DEFINITY FINANCIAL CORP.
Q3 First Look: Strong Core Trends Support EPS Growth
Our Take: Positive. CAT losses had a significant impact on profitability, as
expected, but underlying earnings trends were generally better than forecast.
Margins in commercial lines were better than forecast, personal property
margins ex. CAT losses was better than expected, premium growth was
slightly higher than modeled and investment income was also higher.
Overall results: Operating EPS of $0.15 are better than both our estimate of
$0.09 and consensus of $0.03. The variance to our estimate came mostly
from higher underwriting income as a result of better-than-expected
combined ratios in commercial and personal property segments. Investment
income was also higher than forecast. BVPS ended at $22.87, slightly below
our forecast of $23.15 and consensus of $23.04.
Another strong quarter for commercial insurance: Commercial lines
finished the quarter with a combined ratio (CR) of 86.6%, down from 93.6%
in Q3/22. This compares to our estimate of 90.5% and the consensus
estimate of 89.6%. GWP growth was strong at 13% in the quarter and 15.9%
YTD driven by firm market conditions. Double-digit premium growth with this
type of margin is a good growth story.
Personal Property better than expected: CR of 123.3% was much higher
compared to 100.8% in Q3 of last year due to 39.7 points of CAT losses. The
result was better than our estimate of 130.9% and consensus of 128.9%. The
combined ratio ex. CATs was 83.6%, a big improvement versus 90.2% in
Q3/22 and much better than our forecast of 90.5%. Premium growth was
robust at 11.8% Y/Y.
Personal Auto in line with expectations: CR of 98.9% increased from
97.6% last quarter. The result was in line with our estimate of 99.0% and
consensus of 98.7%. Results were impacted by hail-related CAT losses.
Claims inflation remains elevated but has stabilized. Premium growth was
4.6% Y/Y, improving from 2.6% last quarter.
Net investment income better than expected: Q3 net investment income
came in at $46MM, 7% above consensus and 4% above our estimate.
Guidance for 2023 increases from $160MM to $170MM.
Premiums modestly higher than forecast: Gross premiums written of
$1,040MM came in above consensus of $1,030MM and our forecast of
$1,024MM. Strong organic premium is an important part of the story.
Distribution income falls short, but future expected income not
impacted: Distribution income came in at $11.2MM, below consensus of
$12.1MM and our estimate of $12.5MM. Subsequent to quarter end, the
company closed the Drayden acquisition. Distribution income is expected to
be $55MM in 2023 (before minority interests and finance costs).
Conference Call: Friday, November 10 at 11:00 a.m. ET (1-888-664-6392).