Description

Short description

 

Definity Financial (DFY) is the sixth-largest[1] property and casualty (P&C) insurance company in Canada, holding a 4.8% market share of premiums written in Canada. The company writes personal and commercial insurance for individuals and small to medium-sized enterprises across Canada, within three key operating segments: personal auto; personal property; and commercial.

 

 

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[1] Market share of Canadian P&C insurance industry Direct Written Premium (DWP) of $67.9 billion for the twelve months ended December 31, 2021.

Investment Thesis

 

• Defensive - High quality defensive business. P&C insurance is recession resilient.

• High growth - Ability to grow twice the industry rate, on average a 10% annual growth rate with a mid-90s combined ratio as a first mover in digital insurance.

• Underappreciated - DFY has beat expectations since the demutualization.

• Overcapitalized - Demutualization dynamics playing out as the company is overcapitalized with debt limits until November 2023 (unless an exemption is approved).

• Price increases - Post-COVID price increases and inflation adjustments. DFY reduced auto pricing during COVID; that is reversing. Overall pricing conditions are positive with Personal Property and Commercial experiencing mid- to high-single-digit rate increases. P&C polices are 1 year in term and allows insurers to re-price annually due to inflation.

 

IRR & Valuation

 

Target of $44.64 by FY2023, 2.0x 2023 BV (17.5% upside) in line with high ROE / high growth peers. Including dividends, results in a 15.6% IRR.  Downside is $35.71 (-6.0%) or 1.6x P/BV, a conservative valuation akin to a low quality and low growth company. Downside IRR is -3.4% including dividends, for a 4.6x upside/downside ratio.  

 

Industry

 

DFY operates in the Canadian P&C insurance industry, which provides insurance to both individuals (personal insurance) and businesses (commercial insurance) covering automobiles, commercial transportation, property, general liability and specialty insurance. 

 

The Canadian P&C insurance industry had DWP (direct written premiums) of $67.9 billion in 2021. Ontario is by far the largest P&C insurance market in Canada, accounting for 45% of industry DWP in 2020. Alberta and Québec accounted for an additional 17% and 19% of industry DWP in 2020, respectively. Automobile insurance is the largest business line of the Canadian P&C insurance industry by DWP (45% of total industry DWP in 2020); property insurance is the second largest business line (40% of total industry DWP in 2020).

 

 

Business Model

 

Canadian P&C insurers are a defensive sector with GPW growth not tied to economic growth and resilient during economic downturns as shown below:

 

 

Company Overview

 

Company Description 

 

DFY is a leading P&C insurer in Canada, with more than one million policies in force across the country. The company is sixth largest provider of P&C insurance in Canada, with a market share of 4.6%. 

 

The company offers personal and commercial insurance products. Through the company’s personal lines insurance operations, which represented 72% of GWP in 2021, DFY offers auto, property, liability, and pet insurance products to individual customers. The company’s commercial lines insurance offering represented 28% of GWP in 2021, including fleet, individually-rated commercial auto (“IRCA”), property, liability, and specialty insurance products, which are provided to businesses of all sizes in Canada.

 

DFY is a multi-channel insurer; the company distributes products on a primarily intermediated basis, through brokers, as well as directly to customers. DFY has active relationships with a network of approximately 700 independent brokerage firms and a broker base of more than 27,000 individual brokers. 

 

DFY has aggressively increased its direct to consumer channel, cutting out the brokerage middleman. The company’s direct distribution channel includes Sonnet Insurance (Sonnet), through which DFY launched as a digital direct insurance platform in 2016; its pet insurer, Petline Insurance, which was acquired in 2017; and Vyne, the company’s broker digital platform launched in 2018.

 

In 2021, broker and direct distribution represented 89% and 11%, respectively, of total GWP. Going forward, DFY expects direct distribution to increase with individual customers increasingly purchasing insurance online through digital direct platforms like Sonnet and acquired brokerages. 

 

On October 3, 2022 Definity increased its ownership interest in McDougall Insurance ("McDougall") from ~25% to ~75% for cash consideration of $217MM. The acquisition was completed on October 3, 2022, financed by DFY's excess capital position. DFY's total investment in McDougall now stands at $251MM. McDougall is Eastern Ontario's largest insurance P&C brokerage with an annual premium base of ~$500MM, 50+ insurance companies, 40+ branches and 450+ employees. Definity's initial investment in McDougall was in 2017 and since, McDougall completed 14 broker acquisitions. DFY expects to generate in excess of $40MM in operating income annually from McDougall and its other broker investments (vs. $8MM for the full year in 2021). Furthermore, DFY expects the transaction to be immediately accretive to operating ROE and operating EPS.

