Canadian traders ought to contemplate gaining publicity to high quality corporations in recession-resistant sectors comparable to insurance coverage. One prime TSX insurance coverage inventory that’s down simply 8% from all-time highs is Definity Monetary (TSX:DFY). Valued at a market cap of $7.5 billion, Definity Monetary supplies property and casualty insurance coverage in Canada. It presents private and industrial insurance coverage protection via a number of manufacturers, together with Economical and Sonnet, distributed through brokers and direct-to-consumer channels.
The TSX inventory went public in late 2021 and has since returned near 150% to shareholders. Right here’s why it is best to add Definity Monetary inventory to your watchlist proper now.
Is that this TSX insurance coverage inventory an excellent purchase?
Earlier this month, Definity Monetary reported encouraging first-quarter (Q1) outcomes, with working web revenue of $75.9 million or $0.65 per share because the Canada-based property and casualty insurer continues to navigate a difficult climate atmosphere.
It delivered premium development of 9.6% within the quarter, adjusted for exited strains, pushed by regular market situations in private insurance coverage and beneficial industrial insurance coverage developments. Definity achieved a 94.5% mixed ratio as proactive fee actions and continued expense efficiencies offset impacts from an energetic winter season.
Definity ended Q1 with e-book worth per share of $29.52, up 16.2% from a yr in the past, reflecting sturdy capital era. The corporate’s working return on fairness reached 10.3% over the trailing 12 months regardless of a major disaster skilled in 2024.
The insurer continued to broaden its dealer platform, including 4 dealer acquisitions totalling roughly $130 million. Three have already closed, with the fourth anticipated to shut by the top of Q3. Administration expects the platform to succeed in a minimum of $1.5 billion in managed premiums by the top of 2026, sooner than initially anticipated.
Definity took defensive funding portfolio actions throughout the quarter, shifting practically $250 million from frequent equities into authorities bonds forward of April’s U.S. tariff bulletins. This repositioning helped shield the portfolio within the present atmosphere and strengthened the corporate’s monetary capability, which ended Q1 at $1.8 billion.
Administration expects market situations to stay agency in auto strains as insurers work to maintain tempo with ongoing value pressures, regulatory constraints in Alberta, and uncertainty associated to U.S. tariffs. Whereas auto theft stays elevated in comparison with pre-pandemic ranges, the insurer has seen 4 consecutive quarters of year-over-year enhancing developments.
Definity’s digital direct-to-consumer auto enterprise via Sonnet achieved profitability regardless of the difficult quarter, a optimistic signal after breaking even in This autumn final yr. Furthermore, it lately acquired approval for a further 5% fee improve for each Sonnet and its broker-distributed Economical model in Ontario, efficient in Could.
Is that this TSX inventory undervalued?
Definity maintained its 2025 targets, together with a sub-95% consolidated mixed ratio and 15% development in distribution platform revenue. Administration stays assured within the firm’s positioning to ship its monetary goals regardless of unsure financial situations.
Analysts overlaying the TSX inventory anticipate adjusted earnings per share to extend from $2.66 in 2024 to $3.93 in 2027. Within the final 12 months, Definity Monetary traded at a ahead worth to earnings a number of of 18 occasions, decrease than the present a number of of 20 occasions.
If Definity inventory maintains a ahead price-to-earnings a number of of 18 occasions, it’s going to commerce round $70 in early 2027, indicating an upside potential of over 35% from present ranges.
