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Interview Tomorrow


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So after months of searching and asking around I finally landed an interview at a mid sized financial firm. They deal with a lot of life insurance and some securities trading. Tomorrow I will be interviewing in their headquarters. A couple of weeks ago I had the opportunity to attend their quarterly meeting and I liked the company atmosphere. I really don't know much about insurance but I do know a little (tiny) bit about value investing. Does anyone have some quick links that they can share or some basic information about the insurance business? They don't expect me to know anything walking through the door but I want to make sure to do my homework. The fun fact I know is that Buffett got into insurance because he could invest the float.

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First off, good luck at the interview.  Here are my quick thoughts FWIW:

 

1. Insurance as a whole is a terrible, commodity business although there are some niche areas of the P&C business like Markel's Excess & Surplus lines that seem to make money over time

2. Combined Ratios tell the first half of the story.  (Claims + Operating Costs)/Premiums= Combined.  Most insurers run combined ratios north of 100% (ie they lose money on the underwriting business) and then hope (and often pray) that they make money on the investing side via the float.

3. The reserve developments tell the other half of the story.  Insurance, like most businesses, is a tug-of-war between the balance sheet and the income statement.  Because of the mismatch between financial statements, typically issued annually, and often longer lived insurance policies, an insurer can make their financial statements say whatever they want in a given year.  As a result, the change in the reserves over time is a key metric to watch.  If the insurer was conservative in the first place, they should be releasing reserves over time ie they put too much money in the piggy bank to pay future claims and so they get to take some back out and put it into their (the shareholder's) pockets.

4. Reinsurance is more commoditized than the traditional P&C given it's low barriers to entry (at least from outside of the US),

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First off, good luck at the interview.  Here are my quick thoughts FWIW:

 

1. Insurance as a whole is a terrible, commodity business although there are some niche areas of the P&C business like Markel's Excess & Surplus lines that seem to make money over time

2. Combined Ratios tell the first half of the story.  (Claims + Operating Costs)/Premiums= Combined.  Most insurers run combined ratios north of 100% (ie they lose money on the underwriting business) and then hope (and often pray) that they make money on the investing side via the float.

3. The reserve developments tell the other half of the story.  Insurance, like most businesses, is a tug-of-war between the balance sheet and the income statement.  Because of the mismatch between financial statements, typically issued annually, and often longer lived insurance policies, an insurer can make their financial statements say whatever they want in a given year.  As a result, the change in the reserves over time is a key metric to watch.  If the insurer was conservative in the first place, they should be releasing reserves over time ie they put too much money in the piggy bank to pay future claims and so they get to take some back out and put it into their (the shareholder's) pockets.

4. Reinsurance is more commoditized than the traditional P&C given it's low barriers to entry (at least from outside of the US),

\

 

First off, thanks for the info and I really hope I do well.

 

For this specific example would the reserves be "Reserves for policy holder benefits"?

http://www.ar.guardianlife.com/2013_AnnualReport.pdf          (2013 Report)

 

http://www.guardianlife.com/glife11pp/groups/camp_internet/@stellent_camp_website_glife_corpcomm_edits/documents/document/2012guardianannualreport.pdf        (2012 report)

 

If that is it, it grew from about 28 bil to 32 bil. In 2013 there was only a 776 million dividend declared. Is that good or bad?

 

Thanks

 

 

 

 

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Good luck -- what is the position you're interviewing for?

 

Just came back. Honestly I was going in there with the mind set of taking anything available because I wanted to get my foot into the door to at least have somewhat of an opportunity to climb up. My homework paid off, I got offered an administrative assistant position and he hopes to make me a part time insurance broker soon. Still waiting for him the get back to me. They also deal with some money managing but they are very conservative. They do not touch any OTC stuff (sad face) but maybe I can still prove myself on the investing side. I can't stop myself from researching stocks even if I tried!

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