 

The company has a national presence and conducts its business in all provinces and territories of Canada. Ontario is the largest market, representing 58% of GWP in 2021. DFY’s P&C insurance business is supported by its investment management activities. DFY had $5.0 billion in investments as at Q2’22 and expects to generate investment income of over $120MM for 2022, with higher interest rates benefiting the fixed income portfolio.  The company’s investment portfolio is comprised primarily of short-duration, investment grade fixed income investments.

 

Definity sells its insurance through 2 distribution channels:

 

- Insurance Brokers

o Insurance Brokers (89% of GPW): Definity uses insurance brokers for all 3 insurance segments. Definity’s Vyne broker technology solution supports Personal Auto, Personal Property and certain Commercial Auto and small business products; and

 

- Online/Direct

o Online/Direct (11% of GPW): In 2016, Definity launched Sonnet, its direct-to-consumer platform where customers can obtain quotes and bind insurance exclusively online (without requiring human interaction) for Personal Auto and Personal Property lines.

 

Source: Q2’22 MD&A

Growth Drivers

 

DFY’s Digital Platforms (Sonnet and Vyne) are driving DFY’s strong growth and profitability. 

 

Launched in 2016, Sonnet is Canada’s leading fully digital direct P&S insurance platform. It is the first fully digital P&C insurance platform widely available in Canada with an offering that includes auto, home, condo, tenant, landlord, and pet insurance. The operating model integrates machine learning, artificial intelligence, data analytics and data management capabilities, as well as real-time fraud detection and deflection. 

 

Key results of Sonnet include:

 

• A 45% decline in customer acquisition costs from 2017-2021.

• A 42% Sonnet GWP CAGR from 2017-2021. 

• Q2’22 LTM GWP of $315MM, or 9% of total GWP. 

• The company has broken out Sonnet’s GWP on a quarterly basis for 2021 and 2022.

 

 

Unlike the United States, where Geico Corp., Allstate Corp. and Progressive Corp. made digital self-serve a norm in insurance buying, Canada has lagged behind. When Sonnet was launched, peers with digital offerings, such as Intact Financial Corp.'s Belair Direct brand, had standard procedure that included connecting with customers by phone before a policy is issued. Speaking to a human was never necessary to become a Sonnet customer. Belair Direct has since allowed purely digital policy purchases, but Intact Financial Corp. has not disclosed as many Belair Direct details as DFY has with Sonnet. 

 

In 2018, DFY launched its automated end-to-end system broker digital platform, Vyne. Vyne allows brokers to obtain policies for customers and enables DFY to be one of the first guaranteed quotes available to the broker. Vyne also makes it easier for insurance brokers to do business with Definity (e.g., fully automated underwriting, administration and billing).

 

The automation of DFY’s underwriting processes has transformed its business model away from intensive manual processing. What used to require days now occurs in real-time, which meet the expectations of digitally connected customers and brokers and significantly expands reach and processing capacity. 

 

The company’s Digital Platforms (Sonnet and Vyne) are highly scalable and automated, which drives significant operational efficiencies, including lower underwriting and operational costs, as well as a greater ability to uniformly apply underwriting standards to new and recurring business. This creates a flywheel effect, enabling a cycle of customer growth, improvements in financial performance and investments in the customer and broker experience.

   

Price increases

 

Post-COVID price increases - Industry claims ratios were above historical levels prior to the pandemic. While claims ratios benefited from the pandemic due to lower accident frequency, claims ratios will move closer to pre-pandemic levels, Definity and competitors are likely to continue seeking rate increases. 

 

Pre-demutualization underpricing - prior to demutualization, DFY was underpricing product, this has largely changed. 

 

Inflation adjustments - P&C polices are 1 year in term and allow insurers to re-price annually due to inflation.

 

Corporate Structure 

 

Companies

 

DFY offers insurance products primarily through four companies: Economical Insurance, Sonnet Insurance, Family Insurance and Petline Insurance, allowing for a diversified and differentiated go-to-market strategy

 

 

 

 

Demutualization Process 

 

Demutualization is a regulated legal process by which a mutual insurance company converts from a company with mutual policyholders as its voting members and no shareholders, to a share company with voting shareholders and no voting policyholders. 

