I've been working on a series of articles informally entitled “The Excellent Analyst” series. It goes through the framework of questions that I ask when I have a management team all to myself. I don’t go for material nonpublic information; I also don’t go for earnings trivia, rather, I try to see how the management team thinks as businessmen. This is another place where I agree with Buffett: “I am a better businessman because I am an investor, and I am a better investor because I am a businessman.”
With insurance, that comes natively to me, comes natively to me, having done pricing, reserving, reinsurance, and corporate work as an actuary, having managed a small division of a company, with underwriting, marketing, and investment risk control -- and my time managing insurance assets, mortgage bonds and then corporates, together with the derivatives.
Having done all that, understanding insurance managements is second nature to me. I can sense a bad management team, and I delight in a great management team.
This brings me to Assurant (NYSE:AIZ). Why are they the top operational insurance management team to me? This is a non-exhaustive list:
1. Few other companies in insurance have seriously thought about sustainable competitive advantage. Assurant does it well, being #1 or #2 in almost all of the businesses in which they choose to compete.
2. They invest in IT and customer relationships to create barriers to entry that are difficult to reverse engineer.
3. Few insurance companies figure out their core competencies so closely, and then look for adjacent markets to apply them to.
4. Few insurance companies look for “blue ocean” markets, where there is an unmet need and no competitors.
5. Excellent capital allocators.
6. Excellent at M&A, doing small infill acquisitions and growing them organically.
7. Understands the concepts in market segmentation, and applies it to pricing, reserving, customer service and risk control.
8. Executes almost flawlessly. What a great culture.
And if that’s not enough, they earn an ROE that is solidly in the top quartile for insurers, and I have no doubt that they will do the same next year. Progressive (NYSE:PGR) and AFLAC (NYSE:AFL), move over. There is a new growth insurance name in town, and their valuation metrics are inexpensive, compared to what we are likely to get.
Full Disclosure: Long AIZ