the insurance brokerage
38:52 business and the insurance brokers rolled down 10% that day and then nothing basically happened. So I guess the question is what's realistic here?
39:00 I mean, honestly, I'm more curious what Steve has to say about that than me. But no, I could give you the I
39:07 could give you a little bit of color on why I don't think it's that big of a deal. Larry, I think first of all is what I
39:13 pointed to earlier on this conversation about the market structure and the role of the broker. A lot of folks that buy
39:18 insurance, I think Marsh or Aon are their actual insurance company. there's been no work done to try to
39:25 disintermediate that relationship but you know the brokerage remuneration has been pretty flat for the past two
39:31 decades. It's not been a place where folks have really come after I think
39:36 another thing is here's another good data point. A third of all claims that are filed are initially
39:42 denied. Who do you want representing you? An AI bot or Marsh or a scale
39:47 insure. Okay. So it's when you get into the plumbing of it like the process
39:52 of placing a P&C brokerage is more complicated than I think we've been led.
39:58 Got it. Okay. So not a big deal. It's where there's risk. It's on the consulting side. And you probably hear consulting and go
40:04 that's the boogeyman. Yes. I'm not going to totally rule that out. Where I can tell you it's different is
40:10 these tend to be it. To be clear, this is HR consulting, right? This is
40:16 placement of health and benefits or you know consulting around benefit plans around pay compensation plans
40:24 defined benefit custodial pension really boring stuff that I'm
40:33 not saying there is no risk there but it to me is in some way and I'm guess
40:38 I'm curious what you think it's different than what you see it for instance like an Accenture and IBM and
40:44 and for what it's We haven't results and the outlooks for the second half of the year and
40:50 unchanged. Yeah. It's not been like the type of the IBM or the Accenture product. Okay, cool. let's finish up with the
40:57 two some odd I'd call oddballs. Sure. Trupanion.
41:02 Yeah. So at your former firm you had a sell rating. You currently have a neutral
41:08 rating. I've been short this thing for years. the Trupanion is an animal
41:13 health insurance company. What are you thinking these days about Trupanion? I think at these levels it
41:21 I think valuation I think is still the main thing that you have to fight, Steve. It's a billion dollar market cap.
41:27 Just keep in mind we've seen M&A in the space go off around these levels.
41:32 There's been bids there. That's where I'd be nervous to get way too negative.
41:38 I think on the why don't you get more constructive side of things. Look, I mean, this is a company that's not a
41:44 young company that over time has not been able to generate unit economics that have been
41:51 acceptable. I mean, whatever. Like, I think that what they target is free cash flow. A billion dollar company, free
41:57 cash flow at 2% of revenues, which is like 30 or $40 million. It's free cash flow. You're nothing. It's nothing.
42:02 So, it's a it feels like a really good product for people and maybe a pretty good nonprofit if they ever wanted to go
42:08 that route. I don't know about I mean we our customers my wife and I we have dogs and it's a I have no
42:15 complaints about Trupanion as a company. They pay they're honorable. Totally. I just think it's a bad business.
42:21 It's a bad Yeah. I think on the business side of things, you have this issue of it grows but the TAM is small and no
42:29 one can afford the damn product anymore. It's $1,000 and you know, you think about who actually needs pet insurance. It's probably not you. which people who
42:36 have the income to afford a $1,000 a year policy but they don't have the disposable income to pay a five figure
42:41 claim right not a lot of people right I mean so you have that problem where it grows but
42:47 what were $6 billion TAM of which they have 20% and they're losing share they're having trouble growing pets
42:54 so it's a wait and see I think they probably need to try to do something different I think they need to do some
43:00 figure out okay maybe we need to target a little bit of a higher underwriting margin and show that we can be
43:06 profitable or whatever, but right now it's a company that's twisting in the wind a bit at $50 a
43:12 share. I might have had something different to say. Okay, last one. Kinsale. Yep. Tell people what Kinsale does.