 

DFY’s demutualization process was formally initiated on November 3, 2015 when the Economical Insurance Board passed a resolution recommending that Economical Insurance demutualize. The demutualization was completed in November 2021.

 

Demutualization Regulations provide several constraints for a two-year period following a demutualization:

 

• The Minister of Finance will not approve an acquisition by any person of more than 20% of any class of voting shares of a demutualized insurance company.

• Subject to ICA (Insurance Companies Act), where total debt cannot exceed 2% of total assets, DFY has applied for an early exemption. If an early exemption is not granted, DFY will have the 2% limit removed in November 2023 when the company transitions to oversight from the CBCA (Canada Business Corporations Act).

Definity’s current substantial excess capital and eventual ability to add financial leverage allow the Company to pursue its strategy of growing market share.  

 

Segments

 

DFY has three segments:

 

Personal Auto (44% of GPW)

o Details: 

Personal Auto insurance nationally, Ontario is 65% of GPW. 

o Market Share: 

In 2020, Definity was 8th in GPW market share in Personal Auto at 5.7%.

o Growth Drivers:

Rate changes:

• Prior to the pandemic, industry claim ratios were above historic levels. Claim ratios declined during the pandemic due to reduced driving and in addition through the pandemic pricing went down. The industry gave customer relief as people were garaging their vehicles or driving less frequently. Post-COVID prices are rising and claim ratios are increasing, though less than pre-COVID due to less driving. For example, Ontario auto, 70% of DFY’s total automobile portfolio stopped getting relief in June 2022, now that has effectively experienced a 4% to 5% rate increase (Q2’22 cc).

o 12 month industry outlook as of Q2’22:

Expects the frequencies of claims to continue to normalize over the next 12 months as people return to on-site work environments.

Expect the inflationary pressures affecting vehicle damage claims to persist during this period.

o Forward guidance color:

Over the course of the pandemic, many Ontario auto insurers lowered their rates and/or provided rebates as relief to their customers because of the previous COVID-19 lockdown. DFY have started to see claims frequencies increase, as well as indications of inflationary pressures on claims. Despite the constraints on being able to increase overall rates further with the COVID-19 pandemic still ongoing, companies have continued to file net neutral rate changes that provide greater risk segmentation as a means of managing the impact of COVID-19 relief measures that remain in the market and preparing for FSRA’s new regulatory guidance on the take-all-comers rules. 

o Model Assumptions:

NEP per policy growth. 

• Average annual growth rate of 9.6% for 2018-2021, with 14.5% in 2021.

• Annual growth modeled as 9.1% for Q3’22 to Q4’25 as pricing increases driven by COVID relief rolling off, inflation pass through and higher rates.

Policies in force growth.

• Average annual growth rate of 2.5% for 2018-2021, with 4.8% in 2021.

• Annual growth modeled as 5.3% for Q3’22 to Q4’25.

Gross written premiums growth (NEP as a % of GWP).

• Average rate of 92.9% for 2018-2021, with 93.4% in 2021.

• Average quarterly rate modeled as 94.4% for Q3’22 to Q4’25, as pricing pressure shifts in DFY’s favor.

Claims ratio.

• Average annual rate of 73.1% for 2018-2021, with 62.2% in 2021 with 81% pre-COVID (2019/2018).

• Average quarterly rate modeled in the mid-60s% for Q3’22 to Q4’25 as post-COVID claim rates are expected to increase from 2021 lows and more in-line with the H1’22 94.5% rate. 

 

 

Personal Property (27% of GPW) 

o Details:

Personal Property insurance (property, liability and pet insurance via its Petline business) across Canada; Ontario is 51% of GPW. 

o Market Share: 

In 2020, Definity was 8th in GPW market share at 4.8%.

o Growth Drivers:

Rate changes - up single digit / low double digit pricing changes in average premium. DFY saw some inflationary trends coming back in 2021 that automatically added given inflation provisions in the policy. (Q2’22 cc)

o 12 month industry outlook as of Q2’22:

The volatility of weather events combined with inflationary pressures are expected to increase claim costs, which will be reflected in firm premium pricing over the next 12 months.

DFYexpects this volatility to continue, with commensurate rate actions, coverage and appetite changes, and an enhanced focus on loss prevention and mitigation.

o Forward guidance color as of Q2’22:

Inflationary trends coming back in 2021, that automatically added given inflation provisions in the policy. 

