If you grow book value, particularly if your liabilities are short, you will grow market value.? Many reinsurance and insurance companies aim at growing fully convertible book value per share.
Fully convertible book value per share assumes that you invest your dividends in the common stock (without taxation), and thus compound your gains through reinvestment, taking account of dilution.? Hmmm… when will someone dream up the idea of structuring an insurance company as an MLP or a REIT?? I don’t think it is likely, but maybe someone could dream it up.
It also implies that all possible dilution is factored in from convertible preferred stock or convertible bonds.? Now insurance companies tend to trade near book value over the long run, so companies that can grow their book value rapidly and pay dividends can be interesting investments.? Particularly where the liabilities of the company are short — property reinsurance or personal lines insurance, growth in book value plus dividends tends to be a reliable indicator of value creation.
If liabilities are longer, it gets more questionable, because under-reserving becomes more likely — it is very hard to be certain of the reserving of long-dated or volatile coverages.
Anyway, here is a list of insurance companies, and how they have accumulated book value plus dividends over the past seven years.? Note that this is a mathematical calculation off a limited database, and that splits and M&A can throw this calculation off.? With that caveat, here is the list:
| company | ticker | sic | img_desc | mktcap | Growth of FCBV |
| Life Partners Holdings, Inc. | LPHI | 6411 | 0712 – Insurance (Miscellaneous) |
50.7 |
76% |
| Universal Insurance Holdings, | UVE | 6331 | 0715 – Insurance (Property & Casualty) |
185.2 |
75% |
| CNinsure Inc. (ADR) | CISG | 6411 | 0712 – Insurance (Miscellaneous) |
337.6 |
56% |
| Amtrust Financial Services, In | AFSI | 6331 | 0715 – Insurance (Property & Casualty) |
2,128.7 |
38% |
| Employers Holdings, Inc. | EIG | 6331 | 0715 – Insurance (Property & Casualty) |
652.6 |
32% |
| Enstar Group Ltd. | ESGR | 6331 | 0715 – Insurance (Property & Casualty) |
1,951.0 |
26% |
| Tower Group Inc | TWGP | 6331 | 0715 – Insurance (Property & Casualty) |
734.8 |
25% |
| Amerisafe, Inc. | AMSF | 6331 | 0715 – Insurance (Property & Casualty) |
508.5 |
23% |
| Humana Inc. | HUM | 6324 | 0706 – Insurance (Accident & Health) |
11,297.2 |
21% |
| Allied World Assurance Co Hold | AWH | 6331 | 0715 – Insurance (Property & Casualty) |
2,856.1 |
21% |
| Arthur J. Gallagher & Co. | AJG | 6411 | 0712 – Insurance (Miscellaneous) |
4,441.2 |
20% |
| Willis Group Holdings PLC | WSH | 6411 | 0712 – Insurance (Miscellaneous) |
6,009.5 |
20% |
| China Life Insurance Company L | LFC | 6311 | 0709 – Insurance (Life) |
94,339.3 |
20% |
| ProAssurance Corporation | PRA | 6331 | 0715 – Insurance (Property & Casualty) |
2,698.5 |
19% |
| RenaissanceRe Holdings Ltd. | RNR | 6331 | 0715 – Insurance (Property & Casualty) |
3,949.8 |
18% |
| National Interstate Corporatio | NATL | 6331 | 0715 – Insurance (Property & Casualty) |
576.7 |
18% |
| Argo Group International Holdi | AGII | 6331 | 0715 – Insurance (Property & Casualty) |
910.3 |
17% |
| Brown & Brown, Inc. | BRO | 6411 | 0712 – Insurance (Miscellaneous) |
3,851.4 |
17% |
| AFLAC Incorporated | AFL | 6321 | 0706 – Insurance (Accident & Health) |
24,134.6 |
16% |
| Endurance Specialty Holdings L | ENH | 6331 | 0715 – Insurance (Property & Casualty) |
1,796.8 |
16% |
| W.R. Berkley Corporation | WRB | 6331 | 0715 – Insurance (Property & Casualty) |
5,455.7 |
15% |
| American Financial Group | AFG | 6331 | 0715 – Insurance (Property & Casualty) |
