7 Insurers on My Shopping List

Insurance companies offer “a system of protection against loss in which a number of individuals agree to pay certain sums periodically for a guarantee that they will be compensated for loss…” (stolen directly from Webster’s New World Dictionary). For shareholders of publicly traded insurers, this has historically been an extraordinarily profitable investment. But the past two years have wiped out years of accumulated gains. As a matter of fact, the largest insurers are trading below their post 911 lows as well as their demutualization values. For example, Metlife (MET) was a customer-owned mutual organization up to April 2000, at which time the company offered public shares to its policyholders valued at $14.25 per share. Last I checked, Metlife was changing hands on the NYSE under $12, some nine years later.

What’s going on? Insurers are still writing policies and collecting premiums, admittedly at a slower pace for the last year or so. But after nine or more years of steadily increasing policy writing and premium collection, shareholders are now showing a capital loss. What is going on?

Warren Buffet famously built his business and fortune using the principle of constant and predictable cash flows offered by collecting premiums on insurance policies. But, in early 2008, with declining yields on the insurance investment portfolios, he publicly announced that insurers would have a tough year and don’t expect much from them. In hindsight, this was a massive understatement, especially coming from the icon of the financial world.

Now, two months into 2009, the large insurers continue to lose value for shareholders and the once prized investment portfolios have now become liabilities. Is this justified?

“Write-off of investments” is causing panic in the streets. Continued deflation of both stocks and bonds make would-be buyers hesitant.

In Metlife’s case, as well as many other insurers, the variable annuity has been one of their more profitable products to sell. Based on historic market returns, management makes long term profitability assumptions. When markets lag long term estimates, the asset side of the balance sheet shrinks. In extreme cases such as the current environment, two possibilities spook investors:

1) Rating agency downgrade (S&P did downgrade MET and others last week)

2) Forced capital raising at depressed prices

Ultimately, I believe the current massive deflation in market value of the large international insurers will prove a tremendous investment opportunity. But is now the time to try to catch the proverbial falling sword? Is Metlife, for example, at $11.70, a buy today? Five years from now we will look back and say this was an investment opportunity of a lifetime. For Metlife, the company will survive then thrive again. Over the short term we are in uncharted waters and no one can say for sure how low the share prices will go.

What to look for: The government is the lender of last resort and will need to step up and replace what is lost from declining assets. So far, from all appearances, coordinated efforts have not yet been effective. World governments, though, have the determination and staying power to win the battle.

My insurance company shopping list, all available on the NYSE, from best to worst is:

March 5, 2009 $U.S.

China Life Insurance (LFC) at 41.80

Prudential Finance (PRU) at 11.50

Allianz (AZ) at 6.00

Metlife (MET) at 11.70

Manulife (MFC) at 7.75

Sunlife (SLF) at 12.20

AXA (AXA) at 8.10

It’s interesting to note that only two of these companies are headquartered in the U.S.

Disclosure: None yet…

Comments

[abcde_98:]

Comments:
1. Cheap can get not only cheaper, but much cheaper

2. Buffett buys Property/Casualty (P&C) insurance companies. Could it have anything to do with:

a) higher ROE (long-term nature of life insurance and heavier capital requirements has meant low ROE's for the past several years. Trying for an ROE of 15% in life insurance, as the insurers have even tried? look elsewhere)

b) P&C insurance contracts are short-term; you;re done with the contract (essentially) at the end of the year

c) if you made a mistake in one year on the pricing, the next year you can increase prices

d) one year coverages means P&C insurers don;t have to invest in all those long-term bonds [remember that people are concerned about inflation down the road? so when inflation occurs and rates rise, price of the bond falls. of course insurers will say we're holding to maturity...yet many things can happen in the 30 years of holding a bond to maturity (interest rates rising, credit defaults, etc).

---
Moving on to Variable Annuities(VA) (not typically written by predominantly-P&C companies...ACE is one exception), should I re-post details about concerns/issues about variable annuities?

Re USA vs non-USA companies, except for LFC all of the companies you mention have operations and write VA policies in the USA and must comply with USA reservinig and capital requirements on that USA business.

But with the non-USA parent companies, there are reserving and capital requirements of other countries to be considered. You mention AXA, AZ, MFC and SLF, so are the reserving and capital requirements of France, Germany, Canada weaker or stronger than USA standards and have these been employed?

And the National Post article yesterday was quite informing about MFC's issues.
www.financialpost.com/...

Mar 08 01:01 PM

[Chkrazer:]

would you please include a discussion on HIG and ALL. thank you

Mar 08 02:05 PM

[ozcutty:]

prefer to stick with MKL, FFH and brk

Mar 08 05:40 PM

[littercritter:]

it is easy to start a run on an insurer. if you are a concerned policyholder and don't want to cancel your whole life policy, you withdraw its total loan value. that creates a run on the insurer. and that is what is happening as we speak. wake up you fools!!!