Expect growth in property to continue given the organic growth potential of digital platforms and a continuation of the firm pricing conditions prevalent in the industry in recent years.

o Model Assumptions:

NEP per policy growth 

• Average annual growth rate of 9.6% for 2018-2021.

• Annual growth modeled as 7.9% for Q3’22 to Q4’25.

Policies in force growth.

• Average annual growth rate of 9.6% for 2018-2021.

• Annual growth modeled as 8.5% for Q3’22 to Q4’25.

Gross written premiums growth (NEP as a % of GWP).

• Average rate of 86.8% for 2018-2021.

• Average quarterly rate modeled as 87.0% for Q3’22 to Q4’25.

Claims ratio. 

• Average annual rate of 60.1% for 2018-2021.

• Average quarterly rate modeled as 58.9% for Q3’22 to Q4’25.

 

 

Commercial (28% of GPW) :

o Details

Commercial insurance (e.g., Fleet, Auto, Property, Liability and Specialty lines) for small- to mid-market businesses across Canada; Ontario is 61% of GPW. 

o Market Share 

In 2020, Definity was 8th in GPW market share at 3.2%.

o Growth Drivers

Rate changes (Q2’22 cc).

• Inflation is being passed on through pricing changes.

o 12 month industry outlook as of Q2’22

DFY expects the commercial lines market to remain firm over the next 12 months as carriers focus on ensuring long-term profitability and sustainable availability of capacity

Pricing to be influenced by the industry’s overall underwriting performance, as well as global reinsurance pressures, inflation trends, weather events, and expected investment returns

o Forward guidance color as of Q2’22

Expect the commercial insurance business to deliver combined ratios in the low 90s.

o Model Assumptions:

Gross written premiums growth (NEP as a % of GWP).

• Average rate of 89.6% for 2018-2021, with 81.3% for 2021.

• Average quarterly rate modeled as 82.5% for Q3’22 to Q4’25.

Claims ratio

• Average annual rate of 64.8% for 2018-2021, with 55.8% in 2021.

• Average quarterly rate modeled as 54.5% for Q3’22 to Q4’25.

 

 

Overall growth drivers:

 

• M&A

o Goal is to be a top-five player, with somewhere between $0.5 billion and $1 billion of acquired revenue to achieve that on top of organic growth.

o On 10/3/22, DFY increased its interest in McDougall, one of Ontario’s largest P&C brokerages, from 25% to 75% for $217 million. DFY expects to generate operating income in excess of $40 million annually (versus $8 million for the 12-month period ended December 31, 2021).

• Sonnet

o In this recent quarter, GPW is $315 million LTM, that range is somewhere in the $400 to $500million of premium range.

• Vyne

o A digital broker platform that makes it easier for brokers to do business with DFY (e.g., fully automated underwriting, administration and billing).

• Claims product

o CEO Saunders suggested on a 9/8/22 financials sector conference call that DFY was developing a new claims digital product with information coming in the next 12 to 24 months.

• Excess capital 

o DFY’s substantial excess and ability to take on leverage will allow substantial capital to grow market share.

• Investment portfolio 

o For 2022, management expects full-year net investment income will exceed $120 million; in Q2’22 DFY generated $31.8MM or a 2.4% annualized rate of return. Projections use a 3.0% annualized rate. 

4Qs

 

Quality of business model

 

Recession resilient defensive sector in a company with over 150 years of operations that was recently revamped through the demutualization process.

 

Quality of growth 

 

DFY is growing at twice the rate of the industry; gross written premium (GWP) has a CAGR of 10%, with a combined ratio in the mid-90s and underwriting income improvement of ~$460M in 2018-2021. Growth has been transformed by digital initiatives away from intensive manual labor.  DFY’s Digital Platforms are highly scalable and automated, which drives significant operational efficiencies, including lower underwriting and operational costs, as well as a greater ability to uniformly apply underwriting standards to new and recurring business, creating a flywheel effect.

 

Quality of balance sheet 

 

As a mutual, DFY was leverage constraint to 2% of assets. DFY’s switch to a company governed by the Canada Business Corporations Act in 2 years (or less if an exemption is approved) allows DFY to add financial leverage. DFY targets 20% of debt to capital and 5% in preferred shares, which in addition to DFY’s excess capital allows sufficient resources to fund growth opportunities.   

