Looking ahead to 2021 we expect book-value growth, the long-term driver of stock performance, to accelerate. Despite COVID-19 and another year of heightened catastrophe events, well-managed insurers demonstrated resilient operational performance in 2020. COVID-19 has accelerated the (re)insurance rate increases that began in 2018 and the impact of these cumulative price rises has begun to positively impact underwriting margins.

Portfolio companies are responding to the best underwriting market we have seen in at least a decade by growing premium volumes which have remained robust despite challenging economic conditions given the macro-insensitive demand for insurance.

Portfolio companies are responding to the best underwriting market we have seen in at least a decade by growing premium volumes which have remained robust despite challenging economic conditions given the macro-insensitive demand for insurance. Underwriting returns now comprise c75% of expected book-value growth, highlighting the industry’s ability to overcome the headwinds of continued low interest rates given the annual repricing of insurance policies. We expect continued momentum in (re)insurance pricing well into 2021 and 2022.

Despite excellent fundamentals, the US industry price-to-book value fell from c150% to 128% at the end of November (giving a 30-year average of 135%). This valuation and expected double-digit book-value growth give cash-on-cash returns in the high single digits which are compelling in today’s investment environment.