3,772.7 |
15% |
| Horace Mann Educators Corporat | HMN | 6331 | 0715 – Insurance (Property & Casualty) |
830.9 |
15% |
| Eastern Insurance Holdings Inc | EIHI | 6311 | 0709 – Insurance (Life) |
135.5 |
15% |
| Validus Holdings, Ltd. | VR | 6331 | 0709 – Insurance (Life) |
3,296.1 |
15% |
| CIGNA Corporation | CI | 6324 | 0706 – Insurance (Accident & Health) |
16,104.2 |
14% |
| Reinsurance Group of America I | RGA | 6321 | 0706 – Insurance (Accident & Health) |
4,143.2 |
14% |
| Safety Insurance Group, Inc. | SAFT | 6331 | 0715 – Insurance (Property & Casualty) |
715.6 |
14% |
| Chubb Corporation, The | CB | 6331 | 0715 – Insurance (Property & Casualty) |
20,701.5 |
13% |
| Loews Corporation | L | 6331 | 0715 – Insurance (Property & Casualty) |
16,854.0 |
13% |
| ACE Limited | ACE | 6351 | 0715 – Insurance (Property & Casualty) |
28,285.6 |
13% |
| HCC Insurance Holdings, Inc. | HCC | 6331 | 0715 – Insurance (Property & Casualty) |
3,937.5 |
13% |
| Travelers Companies, Inc., The | TRV | 6331 | 0715 – Insurance (Property & Casualty) |
29,108.4 |
13% |
| Coventry Health Care, Inc. | CVH | 6324 | 0706 – Insurance (Accident & Health) |
6,080.9 |
12% |
| Markel Corporation | MKL | 6331 | 0715 – Insurance (Property & Casualty) |
4,456.4 |
12% |
| Torchmark Corporation | TMK | 6311 | 0709 – Insurance (Life) |
5,103.5 |
12% |
| UnitedHealth Group Inc. | UNH | 6324 | 0706 – Insurance (Accident & Health) |
55,732.6 |
12% |
| Partnerre Ltd | PRE | 6331 | 0715 – Insurance (Property & Casualty) |
5,116.2 |
12% |
| Meadowbrook Insurance Group, I | MIG | 6331 | 0715 – Insurance (Property & Casualty) |
311.6 |
12% |
| StanCorp Financial Group, Inc. | SFG | 6321 | 0706 – Insurance (Accident & Health) |
1,704.1 |
12% |
| Prudential Financial Inc | PRU | 6311 | 0709 – Insurance (Life) |
26,777.4 |
12% |
| Infinity Property and Casualty | IPCC | 6331 | 0715 – Insurance (Property & Casualty) |
688.6 |
12% |
| Assurant, Inc. | AIZ | 6311 | 0709 – Insurance (Life) |
2,935.0 |
12% |
| Greenlight Capital Re, Ltd. | GLRE | 6331 | 0715 – Insurance (Property & Casualty) |
837.4 |
12% |
| Progressive Corporation, The | PGR | 6331 | 0715 – Insurance (Property & Casualty) |
13,738.8 |
11% |
| Protective Life Corp. | PL | 6311 | 0709 – Insurance (Life) |
2,451.0 |
11% |
| Axis Capital Holdings Limited | AXS | 6331 | 0715 – Insurance (Property & Casualty) |
4,508.1 |
11% |
| Molina Healthcare, Inc. | MOH | 6324 | 0706 – Insurance (Accident & Health) |
1,300.1 |
11% |
| American Equity Investment Lif | AEL | 6311 | 0709 – Insurance (Life) |
834.1 |
11% |
| Symetra Financial Corporation | SYA | 6311 | 0709 – Insurance (Life) |
1,578.3 |
11% |
| Aon PLC | AON | 6411 | 0712 – Insurance (Miscellaneous) |
18,199.1 |
10% |
| Mercury General Corporation | MCY | 6331 | 0715 – Insurance (Property & Casualty) |
2,169.0 |
10% |
| Everest Re Group Ltd | RE | 6331 | 0715 – Insurance (Property & Casualty) |
5,843.7 |
10% |
| American Safety Insurance Hold | ASI | 6331 | 0715 – Insurance (Property & Casualty) |
197.1 |
10% |
| Prudential Public Limited Comp | PUK | 6311 | 0709 – Insurance (Life) |
38,071.4 |
10% |
| Aspen Insurance Holdings Limit | AHL | 6331 | 0715 – Insurance (Property & Casualty) |
2,324.9 |
10% |
| Berkshire Hathaway Inc. | BRK.A | 6331 | 0715 – Insurance (Property & Casualty) |
236,577.4 |
9% |
| EMC Insurance Group Inc. | EMCI | 6331 | 0715 – Insurance (Property & Casualty) |
326.3 |
9% |
| RLI Corp. | RLI | 6331 | 0715 – Insurance (Property & Casualty) |
1,439.1 |
9% |
| Hanover Insurance Group, Inc., | THG | 6331 | 0715 – Insurance (Property & Casualty) |
1,781.6 |
