Loews Corporation (NYSE:L) is primarily an insurance holding company with one of the best defensive corporate structures in the industry. This is achieved by spreading its shareholder equity between different corporations to limit the liability and loss exposure of a single company.
Insurance companies are especially vulnerable to fat tail events. These events range from major catastrophes, rapidly rising interest rates and high inflation. Any of these scenarios could bankrupt an insurance company. Separating some of a company's assets outside of insurance is prudent. Loews is different from many other insurance holding companies because it has a higher degree of corporate separation, both within its insurance companies and without.
Approximately 60% of Loews' equity is held within its majority shareholder interest of CNA Financial Corporation (CNA). CNA itself is an insurance holding company comprised of separate corporate subsidiaries to include Continental Casualty Company, The Continental Insurance Company, Western Surety Company and Hardy Underwriting Bermuda Limited.
Although CNA's corporate structure is fairly well separated, what's more important is that 40% of Loews' equity does not exist within CNA or any of its insurance subsidiaries. Loews' other equity is divided between Diamond Offshore Drilling (DO), Boardwalk Pipeline Partners (BWP), Loews Hotels and Resorts and approximately $5 billion worth of cash and investments held by the head corporate office.
It's also interesting to note that Loews' holdings outside of insurance are highly tangible assets, such as oil rigs, gas pipelines and commercial real estate. These tangible assets are inversely correlated to inflation. A sharp rise in inflation could harm CNA, but the rapid appreciation in Loews' tangible assets could hedge at least some of their losses within insurance.
Compare this favorable corporate structure of Loews to many other insurance holding companies. These companies often times hold all or a high portion of their equity within their insurance corporations. A highly adverse event in the insurance industry could bankrupt them. Loews could escape with at least 40% of its equity still intact, perhaps more if the event is inflationary and Loews' other tangible assets rise in value.
It's unclear to me if Loews' management team designed their portfolio in this way or if it's merely a coincidence. Regardless, Loews is primarily an insurance company but has a far greater hedge against loss than most other insurance companies. I admire the defensive structure of this company.
Due to high government debt, currency debasement, low interest rates and many new entrants into the industry, investing in insurance companies is riskier today than it was before. I personally believe that investing in Loews is one of the best ways to go into insurance right now considering its defensive position in the face of industry challenges. At its current share price of $35.36, Loews is selling significantly below book value and I believe the shares are a very good deal right now.
