I think that they are only up on broad market sentiment for insurers. . . . coupled with the prospect of a takeover MAYBE ONE DAY at prices a little bit north of current trading price.
I had the opportunity to see a recent and very comprehensive survey of what Insurance Brokers (NIBA Members) think of the various underwriters.
CIX rated pretty highly on this survey - but the area where they rated higher than ANY OTHER underwriter was around price flexibility. While many brokers may see this as a positive. . . . means they can get their clients a better deal. . . . it is not necessarily a good thing for CIX investors.
Survey result made me think that that CIX will show pretty strong top line growth this year. HOWEVER, the bottom line will be dependent on actuarial assumptions around long term loss ratios in long-tail classes. . . . what ever the result looks like this time round, the "buying business through discounting" approach worries me a great deal.
It would have been OK to be the market leader on price three years ago - an insurer taking this approach would have won a lot of business at prices that would still have been pretty profitable.
HOWEVER, industry pricing in commercial lines has dropped away sharply in the last 24 months so that even insurers who are holding pretty firm on price are on ly just meeting their reasonable return on capital hurdles (say, around 15%). To the extent that CIX is undercutting these guys, it will be doing so for sub-WACC returns given that a) CIX WACC would be higher than for most insurers due to size issues, b) CIX cost structure would be worse than most insurers as Head Office overhead is spread over a smaller book.
l. . . . all up, the only real hope from here is a takeover. i doubt that there will be one any time soon. . . .but you never know.
CIX Price at posting:
0.0¢ Sentiment: Buy Disclosure: Not Held