 

Quality of management

 

DFY team has robust industry expertise with half of senior management joining since the demutualization process commenced in 2017. CEO Saunders joined DFY in 2016 to lead the company’s demutualization process. He spent 12 years as CEO of RSA Canada where he doubled market share, boosted the DOE and improved claims ratio.  

 

Management

 

DFY’s senior leadership team has an average of more than 15 years of P&C insurance experience.  Since the demutualization process began in 2017, new hires represent half of the insurer’s top executives. 

 

Rowan Saunders, President & CEO 

 

Mr. Saunders is the President and Chief Executive Officer, effective November 1, 2016. Mr. Saunders grew up in South Africa and immigrated to Canada in 1984. His background includes over 30 years of international P&C industry experience, holding progressive positions in the areas of underwriting, marketing, sales and finance, and most recently 13 years (2003 – 2016) as the President and CEO of “Royal & Sun Alliance Insurance Company of Canada” (RSA), a British multinational general insurance company headquartered in London, England. In total, Mr. Saunders spent twenty nine years at RSA. 

 

He decided to leave RSA and join DFY due to the opportunity to lead DFY through Canada’s first property and casualty demutualization into a publicly-traded company.

 

In addition, RSA’s parent RSA Insurance Group plc had several challenges that hampered the Canadian subsidiary that Mr. Saunders ran. This includes a dividend cut, multiple earnings warnings, restructuring, asset divestitures and rights issues to shore up RSA Insurance Group plc’s balance sheet including the sale of Noraxis for RSA Canada that took away capital and focus for RSA. 

 

Mr. Saunders’ experience at RSA is instrumental for understanding how he intends to manage DFY:

 

- Market share growth 

o In the previous eight years of Mr. Saunders’ tenure, RSA effectively doubled its Canadian business revenue and was among the industry leaders in terms of profit margins.

o RSA’s market share increased from 4% at the trough to 7% at its peak. DFY’s current market share of 4.5% is similar to the market share RSA Canada had when Saunders was named President & CEO.

 

- Profitability 

o Mr. Saunders was able to improve RSA’s claims ratio and ROE. 

  

 

- Internal transformation:

o Strategy 

RSA’s transformation evolved from asking two questions: Who in the world in financial services was best in class in terms of revenue generation? And, who was best in operational excellence? 

• This allowed the company to complete an assessment of its own capabilities and identified the gaps between where DFY was and where best in class would be. RSA then created a plan to close that gap, which amounted to about a $500 million investment.

o Organizational

Reduced the number of employees in some locations and hired up and retrained employees in other locations in order to eliminate friction points with customers and inefficiencies.

Delegation of responsibilities. 

o Capabilities

RSA focused on building new capabilities. As an example, in the past, being good in digital interaction wasn’t important and now it’s essential.

o Technology 

Updating technology; RSA spent $300 million on this.

Philip Mather, Executive Vice-President & CFO 

 

Mr. Mather’s background includes almost 20 years of P&C insurance industry experience. He has been Executive Vice-President and Chief Financial Officer of Economical Insurance since April 2017 and is the President of Westmount. He was Senior Vice-President and Chief Financial Officer of Economical Insurance from October 2011 to April 2017 and is a former partner of PricewaterhouseCoopers LLP’s Audit and Assurance group, specializing in financial services (primarily P&C insurance).

 

Paul MacDonald, Executive Vice-President, Personal Insurance 

 

Mr. MacDonald has been Executive Vice-President, Personal Insurance of Economical Insurance since January 2018. He was the Senior Vice-President and Chief Claims Officer of the Canadian subsidiary of RSA Insurance Group, a major international publicly-traded P&C insurance company, from October 2015 to December 2017, and a Vice-President, Operations (Canada) of SGI Canada (a Canadian P&C insurance company) from February 2013 to October 2015. Mr. MacDonald is also a director of Bahamas First Holdings Limited, a financial services firm listed on the Bahamas International Securities Exchange, in which DFY has a minority interest.

 

Fabian Richenberger, Executive Vice-President, Commercial Insurance & Insurance Operations

 

Mr. Richenberger has been Executive Vice-President, Commercial Insurance of Economical Insurance since May 2017. He was the Head of Financial Services for CarProof Corp. (the Canadian automobile data subsidiary of an international publicly-traded data analytics company) from January 2015 to April 2017, and President of the Canadian P&C insurance operations of Northbridge Financial Corporation from January 2010 to August 2014. Mr. Richenberger’s mandate is to build on the company’s positive momentum in commercial insurance. 

