Rising insurance costs good news for underwriter Ensurance

Insurance premiums are on the rise and HGL Limited’s Joseph Constable believes ASX-listed underwriting agency Ensurance Limited has a good chance of benefiting from these gains.

Speaking at Reach Markets’ fortnightly Meet the Fund Manager webcast, Mr Constable said Ensurance has been ‘overlooked’ by the market in recent years after its share price fell “dramatically” on listing.

Despite the consistent downward pressure over the past decade, Mr Constable believes the business reached a turning point in 2018 when Pilbara Minerals founder Tony Leibowitz joined as executive chairman.

The company provides insurance underwriting for major insurers in Australia and the UK in a range of specialist fields ranging from construction and professional indemnity through to terrorism and sabotage.

“For the uninitiated, underwriting agencies are specialist insurance businesses that have been given delegated authority to write policies in specialised lines of insurance on behalf of large insurers,” Mr Constable explained.

“The beauty of the underwriting model is that it is capital light. It’s the large insurer rather than the underwriter whose balance sheet is used for these policies. Ensurance is simply taking a clip of the policies they write known as ‘gross written premium’.”

At its core this business model is a strong one, Mr Constable said, but Ensurance was plagued by years of “perceived mismanagement” with the company’s original managers overpromising at the company’s ASX debut in 2011, then underdelivering in subsequent years.

The problem was compounded by an ill-fated foray into fintech, attempting to create a digital platform for insurance.

“But beneath it all, they did have this good core business of underwriting,” Mr Constable said.

Mr Leibowitz’s appointment saw Ensurance refocus on this core business, Mr Constable said, selling off its fintech arm, expanding into the UK and commencing a turnaround plan that has seen premiums grow 83% annually since.

And although there are other businesses offering underwriting services on the ASX, Mr Constable said Ensurance is the only pure-play underwriter on the Australian exchange, and its current share price doesn’t reflect its fundamentals.

“We believe Ensurance has been overlooked by the market because of its chequered past,” he said.

“Insurance premiums are on the rise globally for a multitude of reasons, so in a growing market that’s currently worth over $10 billion – this is just the underwriting segment – Ensurance’s current valuation at around $20 million appears pretty cheap.”

Ensurance CEO Tom Kent added that the company is well-placed to grow organically in the months and years ahead, which could be spurred on by acquisitions if appropriate.

But more importantly, he said the company appears to be on the cusp of its turnaround story.

“We really are at that tipping point now,” he said.

“We’ve got a lot of diversity and revenue streams coming through and we want to keep building on that and finalise the last of our corporate debt.”

Click here to view more videos from Joseph Constable’s  Meet the Fund Manager’ session, or click here to view the full ‘The Insider: Meet the CEOs’ session.

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