Another letter from a reader:
Hope you are having a good summer.
Would love to hear your thoughts on recent developments at Genworth. My sense has always been that LTC care insurance is a really tough business for the underwriter. How can one possibly know how LTC costs will trend in the future – yet that unknown is what the insurer is agreeing to cover. And some states aren’t even allowing them to raise prices? Why would I want any exposure to this!!
Yes, LTC [long term care] is an ugly liability and it has been consistently underpriced for the last 25+ years. This has lad to the demise of some small companies (like Penn Treaty), with many more exiting or limiting the business. I try to avoid companies that don’t reserve conservatively, and that has been true of Genworth over the last ten years. Both LTC and Mortgage Insurance produced more claims than anticipated.
I’m not saying that things will get worse from here, but I put this in my “too hard” pile. I would need a lot more information before committing money to a stock like this. There are companies that are easier to understand, that also offer good potential returns.
If you can’t understand it, don’t buy it.
Copyright David Merkel (c) 2007-2014
Disclaimer: David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves.
Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.
Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.
Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.
Page optimized by WP Minify WordPress Plugin