CBL Insurance IPO by UBS, page-49

It’s good to be small
Tim Kelley, Head of Research, The Montgomery Fund

In the next few weeks a small New Zealand based insurer – CBL Corp Limited – lists on ASX and NZX. CBL is a slightly odd beast in the insurance world: it focuses on small but profitable specialist niches, where it is able to earn significant underwriting profits. In contrast, mainstream insurers tend to write as much business as they can, even if it means taking on business that earns little to no underwriting profit. They do this because in the period between receiving an insurance premium and having to pay out claims, they can earn investment returns on the premiums written. CBL’s focused approach limits the scale of the business, and requires it to look in unusual places to find opportunities. For example, a large part of its revenue is earned from insuring small to medium sized builders in France, where the regulatory regime has made this favourable. However, seeking out small but attractive niches like this has delivered good economics, and made CBL an attractive business to own.