This piece brings together insights from multiple past articles, emphasizing Porter Stansberry’s latest pick in the insurance sector. With the company having recently announced its three-month financial results, I’ll include a follow-up on that later. Now, let’s break it down step by step.
Back to the world of insurance again—no surprises there! When a new mystery arises, it’s hard not to dive in, and this time, it’s yet another teaser from Porter Stansberry.
A while back, Porter spotlighted Kinsale Capital, a Property and Casualty insurance stock that happens to be my top picks. More recently, he hinted at another investment, stating, “We’re gearing up to invest in a fresh asset protection and liability insurer—subscribe to discover which one!”
Then came Wednesday, bringing a wave of clues. While the stock hasn’t been officially recommended yet, it’s clear that he’s laying the groundwork. Of course, I couldn’t resist looking into it.
So here we are again, dissecting another insurance stock teaser. Ready to solve this one?
And then there’s the moment that never fails to command my full attention…
What more can we uncover about this stock that’s likely to be their next pick?
Which insurance company could be next in line for Porter & Co.’s model portfolio? Alongside Kinsale Capital, likely WR. Berkley, Chubb, and two unnamed property and casualty insurers, one strong candidate stands out: IGIC
Despite its modest size—holding a market capitalization of approximately 0.85 billion dollars—IGIC makes a compelling case for inclusion. During the initial half of 2024, the company recorded 0.387 billion dollars in gross written premiums, with 0.293 billion dollars retained after reinsurance. Their efficiency is notable, generating 1,240 thousand dollars in earnings a staff member, while their profitability relative to shareholder equity sits at 23% (or 22.9 precent annualized for the latest quarter). During the last half-decade, their earnings have skyrocketed by 395%, whether measured through net income, EBIT, or similar metrics. Their overall loss and expense metric of 77.7% during the initial six months of 2024 is particularly impressive, aligning with Kinsale Capital’s standards. Interestingly, this strong performance doesn’t stem from aggressive cost-cutting—their cost efficiency percentage remains high at 35%—but rather starting with a minimal claims proportion of around 40%, indicating significant pricing power within their niche markets.
That said, IGIC isn’t a perfect match in every aspect. While they don’t hold exactly 1,000 million dollars in cash, their balance sheet does reflect 1.09 million dollars held in liquid assets and near-term securities which is fairly close. This amount represents approximately 50% of their total investment portfolio, with the remainder allocated to long-term holdings. Another potential mismatch lies in their approach to technology. IGIC has previously highlighted its investments in AI, business intelligence, yet recent discussions on these initiatives have been relatively sparse. That said, during their blank-check company merger, half a decade ago, they executed emphasize their technology-driven modeling capabilities.
For now, IGIC appears to be the strongest contender, though calling them an AI-driven leader would be premature. There could still be another insurer that fits the criteria better. The real test will be whether Porter officially adds it to the portfolio, continues referencing it, or hints at it again in future updates.
From a valuation standpoint, IGIC looks quite attractive compared to other high-performing underwriters. With a asset valuation per stock exceeding 13 dollars, the stock’s current price of 19 dollars places it slightly below 1.5 times book value. Using Stansberry Investment Advisory’s preferred metric of “asset valuation plus reserves,” my projection comes in at around 1,350 million dollars, implying the stock trades at a 35 precent discount to that figure. While this doesn’t reach the 50 precent discount Stansberry has traditionally sought (assuming that benchmark still applies), it comfortably meets my own criteria—I typically seek a minimum 25% reduction from book value + float when evaluating high-quality insurance firms.
Naturally, there are hurdles ahead. It’s doubtful that IGIC can sustain its recent pace of expansion. During their latest earnings call, company executives pointed out that competition is intensifying within certain of their specialized markets, which is why they anticipate only modest premium growth this year. That being said, I value their approach of prioritizing profitability rather than chasing aggressive expansion—this is a smart strategy, especially for a smaller insurance firm.
