The third quarter of 2025 presented a dynamic yet challenging environment for both investors and financial markets. Shifting monetary policy, evolving economic conditions, and continued geopolitical instability were not enough to derail U.S. equities which experienced modest gains during the quarter. Markets were again led by strength in technology shares as artificial intelligence and cloud computing investments remained robust.
Despite successive surprises regularly presented during 2025, the world economy has demonstrated resilience, corporate earnings have grown, and corporate and consumer balance sheets largely have remained strong.
Within our portfolios, technology, industrials and financials have been the best performers year-to-date, while healthcare, energy and our smaller-capitalization companies, in general, have posted more mixed results. At current market levels, we think there remain numerous, if not abundant, attractive investment options, even given the market’s robust performance over the past several years.
We are relatively sanguine on economic growth going forward. Lower interest rates should help stimulate demand for financeable assets. The promise of AI could lead to productivity gains (or its failure could create one heck of a hangover), but in general, we are seeing many businesses, in numerous sectors, sitting atop solid financial foundations and performing well.
In most portfolios, we purchased shares in one such property and casualty insurer in the third quarter. We were drawn to this particular company because it is global, and it possesses strong market positions across many different business lines. Management has an admirable 20-year plus track record of underwriting risk and allocating capital wisely. It maintains a strong balance sheet, using its financial strength to build new businesses internally, or to execute acquisitions that bolster its market position and expand into new geographies.
Going forward, we believe the winners in insurance will require financial scale to invest in data and increasingly complex technological tools (such as AI tools). Smaller competitors will be challenged to fund these investments, and better risks and insights will inure to the larger players. We are attracted to this company’s diversity across insurance lines; it has demonstrated a willingness to write more policies in markets priced attractively, while backing off in others when risk is underpriced. We anticipate this will continue.
Trading at just over 10x next year’s estimated earnings per share, we think the stock provides an entry point to achieve an attractive return. Potential risks in this investment include softer insurance markets, higher catastrophe losses and social inflation (the ever-higher spiraling legal costs being awarded by sympathetic juries and courts that penalize insurers), all of which we view as manageable. We believe the company’s underwriting discipline, its strong balance sheet and its diverse product lines, should allow it to continue its historical growth.
Finally, we don’t mind the exposure to some non-US Dollar currency business, believing currency diversification to be prudent.
As always, we appreciate your trust in us. Please do not hesitate to reach out to us to discuss any matters related to your portfolios, financial health or other needs.