Tampa CEO says insurance industry on verge of highest price hikes in decades

The CEO of Tampa-based insurance firm Baldwin Risk Partners hinted at a potentially difficult year ahead for the insurance industry on a recent earnings call, while at the same time assuring investors his company was up for the challenge.

Shares of Baldwin Risk Partners (NASDAQ: BRP), an insurance distribution company, traded for around $27 in mid-November, shortly after the company released its third quarter earnings and delivered an Investor Day presentation. That price point is down more than 30% over the past year, near the midpoint of its 52-week range, with a low of about $17 and a high above $40.

On the Nov. 15 conference call to discuss company earnings, CEO Trevor Baldwin almost immediately made mention of Hurricane Ian, an historic weather event that will pose a long-term challenge to the entire insurance industry.

“The Category 4 strength, slow pace of movement and sheer scale of the storm led to a severity of loss that will likely make Hurricane Ian the costliest insured loss event in Florida history and among the costliest our industry has seen,” Baldwin said on the call. “Beyond the obvious and severe impacts to individuals, families and communities, there will be meaningful reverberations across our industry relative to availability cost in terms of insurance capacity.”

BRP, which operates in several different insurance markets, expects pointed challenges in the property insurance industry.

“The property market in particular we're anticipating is going to enter a period of dislocation that the industry hasn't seen in decades,” Baldwin said. (“Dislocation” is an insurance industry term for price increases.) But Baldwin believes his company will weather the storm effectively. “As I mentioned, that's the type of market where we excel where our depth of expertise, our breadth of market access and the uniqueness of the solutions that we're developing and bring to market enable us to solve real problems for our clients, ultimately positioning us to take more share,” he said.

For the third quarter, the company reported a net loss of $46.7 million, despite revenue being up 91% over last year to $259.4 million. For the nine-month period, BRP reported a positive net income of $14.7 million, on revenue of $734.7 million. Its adjusted net income for that period was $104.5 million.

As of Sept. 30, the company held $158.6 million cash and cash equivalents, and was carrying $1.37 billion of long-term debt, with just $73 million of additional borrowing remaining through its revolving credit facility.

At Investor Day, the company also highlighted what it called “significant outperformance” in the time since its October 2019 IPO. Compared to that first year as a public company, BRP’s revenue was up more than 530% in the 12-month period that ended in the third quarter, to nearly $1 billion. And its pro forma adjusted EBITDA has grown nearly 500%. Since its IPO, the company has hired 3,000 new employees, the presentation says.

Looking ahead, the company’s projections for 2023 are based on the assumption BRP will not be entering into any new partnerships to drive revenue growth next year. “We will continue to engage with prospective partners,” Baldwin explained on the earnings call, “but given the combination of much higher cost of capital, which has not worked its way into pricing and return models industry wide, and still buoyant private market valuations, we are entering the year with measured expectations.”