Looking at their track record, IGIC has maintained an average combined ratio of 86 precent over the last ten years, which is quite commendable. However, in such a competitive landscape, the likelihood of them holding onto their existing 77.7% combined ratio for the long haul seems low. Most major insurers find it challenging to stay below 90%. For example, Chubb has managed to average 90% throughout the last ten years, which is already impressive. Other niche insurers, like RLI—a former Stansberry pick that initially specialized in contact lens insurance—have hovered around 88%. What makes Kinsale an outlier is its ability to maintain a combined ratio below 80% while significantly scaling its premiums, a feat few can match. This operational efficiency is a key reason its valuation is considerably higher than other premium insurers.
Despite being in business for over 20 years, IGIC has only been a publicly traded entity for the past four, following its merger with a SPAC immediately preceding the surge in SPAC activity. Their market debut, unfortunately, coincided with the financial chaos of March 2020, when the COVID crisis was in full swing. A notable aspect of IGIC is its leadership’s vested interest in the firm—Company Founder and Chairman, along with his family (CEO Waleed Jabsheh), collectively hold roughly one-third of company’s shares. This substantial ownership stake ensures that management’s long-term vision aligns closely with shareholder interests.
Here’s how IGIC characterizes itself:
For over two decades, the Jabsheh family has been the driving force behind IGIC’s impressive expansion in the specialty insurance sector. What began as a modest brokerage, underwriting operation in Jordan has steadily grown into a global presence, first spreading across the MENA region before reaching markets worldwide.
While IGIC’s 23% ROE is undoubtedly impressive, maintaining that level across different market cycles is unlikely. Throughout the previous 10 years, their average ROE has stood at 14.2%, which remains well above the industry norm. Like many insurers, IGIC has benefited from a prolonged “hard market”—a period of rising insurance costs that has supported premium growth. More recently, they’ve also gained from improved bond portfolio returns, as interest rates have finally normalized after years of near-zero levels.
Strategically, IGIC is positioning itself for higher-margin opportunities. Their U.S. expansion has been a key focus, particularly in the Excess and Surplus (E&S) lines, a segment in which Kinsale possesses experienced remarkable growth. They are also shifting their emphasis toward rapid-settlement segments—such as property and energy—where claim patterns are more predictable. This approach helps them avoid the volatility associated with extended-liability segments, which are notoriously difficult to underwrite in the U.S. due to evolving liability risks. However, in Europe, in which litigation trends are less unpredictable, IGIC continues to expand its extended-liability insurance sector.
In many respects, IGIC mirrors the characteristics of some of the most successful insurers. Their underwriting-first approach is reminiscent of Markel (MKL), and as a founder-led company, they have historically allocated surplus capital toward special dividends and share buybacks, much like WR. Berkley (WRB). Their international growth strategy shares similarities with Chubb (CB), while their expansion into the E&S space echoes Kinsale’s playbook. Despite its relatively small size, IGIC is well-diversified—no single country accounts for more than 20% of its gross written premiums, and its investment portfolio are globally spread, primarily consisting of high-quality fixed-income securities and liquid assets with an average duration of just three years.
Underwriting discipline has been a hallmark of IGIC’s success. throughout the last ten years, they’ve posted underwriting profits in all but one year—2017, when catastrophic hurricane losses impacted the entire industry and arguably set the stage for today’s hard market. Like many top-tier insurers, IGIC tends to overreserve, a strategy that allows them to gradually release excess reserves over time, benefiting from what’s known as favorable reserve development—a key driver of long-term profitability.
To wrap up, presented below are a few reassuring remarks from CEO Waleed Jabsheh during the most recent earnings call:
Many companies claim to prioritize disciplined underwriting, but simply mentioning it during an earnings call fails to make it so. IGIC, however, has consistently demonstrated this commitment throughout the last ten years. A visual from their most recent investor presentation encapsulates their underwriting track record, showing resilience across both soft and hard market conditions. Their success stems from strict underwriting discipline, a strategic approach to capital allocation, shifting resources away out of loss-making segments into more lucrative segments. A prime example is their deliberate expansion into the U.S. market in 2020, only after pricing conditions became favorable.
