Valuing Insurance Companies: Part 2
By Emil Lee September 28, 2007
In the first part of this article, we talked about some of the qualitative criteria investors should use to evaluate insurance companies. Now let's get down to some of the quantitative aspects of insurance valuation -- the hard numbers that help indicate insurers' overall health.
Tangible book valueTangible book value (TBV) is the value of an insurer's assets minus its liabilities, excluding intangibles and goodwill. This could also be a proxy for liquidation value -- an estimate of what the insurance company would be worth if the company closed its doors, paid out claims, and returned excess capital to shareholders. (Hence the term "shareholders' equity.") Obviously, you'd want to pay a lower multiple of tangible book value to increase your margin of safety, assuming you can't get shares at a discount to TBV.
The amount of floatA big part of a bank's value is its amount of core deposits, because a bank can easily earn more from a depositor's money than it pays out in interest. And that doesn't even include the myriad fees it can reap, including overdraft and service charges on those deposits.
Similarly, an insurer pockets any investment income it earns from policyholder float. So the amount of float an insurer generates plays a big role in determining its worth. To calculate float, add together loss and loss adjustment expenses with unearned premiums, then subtract premiums receivable and deferred policy acquisition costs. Using the latest quarterly figures, I calculate Income Investor recommendation Mercury General's (NYSE: MCY) float at roughly $1.5 billion, or about half the company's nearly $3 billion market cap. Meanwhile, I calculate Progressive's (NYSE: PGR) float at about $6.8 billion, or nearly half the company's $14 billion market cap. Clearly, Progressive's larger amount of float makes the company more valuable.
Cost of floatThe cost of float varies inversely with its value. The more you have to pay for it, the less it's worth. If I opened up my own bank, and offered depositors a 10% interest rate, I could probably attract deposits very quickly -- until I went broke trying to pay out that interest.
Insurers that generate low-cost float are much, much more valuable than their higher-cost peers. The best way to gauge the cost of float would be to look at a company's long-term combined ratio versus its competitors. If the insurer consistently earns combined ratios of less than 100%, that's very good. It means that the insurer earns an underwriting profit, and has a positive cost of capital. Think of it as a bank whose depositors pay the bank to hold their deposits -- and allow the bank to pocket any investment income it earns.
The two most sustainable ways to generate low-cost float are exercising underwriting discipline and maintaining low overhead and expense ratios. Progressive, and Berkshire's (NYSE: BRK-A) (NYSE: BRK-B) GEICO, particularly fit the bill in those regards. Last year, they posted 13.3% and 11.9% underwriting profit margins, respectively, compared to the auto insurance industry's average of 7%.
Float growthFloat growth, as long as it comes at a reasonable price, increases an insurer's value. For example, through organic growth and acquisitions, Berkshire increased its float from about $20 million in 1967 to $50.9 billion at the end of 2006. That represents a roughly 21%-22% annual increase, almost identical to Berkshire's share price appreciation and the annual growth in its per-share book value.
Investment incomeThe last piece of the puzzle? How profitably the insurer actually uses its float. Some insurers tend to put all their money in low-yielding investment-grade fixed-income securities. There's nothing wrong with that, but it'd be nice if insurers could earn higher risk-adjusted returns, the way Berkshire, Markel (NYSE: MKL), and White Mountains (NYSE: WTM) do. Flagstone Re (NYSE: FSR) and Greenlight Re (NYSE: GLRE) are just getting started, but they follow the same mold. I'd also advise Fools to look at Enstar Group (NYSE: ESGR).
Add these factors together -- tangible book value; the size, cost, and expected growth of the float; and the expected returns from that float -- and you should be able to estimate an insurer's true worth.
Related Foolishness:
Valuing Insurance Companies: Part 1
Don't Sell Without Reading This First
How George Soros Predicted the Mortgage Crash
Friday, September 28, 2007
Thursday, September 27, 2007
NAA and Foresters Help Children’s Miracle Network Hospital
NAA Agent Melissa Rinehart receives a $20,000 pledge from a caller during the Nov. 21 Children’s Miracle Network radiothon. The event raised more than $260,000 for the Children’s Medical Center of Dayton, Ohio.
NAA and Foresters Help Children’s Miracle Network Hospital
On November 21, National Agents Alliance and Foresters helped raise more than a quarter of a million dollars for the Children’s Medical Center of Dayton, Ohio.
Organizers of the Foresters Fraternal event called it “a huge success.” Using volunteers from NAA and Foresters, the radiothon raised $262,658 for this Children’s Miracle Network Hospital.
In addition to staffing the phones during the event’s radiothon, the NAA agents also toured the children’s care facility and saw firsthand how the money will be used to meet the needs of the hospital’s young patients.
