Matt @ Meritum

This has got to be a data error right? $CPRT $RBA digest.autoastat.com/vol-187

@invest091 Thanks a lot! Likewise on your insurance broker work.

@MeritumInvest Nice work on this!

We published part 3 of our insurance broker writeup on the stack today. Cycle risk in focus, for both admitted + E&S. $AJG $BRO $RYAN $WTW $AON $MRSH We go through recent pricing data on renewals, E&S market dynamics, casualty vs property and how the earnings outlook is hit.

@za_investor Thanks! Means a lot. Give a shout if you find something interesting for us to write up

@MeritumInvest Really been enjoying your writing, especially the insurance distribution market overview of late. Thank you!

Today we are diving into a fairly niche topic --- remigration of E&S policies back into the admitted market, and the effect this would have on wholesale brokers ($RYAN $BRO $AJG - also relevant for investors in carriers $KNSL $RLI $MKL $WRB $CINF) Read part 5 on su bstk below

As a qualitybro myself, who has sinned in overpaying for good companies, current valuations are not 'major depressions' or 'generational lows'. They're just very normal, healthy levels where returns purely from yield and growth in same actually starts making sense for once.

@KarstResearch @anonymouskeepit Whats the math here? Casualty still not softening, but property is. Lets say prop rates down 15%. Exposure has been heavily constrained due to incredible hard market, so you make up mby +50pc of that on exposure, historical elasticity So half of biz is -6pc, rest is still fine?

@anonymouskeepit Brokers as well

Because a comment asked: Rate is getting destroyed. Reinsurance capital abundant. Will take a lot of loss to turn this market from soft to hard. If we get another relatively benign windstorm season rate will come down another mid-teens or more for 1/1. Pricing since 1/1/26 to today has also come in. There is just a lot of capital out there to absorb needs and it's going to take time to work through. Even in certain historically tight markets like FL are seeing abundant capacity on both primary and CAT. Insurers broadly well capitalized too.

@AKWilk I'll do you one better. This is Zeke's table!

This...is what you call a compounder. Bonus points if you can identify the company.

Update on Hemnet. Down almost 30pc in one month. Time to bite? $hem $hem.st Update on booli, april numbers and relative attractiveness.

For example, the MSFT and Google numbers you indicate... none of those cost anywhere close to that price... so probably quite high penetration in lower-salary workers where 300/mo is double-digit percentage of salary? Second would be pricing. Electricity and air travel is also ubiquitous. Doesn't mean its not sold at marginal cost and razor-thin margins. Not hard to imagine open source models, local inference and competition to keep DC utilization high means all value accrues to buyers of AI, not providers.

@SouthernValue95 But that spend of 300/mo wouldn't that be in like 2040? CRM is obviously a high pay / FTE employer compares to the average white collar in those 900. So 300/mo compared to full monthly salary is small... but move down to an Italian accountant or a government bureaucrat...

Some crude AI TAM analysis: - It was recently reported that $CRM is on track to spend ~$300M on Anthropic this year. That works out to ~$300/mo per employee - A GitHub copilot customer I spoke to was quoted a 10x price increase in June ($300/mo) - I myself happen to spend ~$300/mo in AI subscriptions - Let’s use $300/mo as a proxy for decent penetration of AI into a knowledge workforce. $MSFT 365 has ~450M users, $GOOG Workspace has a similar number (est., not disclosed). That’s a decent proxy for global knowledge workers ex-China at ~900M. If every knowledge worker consumed $300/mo of tokens, that’s a $270B monthly or $3.24T annually. Would equate to ~5-6% of global white collar labor spend ($50T). On consumer side: if every GOOG/META DAU consumed ~$20/mo of tokens, it would be ~3B * $20/mo * 12 = ~$720B. GOOG/META could basically fully subsidize this with their existing business models within a few years. Let’s assume $20/mo of tokens is covered some mix of ads, subscriptions, commerce share, and subsidization. Combining the TAMs we get to ~$4T of token spend. Keeping to simple numbers, at ~50% gross margins, it would sustainably require ~$2T of infrastructure spend to support these tokens. That would be ~2x the 2026 rate of ~$1T of AI infra spend ex-China. So from there: - Is enterprise token spend too high or too low? Could argue token consumption will only grow for CRM, but also that cost per token will fall, and the avg company won’t consume that much. - Is consumer token consumption too high or too low? Maybe consumers will be more willing to spend on subscriptions for this than in past consumer tech cycles. Maybe it’s too high if ai models don’t monetize. But at least $300/mo per user for enterprise and $20/mo for consumer are tangible numbers I can get my head around. That feels like the bogey for infra cycle to have another double from here and not be a huge bubble, and probably need another double at least for the stocks to work. Very crude round numbers throughout here. Appreciate thoughts and pushback.

Thanks! In my mind a bit of a false dichotomy. Brokers are not pure cyclicals (i.e. soft market bottom always being best place to buy). Brokers will still grow EPS in a soft market, maybe just 'only MSD' thru inorganic. So at this valuation, it's expectations vs reality, not if we have throughed fully. Remember, its only the difference in organic EPS growing msd in a moderare market or declining LSD in a soft market. It's not like carriers where profitability can be materially impaired. Secondly, casualty is still firm, so its a question of P&C hardening. Generally, inflation and increases in exposure unit demand is helpful here. Hormuz and data centers both help here. Third, its a question of reinsurance. 2025 was a super clean accident year. Softer reinsurance pricing flows directly into retail. I think reinsurance will continue to soften until major cat risk hits. Lastly, we have been in a very hard market. As prices moderate, people will re-add more coverage again. So brokers only suffer partially... its total written premiums that actually have to decline, not just pricing. So at 13x foward earnings, I would say all of this is more than priced in. For a cyclical where EPS can decline double-digits in a soft market this would be less interesting, but again... soft/hard is just the difference in growing fast or slow, not whether they grow at all.

@MeritumInvest Thank you for your work? How do you see the current timing of the soft market given that carriers still earn outsized ROEs and until that declines we likely won’t the true trough at which point would be the best buying opp for brokers?

New post today in insurance brokers: "Which horse to pick" - combines our takes on Cycle + AI risk with an overlay of management quality, M&A capabilities and broader business quality (excuse the AI-assisted graph). $AJG $RYAN $BRO $AON $MRSH $WTW - link in bio & below.

@aerockrose Do binary search for 3 rounds, then always assume he would think adversarially and go to margins of probabiliyy space (i.e. no 57/58). If you still havent hit by last free guess, stop playing. He never stipulated you have to finish the game.

Steve Ballmer reveals the interview test Microsoft used to separate problem-solvers from gamblers: "I'm thinking of a number between 1 and 100. First guess, I give you $5. Then $4, $3, $2, $1. After that, you pay me." "There are far more numbers on which you lose than win."

@gonzostocks Thank you. Being published wednesday.

@MeritumInvest Looking forward to Part 4

Today we released our 2nd of four articles on insurance brokers ($AJG $BRO $WTW $AON $MRSH $RYAN) -- focused on AI-risk. Steel-man is that brokers live on information asymmetry and LLMs collapse this - but we have 4-6 reasons to believe this won't be so.