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.
(19:15) You're googling Roth conversions. You didn't work this hard to be doing this yourself. Maybe you already have a
(19:22) financial adviser, but they show up once a year, usually because you called. Meet
(19:27) ARCA Wealth. ARCA is built for real complexity, tax planning, RSUs and options, accounts scattered across three
(19:34) different firms, a business sale, a retirement that's closer than it used to be. One adviser coordinates all of it.
(19:42) ARA remembers the tax deadline. Arkham knows when your equity vests. And when your life actually changes, a new job,
(19:48) an inheritance, an exit, they're already on it, not waiting for you to notice first. You shouldn't have to manage the
(19:55) people managing your money. The luxury was never the wealth itself. It's not having to think about it. Good service
(20:01) for members. Great service anticipates. Right now, the real Eisman playbook listeners can book a complimentary
(20:08) financial planning call with an Arca advisor at archawareealth.com/isman. That's arcawareealth.com/isman.
(20:15) Every ARC wealth advisor is a fiduciary legally and ethically bound to act in your best interest. Arca wealth is fee
(20:22) only. So what you pay is transparent. For important disclosures, please visit arcowalth.com. This segment is a paid
(20:29) endorsement for Arcawealth. I'm not a client and have an incentive to endorse
(20:34) Arca Wealth. In cyber security, the scariest thing isn't the attack you see
(20:39) coming. It's the attack path you didn't know existed. Horizon 3 is an AI native,
(20:45) proactive security platform that changes that. Here's how it works. Horizon 3's
(20:50) Node Zero is an autonomous AI hacker that continuously attacks your own environment at machine speed the same
(20:57) way a real attacker would, finding all the areas that are vulnerable. Trusted by the NSA, CISA, and Fortune 100
(21:04) companies, so you know you can trust it, too. You can stop guessing and start knowing your defenses are intact because
(21:12) Node Zero's results is a loop. Hack, fix, verify, repeat. It finds a problem,
(21:18) you fix it, and in one click, you can confirm it's secure. What would it mean to you to actually know how an attacker
(21:25) would come after you? Not to wonder, but to know. What does that peace of mind
(21:30) change for you? I trust Horizon 3, and you should too. See exactly what an attacker would find in your environment
(21:37) before they do. Go to horizon3.aiisman and request your free node zero demo.
(21:44) Visit horizon3.ai/isman. Again, that's horizon3.ai/isman.
(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
(35:25) anything? I have spent my career reading financial statements, and I know how much rides on getting the numbers right.
(35:31) That's the job in FPNA, building forecasts that hold up, managing budgets people can trust, and turning the
(35:39) analysis into decisions. Wharton Online and Wall Street Prep built an 8-week FPNA certificate program to reach
(35:45) exactly that. You learn from Wharton faculty and working FPNA practitioners how to create forecasts, manage budgets,
(35:52) and support decisions. It's self-paced, so you can work it around your own schedule, but it never feels like you're
(35:58) doing it alone. There's live office hours and opportunities for real-time collaboration with your cohort. You walk
(36:05) away with a certificate in 8 weeks, plus lifelong access to materials and a network of more than 5,000 Wharton online
(36:11) graduates. You're also invited to an in-person ceremony in New York where you can actually meet your cohort and
(36:17) instructors. Use code Eisman to save $300 on tuition. Enrollment closes
(36:23) October 5th. If you want to sharpen how you forecast, budget, and defend the numbers, start there.
(36:30) If you're hiring, you want a candidate who's passionate about your role, but you can't get that insight from a resume
(36:37) unless you post your job on Zip Recruiter. And now you can try it for
(36:42) free at ziprecruiter.com/isman. Zip Recruiter's powerful matching technology finds qualified candidates
(36:49) quickly. And Ziprecruiter has a new feature that shows you the most interested qualified candidates first,
(36:56) so you meet the right people faster. Candidates can tell you in their own
(37:01) words why they're interested in your job. No wonder Zip Recruiter is a number one rated hiring site based on G2.
(37:09) Find candidates who really want your job on Zip Recruiter. Four out of five
(37:14) employers who post on Ziprecruiter get a quality candidate within the first day. Try it for free at
(37:20) ziprecruiter.com/isman. That's ziprecruiter.com/isman.
(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.
(47:52) [music]