“Taking the tour made me want to do a lot more,” said Patrick Connors, one of eight NAA agents to assist with the fundraiser. “When we left, we had a new focus. Seeing that we can have an impact by giving a sliver of our time really opened my eyes. I’m so proud to be in business with National Agents Alliance and Foresters.”
Foresters and Children’s Miracle Network have a long-standing relationship based on a shared commitment to improving the health and well-being of children.
The funds raised in Dayton will be used for patient care equipment, including: a $36,000 giraffe bed in the Newborn Intensive Care Unit; a $6,000 bili-rubin monitor for the emergency room; a $113,500 total care bed for inpatients; and more than $17,000 of equipment for one of the hospital’s transport vehicles.
Dayton Children’s Hospital is a regional pediatric referral center and has nearly 250,000 visitors annually.
In addition to providing funds for the hospital, the radiothon also helped promote Foresters Strong Foundation and National Agents Alliance through co-branded marketing materials, including radio and newspaper advertisements.
In addition to Connors, the following NAA agents also participated: Alex Abuyuan, Carl Brown, Daniel Brown, Tim Byers, Cindy Byers, Doug Jackson, and Melissa Rinehart.
For more information about NAA’s community involvement, contact Kurt Ward at 336-227-3319, ext. 160 or kward@naaleads.com.
Foresters Again Makes News for its Member Benefits
Foresters Again Makes News for its Member Benefits
Foresters has just announced 320 winners of its annual scholarship program. NAA is proud to be partnered with such a giving organization. Foresters products not only benefits families, it also provides for the future of today’s youth. All Foresters members are eligible to win a scholarship.
Krista Best, a winner from Texas comments, “I’m not your typical scholarship recipient. I’m 34 years old with six adopted children and six foster children. I’m going to Nursing School because it means that I’ll have more to give to my family. And it will help my kids see that education really is important. But none of this would have been possible without Foresters.”
These scholarships can change peoples’ futures.
“Foresters has made it possible for me to go to medical school,” said Scott Miller, a student from Idaho and one of the 320 scholarship recipients. “Now I can get an education that will make a real difference in ways that matter.”
Each year, Foresters Scholarship Program recipients are awarded $2,000 for up to a maximum of four years or until their first degree is obtained. A Foresters scholarship can help pay for tuition, books, supplies, residence, clothes, food and other expenses.
In its 22nd year, the Foresters scholarship program has awarded over $40 million in competitive scholarships; benefiting more than 4,000 students as they pursue their education goals.
“One complimentary benefit available to our members when they purchase a Foresters life insurance or annuity products is our Scholarship program, which helps create bright futures for our members, their families and their communities,” said George Mohacsi, President and CEO of Foresters. “Enriching the lives of our members through these benefits and inspiring them to follow our leadership in making a difference in their communities has been a tradition at Foresters for over 130 years.”
----------------------------------------------
For Immediate Release Contact: Kristen Crabtree
(336) 227-3319 (office)
kcrabtree@naaleads.com
Foresters has just announced 320 winners of its annual scholarship program. NAA is proud to be partnered with such a giving organization. Foresters products not only benefits families, it also provides for the future of today’s youth. All Foresters members are eligible to win a scholarship.
Krista Best, a winner from Texas comments, “I’m not your typical scholarship recipient. I’m 34 years old with six adopted children and six foster children. I’m going to Nursing School because it means that I’ll have more to give to my family. And it will help my kids see that education really is important. But none of this would have been possible without Foresters.”
These scholarships can change peoples’ futures.
“Foresters has made it possible for me to go to medical school,” said Scott Miller, a student from Idaho and one of the 320 scholarship recipients. “Now I can get an education that will make a real difference in ways that matter.”
Each year, Foresters Scholarship Program recipients are awarded $2,000 for up to a maximum of four years or until their first degree is obtained. A Foresters scholarship can help pay for tuition, books, supplies, residence, clothes, food and other expenses.
In its 22nd year, the Foresters scholarship program has awarded over $40 million in competitive scholarships; benefiting more than 4,000 students as they pursue their education goals.
“One complimentary benefit available to our members when they purchase a Foresters life insurance or annuity products is our Scholarship program, which helps create bright futures for our members, their families and their communities,” said George Mohacsi, President and CEO of Foresters. “Enriching the lives of our members through these benefits and inspiring them to follow our leadership in making a difference in their communities has been a tradition at Foresters for over 130 years.”
----------------------------------------------
For Immediate Release Contact: Kristen Crabtree
(336) 227-3319 (office)
kcrabtree@naaleads.com
Wednesday, September 26, 2007
Sick Children in Toronto to Receive Aid Thanks to Burlington Company
Sick Children in Toronto to Receive Aid Thanks to Burlington Company
Burlington, N.C. – On Monday, July 23, McMaster Children’s Hospital in the Canadian Province of Ontario will receive a check for more than $100,000 to purchase equipment for its Neonatal Intensive Care Unit.
