Tom Armistead

Allstate: Buy on the Dips

skwestorange, I owned MET briefly several years ago but have not been following it recently. Based on the 5 year average EPS analysis similar to what I used on ALL it is a bargain.

Allstate is basically a personal auto company that also does homeowners and life. MET is primarily a life insurance company and has some exposure to guarantees on investment results on variable annuites, as well as hedging with derivatives. So it is not as simple a business as Allstate.

I browsed S&P's analysis as well as Argo's, MET is well capitalized, did not need or accept TARP money, and is well positioned to grow in its industry as one of the stronger players.

Obama's Oversight Plan Appears to Overlook Insurers

State insurance regulators are good at regulating solvency and protecting consumers. The system has accumulated an awareness of the facts of life: given the opportunity, Very Large Insurance Companies (VLICs) will run roughshod over consumers and take irresponsible risks.

Although Allstate has cited the AIG debacle as reason to have a federal regulator, everybody knows that OTS was the weak link in regulating that company, and Allstate's call for federal regulation of insurance is a thinly disguised effort at regulatory arbitrage.

Obama's plan calls for Federal oversight of insurors at the systemic risk level - by preventing another AIG/OTS type situation, it retains the strengths of state regulation while plugging the loophole exploited by AIG in weaseling its way around regulation.

After AIG: Which Insurer Is Next in Line for a Federal Handout?

Thanks, good article

Another Way of Looking at Risk in Financials

texalope,

There was Warren's letter and in the WSJ I think the same day there was a discussion of pension accounting for municipalities, the pension bonds, something I was not aware of, the practice of borrowing money in order to invest it in the pension funds.

My impression, based on my observations of municipalities around where I live, is that town pensions are pretty generous and for example the police or fire departments usually give those approaching retirement a promotion and a raise so their last year sets them up for good payments. Accounting for pensions has always relied to some extent on averaging values over the years because the equity markets go up and down. I studied it some in college although the rules have changed since then. Add to that the politics, elected officials don't have to answer when pensions go bad 20 or 30 years after the deals are made, and the result could be similar to what is happening to corporations about their "legacy" obligations.

I agree that there will be problems, but expect that they will be manageable. The private sector has converted to 401ks and the public sector will do likewise, with older employees grandfathered on their pensions, or defined benefit plans capped as of a certain year, so on and so forth. With stocks down as bad as they are many plans will be underfunded with protracted games of political football. Eventually taxpayers are on the hook for it, the result will be property taxes at the local level, pushing down property values. In effect, the town retirees own part of everybody's house. At the state level it will be income taxes, fees, sales taxes, etc., with more political football. The taxpayers will take the view that private sector has to make do with 401ks so the public sector can do the same.

Just a year or so ago everybody was complaining there were so few losses on municipal bonds that the insurance was a rip-off, California was among the examples cited. There will be losses paid, probably enought to create demand for the insurance and support premium levels, not enough to endanger MBIA's muni operation.

Why We Need Federal Insurance Regulation Now

This article is an irresponsible attack on a strong insurance company. After reading Winkler's post, he has two points: 1) deferred tax assets are questionable capital, and 2) a simplistic bias in favor of mark to market accounting.

1) Deferred tax assets are valuable if a company has strong future earning capacity. Allstate's P&C business has an excellent earnings stream which was able to cover uninsured catastrophe losses on hurrican Katrina in one quarter.

2) Mark to market losses are meaningless if the company involved is able to hold the assets to maturity. Allstate has recognized mark to market i mpairments on all bonds that they intend to sell and is well able to hold the rest of the bonds until their value recovers. The bonds involved are with a very few exceptions still performing and an analysis of the underlying collateral supports the premise that they will continue to perform.

I am long Allstate: your article does not include a disclosure.

Why We Need Federal Insurance Regulation Now

Allstate got out of the variable annuity business in 2006 and is basically a P&C insurance company, although they do have a life operation.


On Feb 09 11:48 AM Alex Filonov wrote:

> Another elephant in the room: annuities. Business model looked great
> for a long time, with stock market rising. Now, not so great. Needless
> to say, most of big insurance companies are also big annuities sellers.

My Year in Trading - Why I Looked for 'Survivability' in Companies

You beat Bill Miller...handily.

I like the paragraph on survivability - 2008 was a bad year for value investing and you have put your finger on the problem.

Property and Casual Insurers, and Reinsurers Are Getting Cheap

I recently did some work on ALL, HIG, AIG, CINF and CB, from what I could see all of them traded at a P/B of 1.5 or better every year for the past ten. So, buying them at a P/B of around 1 should give you a 50% increase within 2 or 3 years.

Not too shabby.

Tom