 

Paul MacDonald, Executive Vice-President, Personal Insurance & Digital Channels 

 

Mr. MacDonald has been Executive Vice-President, Personal Insurance of Economical Insurance since January 2018. He was the Senior Vice-President and Chief Claims Officer of the Canadian subsidiary of RSA Insurance Group, a major international publicly-traded P&C insurance company, from October 2015 to December 2017, and a Vice-President, Operations (Canada) of SGI Canada (a Canadian P&C insurance company) from February 2013 to October 2015. Mr. MacDonald is also a director of Bahamas First Holdings Limited, a financial services firm listed on the Bahamas International Securities Exchange, in which DFY has a minority interest.

 

In September 2022, DFY expanded Mr. MacDonald’s role to include digital channels. Aligning personal insurance and digital channels into a single business area under Paul's leadership is intended to improve operational efficiency and focus.

 

Financial Review 

 

The execution of the company’s strategic plan led to an improvement of approximately $611 million in underwriting income and an improvement of over $286 million in net income between 2018 and 2020. The company has been executing on its three key financial targets:

 

• Grow GWP annually at an average rate of 10% supported by continuing to scale Sonnet, leveraging its investments in the broker channel and expanding core commercial insurance and specialty capabilities.

 

• Maintain an annual combined ratio in the mid-90s as strategic investments drive scale and DFY continues to generate operational improvements across all lines of business.

 

• Generate an annual operating ROE in the upper single digit to below teens range through underwriting profitability combined with investment performance and reflective of the capital levels generated.

 

Putting together all the segment projections with an investment profile benefiting from rising rates, results in a business that is growing GWP in the low double digits, expanding ROE with significant excess capital to consolidate the industry. 

 

 

 

Technical Analysis 

 

DFY is up nearly 40% since its IPO in November 2021. The stock has benefited from re-rating from 1.3x P/BV at demutualization, a 0.7x P/BV discount compared to its peer (Intact Financial Corp, IFC CN) as well as exceeding consensus expectations.  The stock’s 50 day moving average has established the stock’s base. 

  

 

Leverage and Capital Allocation

 

Capital in DFY, as with other Canadian P&C insurers, is measured by the minimum capital test (MCT) ratio. Insurers are expected to have a supervisory target level of 150%, a buffer above the minimum 100% MCT. Investors are comfortable with P&C insurers maintaining a 200% MCT ratio with excess returned to shareholders or deployed. DFY at Q2’22 had a 206% MCT, down from 272% at its IPO as it deployed capital to fund growth initiatives.  

 

As of Q2’22, DFY had an MCT of 206% or $37 million of excess capital above the 200% mark, with $585 million of additional capital at Definity Financial Corporation, and $288 million of leverage capacity for a total financial capacity of $910 million. To facilitate additional leverage, the company has a bank facility today of $150 million that immediately converts to $600 million upon the end of the two year demutualization to public company window.

 

Valuation 

 

A price target of $44.64 is based on a 2.0x 2023 P/BV of $22.32, a slight discount to current sector valuations. There is room for DFY to exceed this target as the company utilizes its excess capital to acquire smaller peers. The latest DFY will be freed from demutualization regulatory oversight is November 2023, which is not factored into the $44.64 price target and provides greater upside in 2024. Downside is $35.71 (-6.0%) or 1.6x P/BV, a conservative valuation akin to a lower quality and lower growth insurance company. Downside IRR is -3.4% including dividends, for a 4.6x upside/downside ratio.  

 

 

 

 

 

 

 

Risks

 

Competition: DFY is a first mover in the online Canadian digital insurance market, as such there is a risk that peers enter the fray and reduce the platforms above industry growth. This is mitigated by the long lead time to develop such a product. 

 

Catastrophes: DFY faces ongoing risks from catastrophes as well as climate change (e.g., flooding, wildfires, earthquakes, ice storms, hurricanes, hailstorms, tornados) that are difficult to predict. The risk is mitigated by ability to re-price policies annually and the use of re-insurance.

 

Defensive sector: DFY operates in a highly defensible sector. Any capital inflow to high risk assets may see capital leaving the insurance sector and depreciate DFY’s valuation / stock price. 

 

Catalyst

Debt constraints expire in November 2023

M&A

Price increases