9% |
| Unico American Corporation | UNAM | 6331 | 0715 – Insurance (Property & Casualty) |
66.6 |
9% |
| Montpelier Re Holdings Ltd. | MRH | 6331 | 0715 – Insurance (Property & Casualty) |
1,318.1 |
9% |
| Seabright Holdings Inc | SBX | 6331 | 0715 – Insurance (Property & Casualty) |
249.0 |
9% |
| Alleghany Corporation | Y | 6331 | 0715 – Insurance (Property & Casualty) |
5,950.7 |
8% |
| Hallmark Financial Services, I | HALL | 6331 | 0715 – Insurance (Property & Casualty) |
176.8 |
8% |
| White Mountains Insurance Grou | WTM | 6331 | 0715 – Insurance (Property & Casualty) |
3,509.0 |
8% |
| Investors Title Company | ITIC | 6361 | 0715 – Insurance (Property & Casualty) |
139.1 |
8% |
| Marsh & McLennan Companies, In | MMC | 6411 | 0712 – Insurance (Miscellaneous) |
19,020.9 |
8% |
| FBL Financial Group | FFG | 6311 | 0709 – Insurance (Life) |
869.4 |
8% |
| Erie Indemnity Company | ERIE | 6331 | 0715 – Insurance (Property & Casualty) |
3,264.4 |
8% |
| Metlife Inc | MET | 6311 | 0709 – Insurance (Life) |
39,615.8 |
8% |
| Aetna Inc. | AET | 6324 | 0706 – Insurance (Accident & Health) |
15,698.1 |
8% |
| WellPoint, Inc. | WLP | 6324 | 0706 – Insurance (Accident & Health) |
19,054.4 |
8% |
| Hilltop Holdings Inc. | HTH | 6331 | 0715 – Insurance (Property & Casualty) |
773.3 |
8% |
| Citizens, Inc. | CIA | 6311 | 0709 – Insurance (Life) |
485.8 |
7% |
| Donegal Group Inc. | DGICA | 6331 | 0715 – Insurance (Property & Casualty) |
370.9 |
7% |
| National Western Life Insuranc | NWLI | 6311 | 0709 – Insurance (Life) |
596.1 |
7% |
| Navigators Group, Inc, The | NAVG | 6331 | 0715 – Insurance (Property & Casualty) |
766.0 |
7% |
| Kemper Corp | KMPR | 6331 | 0715 – Insurance (Property & Casualty) |
1,842.8 |
7% |
| Allstate Corporation, The | ALL | 6331 | 0715 – Insurance (Property & Casualty) |
20,817.6 |
7% |
| Cna Financial Corp | CNA | 6331 | 0715 – Insurance (Property & Casualty) |
7,982.2 |
6% |
| Lincoln National Corporation | LNC | 6311 | 0709 – Insurance (Life) |
7,626.2 |
6% |
| Arch Capital Group Ltd. | ACGL | 6331 | 0715 – Insurance (Property & Casualty) |
6,084.7 |
6% |
| Platinum Underwriters Holdings | PTP | 6331 | 0715 – Insurance (Property & Casualty) |
1,565.0 |
6% |
| Baldwin & Lyons, Inc. | BWINB | 6331 | 0715 – Insurance (Property & Casualty) |
339.5 |
5% |
| Selective Insurance Group | SIGI | 6331 | 0715 – Insurance (Property & Casualty) |
1,086.8 |
5% |
| United Fire Group, Inc. | UFCS | 6331 | 0715 – Insurance (Property & Casualty) |
587.9 |
5% |
| Universal American Corporation | UAM | 6324 | 0706 – Insurance (Accident & Health) |
793.6 |
5% |
| Principal Financial Group Inc | PFG | 6321 | 0706 – Insurance (Accident & Health) |
8,663.8 |
5% |
| American National Insurance Co | ANAT | 6331 | 0715 – Insurance (Property & Casualty) |
2,055.2 |
4% |
| Kansas City Life Insurance Co | KCLI | 6311 | 0709 – Insurance (Life) |
416.9 |
4% |
| Cincinnati Financial Corporati | CINF | 6331 | 0715 – Insurance (Property & Casualty) |
6,771.0 |
3% |
| Independence Holding Company | IHC | 6311 | 0709 – Insurance (Life) |
169.1 |
3% |
| State Auto Financial | STFC | 6331 | 0715 – Insurance (Property & Casualty) |
582.5 |
3% |
| Unum Group | UNM | 6311 | 0709 – Insurance (Life) |
6,190.3 |
3% |
| Sun Life Financial Inc. (USA) | SLF | 6311 | 0709 – Insurance (Life) |
17,283.4 |
3% |
| Alterra Capital Holdings Ltd | ALTE | 6331 | 0715 – Insurance (Property & Casualty) |
2,861.2 |
3% |
| Assured Guaranty Ltd. | AGO | 6351 | 0715 – Insurance (Property & Casualty) |
2,911.2 |
3% |
| Fidelity National Financial In | FNF | 6361 | 0715 – Insurance (Property & Casualty) |
5,838.5 |
3% |
