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Robert Duval
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Full time Investor / Trader, 17 years. Specialist in risk management, with intermediate trade focus, US stocks, international ETFs and commodities. Believe in correlation of markets, must understand all markets to trade one well. Self taught through continuous study of myself and other... More
  • The Right Time To Consider Insurance Company Stocks 2 comments
    Jan 3, 2013 5:19 PM | about stocks: AIG, MFC, HIG

    This is my very first Article of any kind; so I will make it Short; Simple and (hopefully) sweet.

    The thesis is on considering insurance stocks as an investment at this time. Being a Macro - Themed investor; I will spend little time on individual companies and most on the Macro theme underlying this investment idea.

    In one sentence; this investment idea is a way to play a potential theme for 2013; that is higher long - term interest rates; leading to a steeper yield curve.

    This is a theme I believe will likely occur in 2013; is a rotation from investors from safety trades like long - term treasuries to a greater allocation into stocks and growth assets. I believe we are starting to see this play out in the early days of 2013.

    This theme is bullish for all financials for the reasons outlined below; but particularly insurance stocks.

    Insurance company stocks; as a group; have been crushed in recent years by suppressed long term interest rates; which they depend on for an income flow to pay out claims and previous annuities sold to policy holders.

    They are an extremely distressed and out of favour group; and valuations are cheap, IMO. (from a macro view).

    For safety reasons; because they have payment obligations; Insurance companies must invest premiums recieved extremely conservatively; in bond or bond - like investments.

    Higher long - term interest rates benefit these companies through increased investment income.

    As Financials continue to lead the broader market; I believe if longer term interest rates continue to increase at a measured pace; Insurance Stocks will benefit.

    Ideas to research would include AIG, MFC, HIG. I am long AIG and MFC.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HIG over the next 72 hours.

    Additional disclosure: Positions may change at any time. Do your own due diligence before investing.

    Stocks: AIG, MFC, HIG
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Comments (2)
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  • AuCoaster
    , contributor
    Comments (1289) | Send Message
    I made a lot of money on P&C insurance stocks in the 2000s.
    Some important things to know about P&C insurance companies:
    They live in a very cyclical product pricing environment that leads to severe understatement of liabilities by the bottom of the underwriting/pricing cycle. Their pricing cycle has been going down for almost ten years now. So, I would not trust any of their reserves at this point. Some will be under-reserved by more than their stated net worth. Their published numbers are garbage by now.
    To the extent that bond yields are correlated with inflation, higher bond rates will also come with higher claim payouts.
    If you want to catch the big run up that will come after the pricing cycle turns, look at the big brokers first. They do not have claim reserve issues, and will see rapid improvement in revenues and profit when the pricing cycle turns. Underwriting companies will be delayed in showing profits because they will be scrambling to fill in their deficient reserves. But, there will be a strong rise for the better companies.
    31 Jan 2014, 10:17 PM Reply Like
  • OldWarrior
    , contributor
    Comments (2079) | Send Message
    I thoroughly agree on the rise in NG approaching. As such, I will research the companies you mentioned, as well as others impacted heavily by rising NG prices with an eye to shorting victims, and going long some producers. I'll have to look up the name, but there is a Norwegian firm that recently reported a possible breakthrough in recovering frozen Methane from sub-sea beds. I'll ask my friend in Sweden to get the name and get back to you.
    (I am notoriously slow about getting certain things done, so please be patient with me)
    13 Apr 2014, 02:57 AM Reply Like
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