Fee-Based Specialty Insurance Platform Will Benefit From Expanding Third Party Capacity

Catalysts

About Accelerant Holdings

Accelerant Holdings operates a two sided specialty insurance platform that connects managing general agents with diversified risk capital providers and earns primarily fee based revenue from this exchange.

What are the underlying business or industry changes driving this perspective?

• Expansion of third party insurance company partners, including the new Lloyd’s facility and Ozark Specialty, increases the volume of premium that can be written on a fee basis and supports growth in exchange services revenue and adjusted EBITDA margins over time.
• Member MGAs are increasingly using Accelerant’s proprietary data, risk models and AI data agents to refine underwriting and pricing, which supports the low 50% gross loss ratio target and can help protect net margins and earnings quality.
• Accelerant’s position in small commercial policies, where 95% of policies are under US$10,000 of premium, taps into a large, granular pool of business with relatively stable rate patterns, supporting consistent exchange written premium and fee revenue growth.
• Rising member count, which reached 265 with record pipeline premium of over US$3b annualized, points to continued scaling of the platform that can increase exchange written premium, third party direct written premium and fee based segment revenue.
• Greater use of third party insurers, with a medium term aim for roughly two thirds of the portfolio, reduces reliance on Accelerant’s own balance sheet and shifts the mix toward higher margin, lower capital intensity fee income, which can support adjusted EBITDA and cash flow conversion.

Assumptions

This narrative explores a more optimistic perspective on Accelerant Holdings compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Accelerant Holdings's revenue will grow by 25.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -182.9% today to 22.4% in 3 years time.
• The bullish analysts expect earnings to reach $338.8 million (and earnings per share of $1.64) by about January 2029, up from $-1.4 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $93.3 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 32.3x on those 2029 earnings, up from -2.5x today. This future PE is greater than the current PE for the US Insurance industry at 12.9x.
• The bullish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.96%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The bullish view assumes a low 50% gross loss ratio, but Accelerant relies on many small commercial policies and ongoing product launches, and any sustained deterioration in underwriting quality or risk selection could push loss ratios higher and reduce earnings and net margins.
• The business model depends on moving more premium to third party insurers and keeping net retention near 10%. If insurer appetite, regulatory approvals or member transition delays hold back this shift, fee based growth could slow and limit revenue and adjusted EBITDA expansion.
• A meaningful portion of third party direct written premium is expected to come from Hadron and a relatively concentrated group of risk capital partners. Any pullback in capacity, weaker terms or partner exits could constrain exchange written premium growth and weigh on fee revenue.
• The bullish narrative leans on Accelerant’s proprietary data and AI data agents. If those tools fail to keep loss costs in line with rate or competitors build similar capabilities, the company may struggle to sustain its current low 50% gross loss ratio, which could pressure profitability and net margins.
• Part of recent earnings momentum comes from irregular investment gains in MGA and ecosystem stakes. If these deals do not recur or if valuations reverse, adjusted EBITDA and adjusted net income may be less robust than the bullish trajectory assumes, affecting earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Accelerant Holdings is $32.94, which represents up to two standard deviations above the consensus price target of $21.12. This valuation is based on what can be assumed as the expectations of Accelerant Holdings's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $36.0, and the most bearish reporting a price target of just $17.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $1.5 billion, earnings will come to $338.8 million, and it would be trading on a PE ratio of 32.3x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $15.61, the analyst price target of $32.94 is 52.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.