Ian’s Brief #9: Informed Update, Football Predictions, and More

Haven’t done a brief for some time and have a number of topics to catch up on. If you’re just here for the annual NFL predictions, you can scroll to the bottom.

Informed News

First, we have our brand new logo to share…

We had some excellent help on it and happy to pass on the name of the designer if anyone else is looking for a fresh logo.

We will have some other versions of it you will also see in the coming weeks.

Additionally, with Insuretech Connect coming up, we will have some exciting news to share there as well.

We still have room for additional meetings with any interested investors (individuals, institutions, or corporate) so reach out if you’d like to meet up.

The Best of Times

One thing I don’t do here is repost old entries and pawn them off as new. If I publish something, you always know it’s current.

However, there are plenty of new followers who probably have missed some of my earlier “classics”, so, if you haven’t noticed, there is a Best Of tab at the top of the site with some of the older entries that either I liked most or generated a lot of interest.

So, if you think I’m mailing it in this week with a bunch of shorter notes, check out the Best Of section for something meatier like my original calling out of greenwashing before it was a thing or my analysis of Seattle earthquake risk.

The Missing Hurricanes

This was supposed to be an active hurricane year. So much for that. La Nina is surprising all the experts who expected her to not be able to stop any nascent storms by playing ’85 Bears level defense on the eastern Atlantic.

While there is still time for things to get busy, Governor DeSantis, the board of Citizens, and every Florida homeowner continue to pray for no news. Speaking of DeSantis, Dr. Klotzabach is still projecting 18 storms. The 17th name on the list is Richard, as in DeSantis. Sometimes these stories write themselves.

At this point though, we may not even get our first ever Hurricane Ian (second use of the name and last time it was a nothing burger small tropical storm). Even if we do, odds are it heads out to sea. Current signs are that the Bermuda High will not send storms toward land which means anything that forms this month likely is a non-event for the US.

The Missing Logic

Lots of buzz around State Farm investing in ADT. I don’t get it. First, ADT stock has been a laggard for years. While insurance people want to talk about the potential synergies, you don’t need to invest over $1B in an underperforming stock to strike a business partnership.

Second, what’s so great about the partnership? Theft is only about 5% of homeowners claims and there are better security solutions than ADT on the market now. I’m not sure how this helps the average State Farm customer.

Let’s be honest. Most people who have alarm systems don’t turn them on very often. So it’s debatable how many claims would really be prevented if more State Farm customers subscribed to ADT.

If the bet is the relationship will expand beyond home security to places where monitoring can make a dent in loss costs, such as water sensors and shut off valves, well, there are other companies who offer those products. Why do you have to invest $1B with ADT to get access to them?

I suspect the real answer is something I had been planning to write about in the future…State Farm has way, way, way, way, way, way, way, way too much capital. They are looking for new ways to deploy big chunks of it and investing $1+B in ADT certainly qualifies.

That doesn’t mean whatever benefit State Farm gets operationally will be a good ROI on that investment or that ADT is a good security to own.

The Missing Missing Earnings

While the market has rolled back over (as someone called nearly to the day!), there has been one odd fact that doesn’t fit the story. S&P earnings estimates have barely budged. We were up as high as the low $230s and we have only come down to $225.

This is not how bear markets work. Everything about trading patterns, sentiment, valuation, etc. suggest we should go back to the lows (or even lower). Yet, we’re probably not in a recession and we’re certainly not in an earnings recession (’21 was $208).

The answer may be that we are simply having a rational valuation correction to the realization of higher interest rates. That is possible, but market selloffs are rarely rational.

Either the market is ahead of the analysts and earnings are going to $200 or we truly are in a new paradigm where both the bulls and bears will be wrong and we trade in this narrow range for a while.

The Missing Inflatable Evan

Last year at this time, there was a surprise appearance at the US Open – a giant inflatable Evan Greenberg from the climate change group Insure Our Future who clearly didn’t do their research or they would have known you don’t bully Evan Greenberg into changing his mind.

