Insr Insurance Group Reason: Estimate changes
Reinsurance of 20% in ’20e hikes EPS by ~30%
• Capital of ~NOK 100m allows reinsurance share of ~20%
• Adj. EPS up from lower reinsurance share & claims
• Looks like black figures are here to stay
BUY
New capital opens up for much lower reinsurance share The company’s new capital issuance of ~NOK 100m increases its solvency capital to above 175%, on our calculations, making it possible to lower the reinsurance share towards 20% already for 2020e, and to below 10% by 2021e. We estimate the solvency ratio will be down to ~153% at year-end ‘20e and ‘21e. In conjunction with the issue, the company said that July and August combined gave a net profit of ~NOK 10m, up from NOK 6.7m for the whole of Q2’19, and that the combined ratio for its own accounts accordingly was 95%, improved from 98% in Q2’19. The company is now guiding that it will maintain its solvency ratio above 150% to attract clients that want a strong capitalised counterparty.
Adj. EPS up 20%, 31% & 24% for ’19e, ’20 & ’21e With a lower re-insurance share of ~41% for 2019e, and down to ~20% for ‘20e (from ~35%) and to ~8% for ‘21e (from ~20%), we get growth in premiums for its own account of 54% for ‘20e and 30% for 21e. Due to the closure of its Danish operations in September (to be run off over the next year), we have lowered the overall gross premium growth to 11% for 2019e (from 14%), but as we expect new customers to be signed with a better solvency ratio, we have 13% growth for ‘20e (from 12%) and 12% for ‘21e (from 11%). We forecast the costs ratio to increase by ~50bp, to 23%, for ‘20e (from 22.5% due to higher sales costs for its own account), while the leverage in the model keeps the cost ratio at 21.5% for ‘21e. We have lowered reported claims by 100bp, as we forecast INSR to have some run-off gains, and we have increased the financial return to 1.85% (from 1.75%) for ‘20e and ‘21e.
BUY the lower reinsurance opportunity at a discount We view the adj. ’20e P/E of 21.9x falling to 7.4x in ‘21e as a clear BUY.
Our TP is up to NOK 12.9 (11) to reflect the opportunity that lies in the lower reinsurance share as well as the option to use the large deferred tax assets.
14/10/2019