The gift will come thanks in part to the contributions of National Agents Alliance, a Burlington company that assists insurance agents throughout the United States.
NAA will serve as the lead sponsor of the 9th annual Foresters Kids Classic Golf Tournament, which will be held Monday. The Burlington-based company is sending several people, including two Alamance County residents, to Toronto to participate in the event. Proceeds from the event will go to McMaster Children’s Hospital and a new program for young people in the Flemingdon Park community of Toronto.
NAA provides life insurance coverage for middle-income Americans using products designed by a variety of top-rated insurance carriers, including Foresters, which is headquartered in Toronto.
“NAA wants to be a great community partner, and the community stretches far beyond Burlington,” said Kurt Ward, NAA’s director of communication and one of the golfers at next week’s tournament. “This tournament provides us with an opportunity to support our friends at Foresters and to support a charity that is dear to both of our hearts, the Children’s Miracle Network.”
McMaster is a Children’s Miracle Network hospital.
NAA has previously assisted with fundraising events for other CMN hospitals, including Duke Children’s Hospital and the Children’s Medical Center of Dayton, Ohio.
Over the past eight years, Foresters’ annual golf event has raised more than $800,000 for Children’s Miracle Network
Joining Ward on the golf course will be NAA President and CEO Andy Albright, a Burlington native. Other NAA participants in the event include agency managers Patrick Connors (Mason, OH), Stephen Davies (Asheville, N.C.), Glenn Davies (Asheville, N.C.), Adam Katz (Dunn, N.C.) and Kyle Winebrenner (Cabot, Ark.).
NHL star Eric Lindros will also participate in the golf tournament, playing with the lead foursome that includes Albright and Stephen Davies. Lindros is a six-time NHL All-Star and the league’s 1995 MVP.
National Agents Alliance is an insurance marketing organization that supports more than 6,000 independent life insurance agents nationwide.
Burlington, N.C. – On Monday, July 23, McMaster Children’s Hospital in the Canadian Province of Ontario will receive a check for more than $100,000 to purchase equipment for its Neonatal Intensive Care Unit.
The gift will come thanks in part to the contributions of National Agents Alliance, a Burlington company that assists insurance agents throughout the United States.
NAA will serve as the lead sponsor of the 9th annual Foresters Kids Classic Golf Tournament, which will be held Monday. The Burlington-based company is sending several people, including two Alamance County residents, to Toronto to participate in the event. Proceeds from the event will go to McMaster Children’s Hospital and a new program for young people in the Flemingdon Park community of Toronto.
NAA provides life insurance coverage for middle-income Americans using products designed by a variety of top-rated insurance carriers, including Foresters, which is headquartered in Toronto.
“NAA wants to be a great community partner, and the community stretches far beyond Burlington,” said Kurt Ward, NAA’s director of communication and one of the golfers at next week’s tournament. “This tournament provides us with an opportunity to support our friends at Foresters and to support a charity that is dear to both of our hearts, the Children’s Miracle Network.”
McMaster is a Children’s Miracle Network hospital.
NAA has previously assisted with fundraising events for other CMN hospitals, including Duke Children’s Hospital and the Children’s Medical Center of Dayton, Ohio.
Over the past eight years, Foresters’ annual golf event has raised more than $800,000 for Children’s Miracle Network
Joining Ward on the golf course will be NAA President and CEO Andy Albright, a Burlington native. Other NAA participants in the event include agency managers Patrick Connors (Mason, OH), Stephen Davies (Asheville, N.C.), Glenn Davies (Asheville, N.C.), Adam Katz (Dunn, N.C.) and Kyle Winebrenner (Cabot, Ark.).
NHL star Eric Lindros will also participate in the golf tournament, playing with the lead foursome that includes Albright and Stephen Davies. Lindros is a six-time NHL All-Star and the league’s 1995 MVP.
National Agents Alliance is an insurance marketing organization that supports more than 6,000 independent life insurance agents nationwide.
The Importance of obtaining Insurance
If you are a construction worker that works hard and diligent everyday in order to support your family financially over seas, there is a product called disability insurance that will enable you to receive a monthly income whenever you become injured on the job.
“In case of death the beneficiaries are able to receive the full-face amount. Or if you never use the benefits once your term is over you can get all your premiums reimbursed.” Assured Andy Albright to Que Pasa, CEO of National Agents Alliance, a marketer for insurance carriers in Burlington.
According to Albright these kinds of policies are even available to people that do not have a social security number, in other words even those that have a tax ID number or ITIN can apply for these kinds of cover ages.
Yamile Lara, Hispanic specialist at the company, (explained that in fact the product is available to anyone that works.) stated as an example a non-smoker, 28 yr old male construction worker who wants to be covered for $250k would pay approximately $79/month in order to receive this coverage. “You can obtain a term plan from 15 to 30 years. In case the insured gets disabled the policy would give him a benefit of $1,500 on a monthly basis during the time that he is unable to work for up to 18 months”.
