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Life Insurers


beerbaron
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There has been a lot of discussions on this board about P&C Insurers but almost no talk of life insurers. Life insurer's accounting is a bit different then P&C so I was wondering if anybody had good recommendations or reading regarding those. I have just finished reading a few financials reports of NWLI and I'm a bit deficient into understanding everything in there.

 

Here is my thesis on insurers:

Some life insurers look incredibly cheap, for example NWLI is currently trading at 0.45 BV and there does not seem to be any catch to it.

 

Also, I believe that life insurers BV are worth significantly more then the stated BV. The treasury yields are so low right now that their bond portfolio is probably worth about 8%* more then their stated prices. So if I take the example of NWLI that has about 6B$ in stated bonds. Now add an 8% mark to market real value and we get a real book value in the area of 1.5B$. The stock trades at around 500M$, So for about 0.35$ for every dollar I get a profitable business. That seems crazy cheap to me.

 

*I evaluated the value of the bond portfolio by simulating buying 1 share of 7-10 Bond ETF for the last 3.5 years and comparing with the current market value.

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There has been a lot of discussions on this board about P&C Insurers but almost no talk of life insurers. Life insurer's accounting is a bit different then P&C so I was wondering if anybody had good recommendations or reading regarding those. I have just finished reading a few financials reports of NWLI and I'm a bit deficient into understanding everything in there.

 

Here is my thesis on insurers:

Some life insurers look incredibly cheap, for example NWLI is currently trading at 0.45 BV and there does not seem to be any catch to it.

 

Also, I believe that life insurers BV are worth significantly more then the stated BV. The treasury yields are so low right now that their bond portfolio is probably worth about 8%* more then their stated prices. So if I take the example of NWLI that has about 6B$ in stated bonds. Now add an 8% mark to market real value and we get a real book value in the area of 1.5B$. The stock trades at around 500M$, So for about 0.35$ for every dollar I get a profitable business. That seems crazy cheap to me.

 

*I evaluated the value of the bond portfolio by simulating buying 1 share of 7-10 Bond ETF for the last 3.5 years and comparing with the current market value.

 

 

There is a huge catch to their BV.  DAC and DSI is more than 60% of their BV.  They are employing outside actuaries to reassess the value of these two "assets". This could be on their initiative or this might have been prompted by their insurance commissioner in view of their history of increasing the amortization charge for these in the past.  Their EVA has fallen steeply into negative territory in the last two years.  The SEC is considering requiring that products like those that they market must be sold by registered agents rather than by unregistered agents that they often use.  There is a big lawsuit outstanding (no clue if there is material risk from the suit).

 

On the plus side AM Best has affirmed their A rating.

 

This one is too hard for me.

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More red flags. Their amortization charge for DAC & DSI jumped about 30% for years after 2007, although premium and annuity income increased only slightly.  Other operating expense jumped about 80% in 09 and for latest TTM.  The footnotes may shed more light on these, but it would be hard to view these in other than a negative light.  :-(

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