Search Results for: "National Atlantic"

Triage, Part 2

Triage, Part 2

Posted on by David Merkel

In the first round of triage I went through the first third of my portfolio. Now is the time for the second third; definitely a more positive experience, together with my changes on the first third, after further reflection.
The Dead ? Companies with bad balance sheets, but have been whacked so bad that it is still worth playing

  • Jones Apparel
  • Deerfield Capital

If they rally a lot more, I am out.

Walking Wounded ? Companies with okay balance sheets that we feed more cash to

  • Lafarge
  • Industrias Bachoco
  • YRC Worldwide [moved from The Dead]

Seemingly healthy that might have financing problems ? Sold

  • Lithia Automotive
  • Group 1 Automotive

Uncertain as of yet

Sara Lee

Don’t know what to do here. Balance sheet has issues but profitability is improving as the turnaround progresses.

Healthy companies that we leave alone

  • Barclays plc (Moved from Uncertain as of yet — Capital levels are seemingly adequate.)
  • Deutsche Bank
  • Mylan Labs
  • Cimarex Energy
  • Nam Tai
  • Arkansas Best
  • Bronco Drilling
  • Vishay Intertechnology
  • Aspen Holdings
  • Safety Insurance
  • Lincoln National
  • Assurant

Safe New Names Bought

  • PartnerRe
  • National Atlantic [Did not get a full position on, was too stubborn about levels… not buying here.]

So, there’s the triage with one third to go — I have not done the companies with my largest gains, which I presume to be in better shape. At this point, I’m relatively happy with what I have.

PS — As to my methods, the main parts are reviews of the balance sheets and cash flow statements. It’s basic bond analysis, asking how likely it is that future cash flows will be able to cover the debts in question. At present, I am looking to hold companies that can survive a crisis. With the reservations noted above, most of this portfolio can do so.
Full Disclosure: Long JNY DFR LR IBA YRCW SLE BCS DB MYL XEC NTE ABFS BRNC VSH AHL AIZ LNC SAFT PRE NAHC

Insurance Earnings So Far 1Q07 — X

Insurance Earnings So Far 1Q07 — X

Posted on by David Merkel

With a few exceptions (young company, etc.) late reporters tend not to do as well versus expectations as earlier reporters do.? Well, in issue 10 of this this series, it feels like the cat dragged in many of these reports.

Life

Alas, but a company that has given me a hard time many times over.? Scottish Re missed earnings badly.? Oh, they’re solvent now, just ask Cerberus or Mass Mutual, or the banks that are extending finance to them.? Will they be able to write significant new business at present?? Not likely for a while.? Will they make money in 2007?? That is anyone’s guess.

Primary Casualty

ProAssurance beat (the only one today) and AmComp missed.? In general, medmal did well this quarter, so good for PRA, which had flat premiums.? AmComp, if anything wrote less business, which might be conservative, but hurt current earnings.? That hasn’t been a recipe for stock price outperformance.

Financial

American Capital Access and Primus Guaranty both missed.? In general, I feel there is little franchise value to these companies that deal in credit default swaps and suchlike.? Much of the reason for the miss is rising credit spreads through the quarter.? That very well may revert over the next quarter.

Personal Lines

Bristol West misses badly, with the loss ratio up.? Since Zurich sees enough value to buy this company out, I only wish them well.? They will need all the good wishes that they can get.? National Atlantic, a company that my employer has a large investment in, met estimates today, but had better revenues than expected.? More of the business mix moves to homeowners and small business commercial, and away from auto.? How many insurance companies do you know that have growing revenues, trade at a single digit forward earnings multiple, and trade below book (and book is conservative)?? Don’t think too hard here, there aren’t many.

Earnings season is drawing to a close.? There are a few more companies to go, and I will bring them to you over the next few days.

Full Disclosure: very long NAHC

Eat Dessert First?

Eat Dessert First?

Posted on by David Merkel

I want to give credit to Roger Nusbaum on his brief commentary on Dow Chemical. Too many people think short term about investing, and don’t consider how much a company might be worth over time, versus a buyout today.

I faced the same problem on National Atlantic Holdings. I believe it is more valuable as a going concern than as a buyout candidate at present. I was happy when the Commerce Group negotiations broke down, because Commerce wouldn’t pay up!

I don’t have to get all of my gains today. So long as I do well enough over the next 3-5 year period, I will be happy enough. I don’t have to make a killing today. Having slightly better than average performance over a moderate period of time is reward enough.

Long DOW NAHC (the firm I work for owns 17%)

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