Archive for the 'Insurance' Category

Taking a Look at Hilltop Holdings (HTH)

Published
by
Doug
on October 15, 2008
in Insurance and Investing
. 0 Comments

Hilltop Holdings (HTH) is a holding company whose only holding is the insurance company NLASCO.

NLASCO “specializes in providing fire and homeowners insurance to low value dwellings and manufactured homes primarily in Texas and other areas of the south, southeastern and southwestern United States.” This sounds to me like NLASCO caters to trailer parks and the manufactured homes.

NLASCO has excellent underwriting discipline. According to Hilltop’s most recent 10-k:

The industry aggregate for combined ratio for 2006, was 92.5%, well above the combined ratio for NLIC of 78.9% for the same period. NLIC was rated #2 in National Underwriters Property and Casualty magazine 50 Profit Champions. NLIC six year average combined ratio was 80.7%, well below the industry six year average of 102.4%.

For those not familiar with the insurance industry, the combined ratio is a measure of underwriting profitability. A ratio below 100% indicates that the company is making underwriting profit while a ratio above 100% means that it is paying out more money in claims that it is receiving from premiums.

Also, I like that the President of NLASCO has an annual incentive award that is based upon attaining a combined of 90% or less. This is good because performance is based on underwriting profit, not volume. In the insurance business, when underwriting profit and discipline is sacrificed for the amount of premiums written, this creates the potential for huge problems down the road. More people will be filing claims and the insurance company will most likely have not set aside enough money for loss reserves.

With the recent sale of its business related to manufactured home communities, Hilltop has about $770 million in cash on its balance sheet and is looking to make some sort of acquisition. Hilltop has stated that it’s open to all possibilities regarding the type of business it will acquire.

Based on the strength of the insurance underwriting alone, Hilltop looks very interesting. If Hilltop were to diversify and strengthen its insurance operations via an acquisition of another insurance outfit, I will take a more serious look at possibly acquiring some shares.

Schiff’s Insurance Observer Archive Now Online

Published
by
Doug
on September 8, 2008
in History, Insurance, Investing and News
. 0 Comments

I forget how I stumbled upon the placeholder for Schiff’s Insurance Observer’s new website about 2 months ago, but I’m glad I did. Schiff’s has a great description:

Our Audience

Schiff’s is written for a select audience of tough guys, intellectuals, hepcats, existentialists, trumpet players, pastry chefs, and all others who have a keen interest in insurance.
History

David Schiff started Schiff’s in 1989. It was originally called Emerson, Reid’s Insurance Observer, after the wholesale insurance firm Schiff owned. Its goal was to promote Emerson, Reid’s business. That worked, and Emerson, Reid prospered.

In 1991, Schiff said to hell with promoting Emerson, Reid’s business and decided to write a great newsletter instead. (That turned out to be even better promotion for Emerson, Reid’s business.)

Schiff sold Emerson, Reid at the end of 1996 but kept the publication and changed its name to Schiff’s Insurance Observer. The famous bulldog logo was added at that time.

Publication Schedule

Schiff’s has always had a somewhat erratic schedule. In 2000, after switching from print to emailed .pdf files, Schiff’s gave up on any semblance of a schedule. Why publish just because it’s the first and fifteenth of the month? Instead, we published when we had something to say, which turned out to be about twenty times a year.

The Present

Schiff’s has been on hiatus since 2007. David Schiff hasn’t decided if he wants to continue writing the publication.

Though Schiff’s is pretty much defunct at the moment, the archive of articles is awesome. One can learn a lot about investing and financial history just by reading through the articles and essays.

I started off with Volume 14, Number 8, released on June 4, 2002. The issue starts off with an analysis of Buffett’s seemingly uncharacteristic all-stock deal with General Re. Next, Schiff’s questions why investors often fail to see deals that arise in the bond market. Last is an admonishment of insurance company directors who gave stock options to CEOs—as “incentives”—priced far below book value of their companies.

Great stuff.

XL Capital CEO Purchases $2 Million of Stock

Published
by
Doug
on August 5, 2008
in Filings, Insurance and Stocks
. 0 Comments

The Royal Gazette reports that XL Capital’s (XL) CEO Michael McGavick recently purchases $2 million of his company’s stock:

XL Capital Ltd. chief executive officer Michael McGavick has shown his confidence in his company bouncing back from its recent hard times by spending $2 million of his own money on the Bermuda-based insurer’s shares.

A regulatory filing on Thursday showed that Mr. McGavick purchased 110,000 XL shares on the open market at $18.19 apiece, thereby quadrupling his holding in the company he leads.

Another insider to give personal financial backing to the company was former Bermuda Governor Sir John Vereker, an XL director, who invested nearly $50,000 in its shares, also on Thursday.

Mr. McGavick has been in the XL hot seat for three months, succeeding Brian O’Hara, and has experienced a baptism of fire during one of the most difficult periods in the company’s history.

A company’s CEO purchasing large amounts of stock on the open market is a very positive sign. I’ve written about XL previously in connection to their exposure to the massive storm and flood damage Iowa saw not too long ago. XL’s stock is down over 70% for the past 12 months. I am seriously thinking about establishing a small position in XL with this recent bit of news.