Gable Holdings is a specialist non-life insurer focussed on writing SME business. It looks for niche areas and for each line it works through a Managing General Agent who deals with customers and claims handling. Having only started in 2006, this has been very successful and it now has 20 lines across Europe. Premium growth has been very strong organically as well as from new lines, with 31% historic growth, a trend we expect to continue. On an underlying basis underwriting results have been good and looking forward we expect combined ratios of around 90%.
Reserving: Over the last three years Gable has been augmenting its reserves for reasons that are explained in the note, but this process is coming to an end. A final amount of £3.75m will be added in 2H15, allowing the underlying profitability to emerge thereafter.
Capital: Although Gable has adequate capital for its current business, the additional reserving and the advent of Solvency II means it needs to augment its current arrangements. An announcement on either a quota share arrangement and/or structured debt will be made before the year end.
Valuation: The current share price makes no allowance for the underlying profitability of Gable’s business, either on P/E or Price/NAV. Our 2016 forecasts make no explicit allowance for the cost of new capital arrangements, but our sensitivity analysis indicates 2016 should still be nicely profitable.
Risks: As a small insurance company Gable’s results can be sensitive to individual large claims. Operationally the MGAs add some complexity, and hence risk, though that is being managed. The additional reserving and capital discussions further add to risk, but these should be resolved by the year end.
Investment summary: Gable is about to emerge from a challenging period as it concludes its extra reserving and secures its capital position. On an underlying basis its underwriting has continued to be profitable and it has grown its premiums by a compound 31% since 2011. Neither of these is reflected in the current rating, suggesting plenty of upside if it can regain investors confidence.