No. of Recommendations: 9
Grove 5: Net premiums were $88.257 in 2024, average underwriting margin in the last 20 years has been 3.46%[3], so I'm saying $3.058b in normalized underwriting earnings.
FWIW
That's a bit higher than the figure I use, but doesn't seem unreasonable. I like to lean to the conservative side, since the occasional gigantic loss is not an exception, but something that happens in the normal course of business. I would rather be pleasantly surprised rather than unpleasantly.
I've found two quick estimates of pre-tax underwriting profit that seem to have held up well, in that aggregate P/L over the years has tracked aggregate estimated profit pretty well in the same period, as well as percentages. The two are:
-1.3% of float
+2.7% of premiums earned
The two give fairly similar results, and I use a simple average of those two methods. Four quarters to 2025-Q3 came out at $2.327bn before tax.
The only thing to watch out for is that under "premiums earned" there is the occasional spike, meaningless for this purpose, from retrocession agreements. The entire upfront payment counts as premiums earned in the quarter that the deal is done, even though a bunch of liabilities are taken on at the same time. $7.1bn in 2007 from Equitas, $10.2bn in 2017 from AIG. Because of that, using a percent of float is the easiest. You don't even have to add up four quarterly figures, just look at the most recent stated float balance.
Jim