43:17 Yeah. So, Kinsale is a great is a great one. It's a commercial lines insurer, but where I want to
43:23 distinguish it from the hyperscalers, right, the AIGs, the Chubbs, the Travelers, they write in the
43:28 non-admitted market. So what basically happens is if you want to get an insurance policy, you go to a broker.
43:34 The broker will call the admitted carriers and they have to call a certain
43:39 number of them and if they can't get a placement then they can go to the non-admitted market. Kinsale operates
43:45 through that market. Now these don't just exist like this is small companies they basically deal with. They deal a lot with small companies
43:51 which is very important. So let me just before you continue. So, one thing that I a friend of mine who
43:57 who's done research on this says is that the issue with Kinsale is they took
44:02 a page out of the old AIG playbook, which is you're a small company.
44:08 Mhm. We give you insurance, somebody slips and falls, you submit a claim, we tell
44:14 you to go take a hike. They don't
44:20 basically honor their own insurance policies. Yeah. So what I'll say is Kinsale is
44:25 without a doubt a savvy underwriter. I'd like to see a little more cyclical history. The company's still somewhat
44:31 young publicly, but I would call that good underwriting, Steve. That's good E&S underwriting, right? And especially
44:36 and it works in a hard market when that sounds dishonest. It's not that it's dishonest. And if you
44:42 look at their loss ratios, their loss ratios are not they're a little bit lower than like a Travelers, but relative to other E&S carriers, it's
44:49 typical to find loss ratios in the mid-50s. So Okay. No, you're right. If you look at like Yelp reviews and things like that,
44:55 there's a lot of negativity. So, I just don't want to overgeneralize. You don't want to overgeneralize
45:01 it. Well, my point being is the point still stands. It's not just that. What I think
45:06 is actually probably more interesting is Kinsale touts a really low expense
45:13 ratio. And one of the reasons why is they pride themselves they think that brokerage remuneration is too much. So,
45:18 they don't pay super high brokerage fees. Mhm. The thing to keep in mind is when the market transitions from hard to soft,
45:26 business doesn't just stay in the non-admitted market. The retail broker brings that back to the standard market.
45:32 And that is most prevalent in the smaller part of the market, which is what Kinsale underwrites. So they have
45:40 real headwinds that they have to deal with from a cyclical standpoint. You have to ask yourself if what you do is
45:47 sort of, you know, pugnacious underwriting and underpaying.
45:53 I don't want to say underpaying, but paying less. Is that a how good of a strategy? How soft market strategy is
45:59 that? So that's my view on it there. It's a good company. It's one where I have more questions about
46:05 valuation than do for Travelers, for instance. But it's a good company. We'll see what they look like in a soft
46:10 market. They've never really traded in a soft market before. Okay, Ryan, thank you. Thanks, Steve. That was great.
46:15 Really great. Very comprehensive. Thank you. And we're back. So, couple of lessons here. The personal lines. He's I think
46:24 the way I heard him, he's pretty negative about it. You know, we talked about Progressive and he pointed out
46:30 that the new technology in cars is causing accident rates to really
46:35 collapse, which is causing pricing to go down. That may not change anytime soon.
46:42 So, I walked away from this being more negative on personal lines than I thought. On the commercial lines, we're
46:50 definitely going through a cycle of pricing weakness, which generally means you don't want to own the whole group,
46:56 but he does like AIG because it's really a kind of a self-help story where the stock is really, really cheap. We talked
47:01 about the insurance brokers. I didn't feel like there was much to do there, at least not yet. And then we
47:08 touched on a couple of specialty names like Trupanion where I'm extremely negative. He's somewhat negative but not
47:15 as negative as me. And then we talked about a company called Kinsale which I think could be a problematic company but
47:21 Ryan actually thinks it's not a bad company as well. So I learned a lot from the interview. I think you did too. And
47:28 we'll see you soon.
47:34 This podcast is for informational purposes only and does not constitute investment advice. A host and guests may hold
47:41 positions [music] in stocks discussed. Opinions expressed are their own and not recommendations. Please do your own due
47:46 diligence and consult a licensed financial adviser before making any investment decisions.
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