| Atlantic American Corporation | AAME | 6311 | 0709 – Insurance (Life) |
69.2 |
2% |
| Health Net, Inc. | HNT | 6324 | 0706 – Insurance (Accident & Health) |
2,140.7 |
2% |
| Hartford Financial Services Gr | HIG | 6331 | 0715 – Insurance (Property & Casualty) |
10,641.6 |
2% |
| ING Groep N.V. (ADR) | ING | 6311 | 0709 – Insurance (Life) |
37,878.4 |
2% |
| Manulife Financial Corporation | MFC | 6311 | 0709 – Insurance (Life) |
26,357.8 |
2% |
| Genworth Financial? Inc | GNW | 6311 | 0709 – Insurance (Life) |
4,500.3 |
2% |
| AEGON N.V. (ADR) | AEG | 6311 | 0709 – Insurance (Life) |
13,073.0 |
1% |
| Old Republic International Cor | ORI | 6351 | 0715 – Insurance (Property & Casualty) |
2,994.2 |
1% |
| OneBeacon Insurance Group, Ltd | OB | 6331 | 0715 – Insurance (Property & Casualty) |
1,328.8 |
0% |
| Global Indemnity plc | GBLI | 6331 | 0715 – Insurance (Property & Casualty) |
555.8 |
-4% |
| CNO Financial Group Inc | CNO | 6311 | 0709 – Insurance (Life) |
2,192.9 |
-5% |
| Crawford & Company | CRD.B | 6411 | 0712 – Insurance (Miscellaneous) |
326.7 |
-5% |
| Stewart Information Services C | STC | 6361 | 0715 – Insurance (Property & Casualty) |
536.7 |
-9% |
| XL Group plc | XL | 6331 | 0715 – Insurance (Property & Casualty) |
8,182.5 |
-9% |
| Phoenix Companies, Inc., The | PNX | 6311 | 0709 – Insurance (Life) |
155.4 |
-14% |
| First Acceptance Corporation | FAC | 6331 | 0715 – Insurance (Property & Casualty) |
51.2 |
-17% |
| Radian Group Inc. | RDN | 6351 | 0715 – Insurance (Property & Casualty) |
820.6 |
-23% |
| MBIA Inc. | MBI | 6351 | 0715 – Insurance (Property & Casualty) |
1,561.5 |
-24% |
| Kingsway Financial Services In | KFS | 6331 | 0715 – Insurance (Property & Casualty) |
53.4 |
-25% |
| MGIC Investment Corp. | MTG | 6351 | 0715 – Insurance (Property & Casualty) |
567.7 |
-28% |
| American International Group, | AIG | 6331 | 0715 – Insurance (Property & Casualty) |
51,803.5 |
-32% |
| eHealth, Inc. | EHTH | 6411 | 0712 – Insurance (Miscellaneous) |
501.2 |
|
| Maiden Holdings, Ltd. | MHLD | 6331 | 0715 – Insurance (Property & Casualty) |
725.7 |
|
| United Insurance Holdings Corp | UIHC | 6331 | 0715 – Insurance (Property & Casualty) |
92.7 |
|
| Homeowners Choice, Inc. | HCI | 6331 | 0715 – Insurance (Property & Casualty) |
240.0 |
|
| Verisk Analytics, Inc. | VRSK | 6411 | 0712 – Insurance (Miscellaneous) |
9,103.9 |
|
| Primerica, Inc. | PRI | 6311 | 0709 – Insurance (Life) |
1,868.1 |
|
| First American Financial Corp | FAF | 6361 | 0715 – Insurance (Property & Casualty) |
2,648.6 |
|
| Imperial Holdings, Inc. | IFT | 6411 | 0712 – Insurance (Miscellaneous) |
86.3 |
|
| Fortegra Financial Corp | FRF | 6411 | 0712 – Insurance (Miscellaneous) |
177.3 |
Now, it makes a lot of difference how dividends are set, and how buybacks are done.? Dividends should reflect a conservative estimate of how much free cash flow that a company is willing to part with.? Buybacks should only be done when it is at a discount to the intrinsic value of the firm.? If you have to distribute capital when the stock price is above fair market value, do a special dividend.
And when capital is dear, stop the buyback, maybe even reduce the dividend, or do a small secondary IPO.? When there are genuinely profitable opportunities to write business take them.
This is yet another reason why insurance stocks tend to trade near book — capital is so flexible that if capital can enter and exit easily, it should trade near book, because capital enters and exits at book, for the most part.
Ignore the extremes, but realize that companies that compound their fully converted book values can be excellent investments.