Mar 08 07:22 PM

[User 372227:]

Any exposure of the European insurance companies to Eastern Europe -- the next "disaster"? And who is most exposed? least exposed?

Mar 08 10:01 PM

[dale_abshire:]

Trusting a crook with your money is dumb!


Subject: AXA / MONY
Date: 6/13/2008 3:06:26 P.M. Central Daylight Time
To: [e-mail]
CC: foia/[e-mail], [e-mail], [e-mail]... [e-mail]

Mr. Christopher Cox
Chairman
Securities & Exchange Commission

June 13, 2008

Dear Mr. Cox:

This afternoon I once again noted the SEC reviewing the contents on my web sites that contain information about criminal conduct by various elected officials and members of the SEC with regard to AXA and MONY. It reminded me that Linda Chatman Thomsen had not bothered to respond to my October 31, 2005 FOI request (copy attached). I recently testified in a Texas court that my sites had been reviewed without objection by the Texas Department of Insurance, the USDOJ and the Securities & Exchange Commission. I ask again that the SEC comply with the FOI request and state any objections to the information contained on those sites.
My web sites are:
www.PWCSUCKS.com/
www.MONYBUSH.com/
www.MONYINTERNATIONAL..../
www.GonzalesAG.com/
www.SpitzerAG.com/
www.TAMUEX.com/
www.MONYSUCKS.com/
www.TEXASTHUGS.com/

If upon review the SEC determines that any of the content of the sites is incorrect I ask that you please let me know ASAP so that I can make the proper corrections. If I do not hear from you I will assume that you are in full agreement with the content. Your help with the FOI will be greatly appreciated.

Respectfully,

R. Dale Abshire
2606 TWelve Oaks Lane
Colleyville, TX 76034

++++++++++++++++++++++...
br />
Subj: Attention Linda Thomsen ..... Fraud Report / FOI
Date: 10/31/2005

Linda Chatman Thomsen
Director, Division of Enforcement
US Securities and Exchange Commission


Dear Ms. Thomsen:

I have noted your promotion of Walter Ricciardi as "Deputy Director of the Division of Enforcement" for the SEC and wanted to verify with you that he in fact is the same Walter Ricciardi that I have featured on the www.PWCSUCKS.com/ web site. Mr. Ricciardi is directly responsible for your inability to produce or cause to be produced an accurate, concise and properly opined financial statement for The Mutual Life Insurance Company of New York and its successors for over 20 years. Mr. Ricciardi belongs in jail for his part in this ongoing cabal.

Under Freedom of Information I request that you provide me with an accurate, concise and properly opined financial statement for the above referenced company, commonly referred to as MONY, for anytime in the last 10 years that the SEC will stand by. I also request that you provide me with any and all communications between the Securities and Exchange Commission and PricewaterhouseCoopers L.L.P. that relate to the lack of independence by PWC with regard to MONY's financial statements along with communications to and from MONY and AXA.

I also request the information previously requested in the letter enclosed, (Under Freedom of Information I request the names of the 14 companies that were not named in the PWC action by the SEC listed below. ("In the Matter of PricewaterhouseCoopers LLP, and PricewaterhouseCoopers Securities LLC, Exchange Act Release No. 46216 (July 17, 2002) www.sec.gov/news/press...").

I am also attaching a copy of a recent letter to Senator Bill Nelson relating to his part in the perpetrating of this fraud on the public. This is a fraud that was condoned and aided by the Securities and Exchange Commission.

Please do not hesitate to contact me with any questions or clarifications of the requested information. You may also find it easier to simply tell the truth about this matter that has gone on far too long.

Respectfully,

R. Dale Abshire
3308 Pin Oak Lane
Bedford, TX 76021
______________________...

Walter Ricciardi worked in the general counsel's office at accounting firm Coopers & Lybrand from 1984 until he became the litigation practice group leader in the general counsel's office when Coopers & Lybrand merged with Pricewaterhouse in 1998. In 2004, the SEC named Walter the head of its Boston office, which has jurisdiction over six states and has been involved in many of the investigations and cases brought against mutual fund companies.

Mr. Ricciardi was deeply involved in the criminal conspiracy to hide MONY's fraudulent financial statements and the looting of the company while at PWC and Coopers & Lybrand. He was fully aware that PricewaterhouseCoopers used the fraudulent statements to take MONY public in 1998 and that PWC was still not independent when they aided in the sale of MONY to AXA for less than book value. He is a common thug that now prosecutes other thugs for crimes less than his own!

Mar 09 12:48 PM

[granger:]

I am right there with you. Been accumulating MKL and holding FFH bonds.

Chubb is starting to peak my interest, but no position for now.


On Mar 08 05:40 PM ozcutty wrote:

> prefer to stick with MKL, FFH and brk

Mar 10 01:49 AM