Yet, with Evan calling out greenwashing earlier this year and saying Chubb wouldn’t commit to net zero, I thought perhaps Insure Our Future would have made another scene at this year’s Open (where Chubb is a prominent sponsor) but I haven’t seen it yet.

Maybe they learned their lesson though that intimidation doesn’t work with Evan and decided to save their budget for more tormenting of Liberty?

I’ll probably have more to say about this topic in the future but short story is it’s not an insurer’s job to make moral decisions about their clients. They are there to price risk (and, as Evan mentioned, to consider the liability risk from their insured’s greenwashing claims). We have other channels for addressing these debates.

NFL Playoff Predictions

As some of you may remember, every year I try to predict who will make the NFL playoffs. But, no, I don’t cop out and just predict 11 of the 12 (or now 13 of the 14) teams from last year.

Historically, about 1/2 of last year’s playoff teams don’t make it back, so I try to respect that constraint and mix up new and old teams.

First, let me get to the stunner. I have the Chiefs out of the playoffs and I almost kicked the Bucs out. More on that below. Given these are two of the top three favorites to win the Super Bowl, I think you’ll find I have some other unexpected results.

I’ll give you the conclusion first, then how I got there:

	AFC	NFC
1	Bengals	Rams
2	Bills	Eagles
3	Chargers	Packers
4	Colts	Panthers
5	Broncos	Niners
6	Dolphins	Vikings
7	Ravens	Bucs

You can count them up and I have 7 new teams and 7 old teams. So let me do a quick review of the process. First, I picked winners for every game on the schedule so I didn’t just pick the results I wanted. The strength of schedule led to some of the surprising results.

AFC

Bengals: Fairly easy schedule and I believe they are an ascending young team so should improve.

Bills: One of the favorites as expected.

Chargers: Finally break through. I think the D improves a lot this year and KC goes backwards a bit.

Colts: Easy division, but otherwise an average team.

Broncos: I thought I’d have the Raiders as the second AFC West team but the schedule gave a slight edge to the Broncos. Chiefs will be close here too but the point is I think it’s a jump ball among the four West teams so go with the better odds.

Dolphins: Favorable schedule plus they’ve put a lot of weapons around Tua.

Ravens: Bit of a process of elimination although a third AFC West team wouldn’t surprise me.

NFC

Rams: No controversy here.

Eagles: Easy schedule a big help.

Packers: Again, no controversy.

Panthers: Wait, what??? So look, every year there is a last place team that comes out of nowhere. Sure, we can cheat and say the Broncos, but that’s not really in the spirit of things. We’re looking for a 5 wins or less team to surprise. Carolina has a super easy schedule and Tampa may have some issues, so they’re my longshot.

Niners: This feels like a Super Bowl team with one problem. They have a completely untested QB who will likely struggle. If they really let him play the whole season, I think they miss the playoffs.
I suspect at some point they turn to Garoppolo and he could have one of those Foles/Flacco/Eli runs where he plays way over his head and surprises everyone with a ring.

Vikings: If Jared Goff thrived in the Rams offense, so can Kirk Cousins. They will score enough to get a wild card.

Bucs: NFL teams don’t like drama. There is a lot of drama in Tampa. Brady is out, then he’s in, now maybe he’s out again. The coach was in, then he was out. They’ve had some serious injuries. The running back is fat. It’s not crazy to think a 45 year old QB gets hurt.
These situations almost always end in disappointment. The schedule is easy enough that I think they scrape out a wild card, but I could definitely see them missing out altogether.

The Bengals are my best risk/reward to win the Super Bowl at 20:1. Weren’t they just in it last year? Why aren’t they as good as the Chargers? Aren’t they in an easier division? Yes, they have to get past the Bills, but so do all the AFC West teams with better odds who won’t all make the playoffs.