Another season of reinsurance earnings reporting has come and gone, and I wanted to share my summary with you. For review, I post periodic updates of price to book valuations and combined ratios of a group of companies that focus on reinsurance. I have also reviewed the industry here, and I really like this summary by Far Horizon.
Just as a reminder, the list below is predominantly comprised of Bermuda-based reinsurers. I get frequent questions about why such-and-such company isn't included, and the simple answer is that I screened the others out years ago and don't track them quarterly. The universe of reinsurance companies I describe below is not meant to be comprehensive, but rather a consistent group that I have thoroughly researched on a quarterly basis for five years. Any company not in the list is absent for some reason such as limited disclosure, unusual domiciles, or perpetually high valuation that makes comparables suspect when showing side-by-side these other companies. The list does not cover some of the large European companies, and also excludes a few companies that continually trade in the stratosphere in terms of price-to-book (including Renaissance Re (RNR) and Arch Capital (ACGL)), and excluded a company from Cayman Isles, Greenlight Capital (GLRE), which provides very limited disclosure and engages in hedge-fund like investment trading.
|company||current price||Q1 BV||Q1 P/B||Q1 Combined Ratio||Q4 Combined Ratio||Q3 Combined Ratio||market cap (B)||% of 52wk hi|
|Aspen Insurance Holdings (AHL)||$38.02||40.68||93%||90%||108%||87%||2.50||97%|
|Axis Capital Holdings (AXS)||$44.52||44.67||100%||83%||112%||85%||5.18||100%|
|Endurance Specialty (ENH)||$49.75||54.1||92%||85%||119%||100%||2.15||98%|
|Montpelier Re Holdings (MRH)||$25.77||27.49||94%||62%||116%||73%||1.39||94%|
|Partner Re (PRE)||$92.62||102.96||90%||82%||95%||81%||5.34||96%|
|Platinum Underwriter (PTP)||$57.17||60.23||95%||45%||25%||61%||1.82||98%|
|Everest Re (RE)||$131.98||136.43||97%||81%||108%||87%||6.59||98%|
|Validus Holdings (VR)||$38.35||41.57||92%||61%||123%||70%||4.12||96%|
|XL Group plc (XL)||$32.23||34.05||95%||88%||104%||92%||9.41||98%|
Table 1. 1Q2013 Financial results for selected reinsurance companies.
The group is trading in the tightest valuation range I have seen in a while (price to book all within 10%, ranging from 90 to 100%). Thus it is a little silly to call out a few buy considerations, but I will do it anyway.
PRE has the lowest current price to book at 90%. The next two at 92% are ENH and VR. Among these three companies, I would throw out ENH due to having the worst combined ratio of the three for the past two quarters. That leaves PRE and VR as companies to take a closer look at. I am already long VR and plan to initiate a long position in PRE. I do feel there is value in having several companies in this sector, since they are not only poorly correlated with the overall stock market but also with each other. I use this observation to pick up a different company or two every quarter, and sell off positions that have grown their valuation to the top of the pack. The system works pretty well and keeps my rotating through the companies. I think I have owned all of them at one time or another, in fact.
Based on quarterly results including the past two quarters of combined ratio and price to book valuation, I favor PRE and VR for initiating any new positions.