While IGIC may not replicate its past growth trajectory throughout the upcoming half-decade, the company is still expected to remain profitable and steadily increase its asset valuation progression.
What stands out to me is the combination of strong performance and solid family ownership. Their disciplined capital management, seen in both stock buybacks and special dividends, is noteworthy. Family-controlled firms often lean toward special dividends like way to extract cash without diluting control. While I can’t predict whether IGIC will continue this practice, a rising valuation could make special dividends more attractive than buybacks. Their regular quarterly dividend of 2.5 cents (recently increased) offers a modest 0.5% yield, but they also paid a 50-cent special dividend in April. Meanwhile, share repurchases have been steady, reducing the number of outstanding shares by nearly 10 precent since 2022.
That said, there are risks—primarily tied to their recent expansion and higher valuation. The stock now trades at nearly 1.5 times book value, up from around 1 times book previously. However, relative to earnings, IGIC remains more affordable than many insurers with strong growth potential. The biggest concern is whether we are near the peak of the insurance pricing cycle, which could soften profitability in the coming years. This is an industry-wide risk, but IGIC’s international diversification and disciplined underwriting set it apart from larger, more U.S.-centric competitors.
After weighing the factors, I’m comfortable initiating a minor stake in IGIC—whether or not this was originally part of Porter’s recommendation. My conviction will likely develop over time, but I appreciate the company’s combination of reasonable valuation, superior expansion, along with diversification within my risk coverage holdings. Today, I purchased shares at approximately $19.
In typical market conditions, I estimate downside risk to be around $13 per stock, provided there is no firm-specific turmoil, if the stock reverts to 1 times book value due to waning investor interest or slowed growth. However, with their strong earnings power, well-managed float, and excellent underwriting profitability, the current valuation of only ~7X earnings remains compelling.
A few highly profitable property and casualty insurers are trading below 10 times earnings, with book value rising over 10% annually for the past 3 years. IGIC stands out as the best-valued option among them, being the sole entity trading under 1.5 times book value. While all companies in this group are profitable, solely Arch Capital matches IGIC’s 86% average loss and expense metric over the last ten years, but it trades above 2 times book value.
The author is adding IGIC to their active Investment Portfolio, though it remains uncertain whether Porter will include it in “The Big Secret” portfolio. An update is expected around mid-November.
Insurance stocks have performed well due to rising premiums covering increased claims, higher interest rates improving returns on float investments, and a strong market benefiting riskier asset holdings. However, potential risks lie ahead. In case long-term rates decline, investment income may decrease, depending on portfolio allocations. Consumers are reducing their coverage, and political scrutiny over premium hikes could intensify. Additionally, “social inflation” from larger jury awards remains a concern, and insurers face challenges in accurately pricing risks as climate change increases the severity of natural disasters.
A key advantage of short-tail insurance is the ability to adjust premiums annually, allowing insurers to respond to changing conditions. They play a crucial role in pricing climate change risks, helping buyers and stakeholders grasp the financial implications. However, their reliance based on past trends and projections presents challenges, as climate change makes future risks harder to predict—such as the probability of a hurricane striking a Miami skyscraper.
A notable recent development is insider selling by Ajit Jain, a key figure behind Berkshire Hathaway’s risk coverage division success and a potential successor to Warren Buffett. Last week, he offloaded 200 Class A stocks, valued at around $139 million, representing greater than 50% of his holdings, including trusts and charities he controls. While Jain has previously made small stock donations, this marks a significant sale.
The motivation behind this move remains unclear. It could indicate plans for new investments, concerns about the insurance industry, or considerations regarding his future at Berkshire. Alternatively, it might be a personal financial decision, given his age and the stock reaching its intrinsic value. Ultimately, the exact reason is unknown, but the sale occurred when Berkshire’s stock was near the analyst’s estimated intrinsic value and maximum buy price.
