Wilbur Ross: Opportunities in insurance stocks

[Guest kumar]

 

Mr. Distress is ready to buy -

 

http://money.cnn.com/2010/03/09/pf/funds/wilbur_ross.fortune/index.htm

 

....There are deep value opportunities in insurance stocks, which were beaten down because of their exposure to the subprime crisis, annuities, and commercial real estate. I won't name names, but some well-managed life insurance and fire and casualty companies will come through this stronger. They used to trade at one or two times book value but now trade at three-quarters book.....

[Ballinvarosig Investors]

This thread is no good without people suggesting a few ideas!

 

For my part, I have recently bought a little United American Indemnity (INDM), a profitable insurer which is trading at 60% (!) of book value.

 

http://www.sec.gov/Archives/edgar/data/1263813/000095012309059469/c92081e10vq.htm

 

I admit I don't have the depth of knowledge that many of you would have on insurance, but surely the margin of safety (improving combined ratio and strong balance sheet) here makes this a bargain?

[twacowfca]

Mr. Ross also is willing to sell insurance companies.  In June 2006 he put@ $100M into Montpelier Re after they lost @80% of their BV after the KRW hurricanes of 05. Just last week, he sold his shares back to MRH for $19/sh, a gain of about 10%/annum including dividends above his $14.50/sh purchase price.  This was a good deal for MRH, a buyback for about 90% of BV by a company That has made impressive improvements in their underwriting and risk management under their new CEO, Chris Harris.

 

Ross launched a company to fill the void in municipal bond insurance after the demise of MBIA et al, but they haven't been as careful as WEB and Ajit, and have had to strengthen their reserves as the company looks shaky.

[twacowfca]

This thread is no good without people suggesting a few ideas!

 

For my part, I have recently bought a little United American Indemnity (INDM), a profitable insurer which is trading at 60% (!) of book value.

 

http://www.sec.gov/Archives/edgar/data/1263813/000095012309059469/c92081e10vq.htm

 

I admit I don't have the depth of knowledge that many of you would have on insurance, but surely the margin of safety (improving combined ratio and strong balance sheet) here makes this a bargain?

 

 

This could be interesting, but consider the lost opportunity cost of having less to invest in much better insurers that are also selling below BV.  INDM has sizeable reinsurance recoverables that are already somewhat discounted.  If allowance is made for how iffy these are it could (or perhaps not) turn out that their discount from BV is not so great.  They've made very bad underwriting choices (taking the worst slices of cat coverage) and investing ( buying Fannie Preferred and Lehman common plus other crappy paper).  Is all this behind them after their recent balance sheet strengthening through their rights offering?  Maybe so.  Maybe not.  ?Quien sabe?  Their Wind River and Penn businesses are also not great, to put it kindly.

 

The best outcome might be for someone to acquire them, but their business looks subpar for the long haul.

[SharperDingaan]

 

You might find the last few pages of this very useful

 

http://www.ciaa.org/Luncheon%20Speech%20Why%20insurers%20fail%20Lessons%20for%20the%20current%20environment%2011May09%20FINAL.pdf

 

SD

[value-is-what-you-get]

 

You might find the last few pages of this very useful

 

http://www.ciaa.org/Luncheon%20Speech%20Why%20insurers%20fail%20Lessons%20for%20the%20current%20environment%2011May09%20FINAL.pdf

 

SD

 

Thanks SD - nice presentation

[shalab]

Dont think insurance is as cheap as it was four months ago. Many have gone up, some significantly. FFH is an exception in that it has fallen a bit.