In a downbeat article about AIG this weekend, Barron’s stated that “Chartis [AIG’s international property and casualty operation – and largest unit made] additions to its reserves…in nine out of 10 years. This means, of course, that claims overwhelmed the premiums they had collected…” Emphasis mine. As a loyal reader of the weekly magazine, I was a little disappointed at their characterization of reserving. Hopefully, this post will provide a little more clarity on the practice of reserving. While AIG may have taken writedowns, Barron’s incorrectly concludes that claims overwhelmed premiums. This gives the reader the false impression that any time an insurance company adds to reserves they are taking a loss. This is not the case. Continue reading
This will be brief. For those of you who follow the insurance industry, this will not come as a surprise. However, for the casual reader, this may be a shock. Atlantic Mutual – founded in 1838, once the largest marine and general insurance company in the US, was put into receivership (shut down by the insurance department due to insolvency). The once storied firm was one of the carriers who insured the Titanic – yes, that Titanic. Despite the loss, it survived. It even made it through the Great Depression. So what happened?
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I have been asked several times to discuss 21st Century Holding Company (Nasdaq: TCHC) and why it trades at a such a big discount to its STATED book value. Currently, that discount stands north of 50%. Let me start by saying that TCHC is not the same company that can be seen in flashy television commercials marketing car insurance – that would be 21st Century Insurance the auto insurer which was formerly owned by AIG and sold to Farmers Insurance, a unit of Zurich Financial Services. AIG sold the business for $1.9 billion or 1.00x Tangible equity and 0.85x its stated equity. TCHC is the Florida insurance holding company which has a current market capitalization of approximately $27 million.
It has been said before: “insurance is a promise.” You and I pay insurance premiums in the expectation that, should some unwanted event occur, our insurer will be there to cover the costs. Well, what if they can’t? I often like to tell people that in the financial sector, earnings are what management says they are, until proven otherwise. The question for holders of TCHC stock is twofold: 1) does the company have enough reserves to pay current and future claimants and, if so, 2) how much, if any, equity will the company have left for shareholders? Based on the market cap of the company’s publicly traded shares, the answer is: 1) yes and 2) half of what is presented in the company’s latest Form 10Q. Continue reading
Who says persistency doesn’t pay off? After being poked and prodded by Anal_yst for the past two years, I have capitulated. Below, I humbly submit my first foray into the blogosphere. Insurance – aside from the trials and tribulations of AIG/Chartis/AIG – is an often overlooked subsector of the Financial Industry. As such, I will attempt to provide periodic topics for my enjoyment and your edification.