In a separate research note, Mr. Gloyn (National Bank) said he sees the P&C Insurance industry “well positioned” for 2022.
“Increased climate volatility, ongoing claims inflation, and low investment yields will sustain current hard markets conditions (i.e., rising premium rates, strong premiums growth, and expanding profitability),” he said. “Rising interest rates [support] a bottoming – then improving – investment returns outlook over time. Near-term, FFH stands to benefit most given the company’s 37-per-cent allocation to cash and short-term investments.”
He also thinks the work-from-home trend will continue, helping to sustain “strong” profitability in Personal Auto lines, given a reduced driving frequency, and Personal Property, expecting owners to increase maintenance and monitoring.
Accordingly, Mr. Gloyn anticipates the industry will build on its “solid” share price performance in 2021.
“Trisura Group (TSX: TSU) led our coverage universe, delivering shareholders a “double”, up 114 per cent on the year,” he said. “Fairfax Financial (TSX: FFH) appreciated 43 per cent, outperforming the S&P TSX Financials return of 32 per cent. Definity Financial (TSX: DFY) generated a 9-per-cent return in just over 6 weeks as a public company, outperforming the 1-per-cent return of the Financials index over the same period. While Intact Financial (TSX: IFC) lagged the index in 2021, the stock delivered a respectable 9-per-cent return.”
The analyst raised Trisura Group Ltd. remains at the top of his pecking order, emphasizing its “rapid growth outlook and valuation upside.”
Keeping an “outperform” rating, he raised his target for its shares to $65 from $62. The average target is $57.64..
“TSU currently trades at approximately 25 times consensus 2022 EPS,” said Mr. Gloyn. “The target valuation premium reflects i) our view TSU will execute on our robust revenue/earnings growth forecasts, ii) premium valuations in the insurance peer group, and iii) premium valuations ascribed to specialty lines focused companies delivering consistent double-digit ROE/EPS growth. We reiterate that significant valuation upside remains as i) the U.S. fronting platform continues to prove out its industry-leading growth trajectory and expands its share of TSU profitability and ii) Canada boasts strong momentum as market share gains, new products, and persistent hard markets support even more rapid growth than the U.S. platform.”
He also raised his target for Intact Financial Corp. to $219 from $215, exceeding the $198.42 average, also with an “outperform” rating.
“IFC merits a premium valuation as we expect the company will i) successfully integrate and operate RSA’s Canada and UK&I operations (delivering on synergy upside); and ii) produce roughly mid-teens OROE through 2023 and beyond. Whiles risk to personal auto profitability has risen given inflationary forces, we believe rate increases will continue to outpace loss cost trends,” he said.