Search Results for “rga reinsurance” – Page 7

Insurance Earnings So Far 1Q07

Posted on 24 April 200725 April 2007 by David Merkel

As of this evening, maybe 15% of the insurance industry has reported earnings. Insurance is different from other industries because of the accounting complexity involved. That complexity is necessary, because insurance is one of the few industries where one does not know the cost of goods sold at the time of sale. That’s why insurance is one of the slowest industries to report earnings. As one might expect, the insurance companies generally report in order of increasing accounting complexity. I’ll go through the insurance sub-industries to give you a feel for what is working, and what is not.

Brokers

Rough quarter. AJ Gallagher and Hilb Rogal Hobbs both missed earnings, and will probably be punished tomorrow, if Brown & Brown is any measure. Brown & Brown beat earnings by a little, but their organic growth (same store sales) was negative for the first time in who knows how long. Stock down 7%. Well, what could you expect? Premium rates are falling, and insureds are not increasing their coverages by as much, so premiums go down, and commissions move in lockstep.

The Bermudans

Diversified writers have done well. Aside from windstorm Cyrill and some snowstorms in the Midwest, catastrophes have been light, and there have been few trends in the casualty marketplace that would indicate deteriorating on old business. New business is another matter — pricing is weakening rapidly, and in select markets, terms & conditions are getting compromised. Supposedly pricing is still above levels adequate to earn a profit adequate to justify the capital employed, though in some cases, I am beginning to wonder.

That said PartnerRe, Everest Re, ACE, Platinum, and XL all beat earnings handily. The latter three should do well tomorrow. IPC Re beat as well; they only do property, so they may be indicative of Ren Re, and Montpelier.
Personal Lines

Pricing is deteriorating here, and volume growth is light to non-existent. Allstate and Progressive reported good quarters with weak premium growth, and they have moved higher. Cincinnati Financial guided higher, and has run from there. State Auto Financial missed earnings badly, and got whacked. Selective missed due to the Midwest storms, but raised 2007 guidance… we’ll see how the market treats them tomorrow… should be okay. Midland beat and raised guidance; they have special niches, so good for them, but not indicative of broader trends.
Life

None of the bread-and-butter life companies have reported yet. Those that have reported are one-of-a-kind companies that live in their own space. Reinsurance Group of America beat earnings with strong revenues and was up significantly; they reinsure most of the life space. Maybe that means that mortality margins will be good. Aflac, Ameriprise, Delphi Financial, and Torchmark had good quarters as well. In aggregate, this could be a great quarter for the life companies.

Mortgage

MGIC and Radian both had poor quarters due to bad performance at C-BASS, which each of them owns 46% of. C-BASS services and securitizes mortgage loans, including subprime loans. Away from that, their core businesses seemed to be performing adequately for now. I would be cautious here; residential real estate pricing trends are weak at best.
Primary Casualty

WR Berkley and Chubb; both beat estimates. Chubb is up; Berkley is down. Chubb raises guidance, while Berkley sounds conservative. Neither has rising written premiums. This is clearly the part of the cycle where conservative players pull in their horns. Be on the lookout for companies in this space that show rising premiums written amid the falling premium rates. They will be shorting candidates later this year.
Stay tuned for more on this busy season.

Full disclosure: long ALL RGA short MTG RDN

Beat, but not Beaten

Posted on 23 March 200722 June 2017 by David Merkel

Ugh. What a day. It’s 1:30AM as I begin to write this, and I have been going since 4AM after traveling to Manhattan to DC and back, with the usual difficulties. The two highlights of my day were meeting with the best operational management team in insurance, Assurant, and meeting up with my work colleagues for dinner to celebrate new members coming onto staff. The lowlight was not getting any time with my family.

Now, one of the nice things about my portfolio management style is that I can ignore the markets for short amounts of time, and 99% of the time, it doesn’t matter. I do 95-99% of all my trades through portfolio rebalancings and portfolio reshapings. Like Buffett, who I admire (though I don’t always agree with), I wouldn’t mind if the market were closed more frequently. So today my broad market portfolio was up 50 basis points in my absence. I am now ahead of where i was at 2/26, before the shock.? Maybe I should be absent more often. 🙂

While traveling, I put the finishing touches on six (yes) articles that will be published on RealMoney over the next month. One should be next week, and is a compilation of what I have written here on my recent portfolio reshaping, with a few bits taken out and another page of explanatory data added for greater clarity. The other five articles are a series that I have worked on for a while which I have informally entitled “The Excellent Analyst” series. It goes through the framework of questions that I ask when I have a management team all to myself. I don’t go for material nonpublic information; I also don’t go for earnings trivia, rather, I try to see how the management team thinks as businessmen. Another place where I agree with Buffett, “I am a better businessman because I am an investor, and I am a better investor because I am a businessman.”

With insurance, that comes natively to me, having done pricing, reserving, reinsurance, and corporate work as an actuary, having managed a small division of a company, with underwriting, marketing, and investment risk control. And my time managing insurance assets, mortgage bonds and then corporates, together with the derivatives. Having done all that, understanding insurance managements is second nature to me. I can sense a bad management team, and I delight in a great management team.

This brings me full circle to Assurant. Why are they the top operational insurance management team to me? This is a non-exhaustive list:

Few other companies in insurance have seriously thought about sustainable competitive advantage. Assurant does it well, being #1 or #2 in almost all of the businesses in which they choose to compete.
They invest in IT and customer relationships to create barriers to entry that are difficult to reverse engineer.
Few insurance companies figure out their core competencies so closely, and then look for adjacent markets to apply them to.
Few insurance companies look for “blue ocean” markets, where there is an unmet need and no competitors.
Excellent capital allocators.
Excellent at M&A, doing small infill acquisitions and growing them organically.
Understands the concepts in market segmentation, and applies it to pricing, reserving, customer service and risk control.
Executes almost flawlessly. What a great culture.

And if that’s not enough, they earn an ROE that is solidly in the top quartile for insurers, and I have no doubt that they will do the same next year. Progressive and AFLAC, move over. There is a new growth insurance name in town, and their valuation metrics are inexpensive, compared to what we are likely to get.

Full Disclosure: Long AIZ