When the coverage term expires and the worker is still alive and has never used the policy benefits he can expect a reimbursement of all the premiums that he had paid, for example the amount will be all of the monthly premiums multiplied by the term years if he had paid $79/mo he would get back $28,440 after 30 years. “It is like a savings tool,” Albright declared.
Lara stated, “also, if the worker dies in an accident his family would get the face amount plus 50% more which in this example would be $375k.” assured the Hispanic specialist. “Aside from that the death benefit can be sent anywhere in the world tax free because the taxes were paid during the monthly premium payments.” Lara affirmed.
“In case of death the beneficiaries are able to receive the full-face amount. Or if you never use the benefits once your term is over you can get all your premiums reimbursed.” Assured Andy Albright to Que Pasa, CEO of National Agents Alliance, a marketer for insurance carriers in Burlington.
According to Albright these kinds of policies are even available to people that do not have a social security number, in other words even those that have a tax ID number or ITIN can apply for these kinds of cover ages.
Yamile Lara, Hispanic specialist at the company, (explained that in fact the product is available to anyone that works.) stated as an example a non-smoker, 28 yr old male construction worker who wants to be covered for $250k would pay approximately $79/month in order to receive this coverage. “You can obtain a term plan from 15 to 30 years. In case the insured gets disabled the policy would give him a benefit of $1,500 on a monthly basis during the time that he is unable to work for up to 18 months”.
When the coverage term expires and the worker is still alive and has never used the policy benefits he can expect a reimbursement of all the premiums that he had paid, for example the amount will be all of the monthly premiums multiplied by the term years if he had paid $79/mo he would get back $28,440 after 30 years. “It is like a savings tool,” Albright declared.
Lara stated, “also, if the worker dies in an accident his family would get the face amount plus 50% more which in this example would be $375k.” assured the Hispanic specialist. “Aside from that the death benefit can be sent anywhere in the world tax free because the taxes were paid during the monthly premium payments.” Lara affirmed.
Tuesday, September 25, 2007
Andy Albright: CEO has instinct for trends, and plans to quickly take his firm to the top.
Andy Albright: CEO has instinct for trends, and plans to quickly take his firm to the top
The Business Journal of the Greater Triad Area -
December 8, 2006by Matt Evans
The Business Journal Serving the Greater Triad Area
You may never have heard of Andy Albright, but if you've ever bought a home, taken out an equity line of credit or refinanced a mortgage, chances are you've heard from him.
Some might consider his message -- delivered most often via direct mail -- to be a bit of a downer for a joyous new homeowner hanging drapes and arranging furniture: What will happen to your family if you die?
Albright, his staff of 140 people and the thousands of independent insurance agents across the country who are members of the rapidly growing National Agents Alliance he heads, ask that question thousands of times a day in their pitch for a product called "mortgage protection insurance."
Not to be confused with the "private mortgage insurance" that protects a lender from default by the borrower, mortgage protection insurance is a traditional life insurance policy that pays off to satisfy a mortgage debt in the event the borrower dies. That way, the surviving family doesn't have to worry about continuing the mortgage payments. Some policies also pay out in the event of disability or other calamity.
Albright's National Agents Alliance markets the policies on behalf of insurance carriers and independent agents through its nationwide network. The primary vehicle is the more than 1 million pieces of direct mail stuffed and sent out every week from the company's Burlington headquarters. Mail heads to 49 states to potential customers culled from public record searches and other sources.
The Business Journal of the Greater Triad Area -
December 8, 2006by Matt Evans
The Business Journal Serving the Greater Triad Area
You may never have heard of Andy Albright, but if you've ever bought a home, taken out an equity line of credit or refinanced a mortgage, chances are you've heard from him.
Some might consider his message -- delivered most often via direct mail -- to be a bit of a downer for a joyous new homeowner hanging drapes and arranging furniture: What will happen to your family if you die?
Albright, his staff of 140 people and the thousands of independent insurance agents across the country who are members of the rapidly growing National Agents Alliance he heads, ask that question thousands of times a day in their pitch for a product called "mortgage protection insurance."
Not to be confused with the "private mortgage insurance" that protects a lender from default by the borrower, mortgage protection insurance is a traditional life insurance policy that pays off to satisfy a mortgage debt in the event the borrower dies. That way, the surviving family doesn't have to worry about continuing the mortgage payments. Some policies also pay out in the event of disability or other calamity.
Albright's National Agents Alliance markets the policies on behalf of insurance carriers and independent agents through its nationwide network. The primary vehicle is the more than 1 million pieces of direct mail stuffed and sent out every week from the company's Burlington headquarters. Mail heads to 49 states to potential customers culled from public record searches and other sources.
Subscribe to:
Posts (Atom)