by Travis Johnson, Stock Gumshoe | March 2, 2018 4:07 pm
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Source URL: https://www.stockgumshoe.com/2018/03/friday-file-buying-id-and-overpaying-for-cash-checking-up-on-some-insurers/
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Thank you for a further detailed look in on BOMN
It is indeed OKTA that Stansberry is promoting, as THE blockchain company that will beat them all.
And Motley Fool too. Thanks for the helpful analysis.
Thanks for the confirmation, I was curious about that.
Excellent details on companies that are not tracked by the talking heads of the investment world. Thank you for providing insights.
Hi Travis. Regarding insurance, I own a Nordhavn motor yacht. I’m hearing some owners with current insurance renewals complaining that their premiums have gone up. It’s a very small sample from a very small sector but maybe it’s a straw in the wind?
Wouldn’t surprise me… the rates have been artificially low because of too much capital in the insurance business, and a lot of that capital was washed out with last year’s record catastrophes. That’s the general trend in the insurance market, though it doesn’t work every time — cash flows in looking for easy returns and creates a “soft” market with low prices, then a few big catastrophes wipe out a couple years of earnings for some of those players and they start to worry about underwriting more strenuously, and cash gets pulled back and we get a “hard” market with higher prices. That’s what has generally made “buy good insurers in bad years” a good strategy, though it certainly doesn’t work all the time.
Interestingly, just this weekend came news of a huge takeover deal in insurance — Axa buying XL Group at a huge premium, which pretty clearly sounds like a bet on a “hard market” (though Axa is also streamlining the business a bit, spinning off Allianz and their life insurance business in a US IPO). XL Group has been an interesting idea that I’ve considered a couple times, too bad I didn’t actually buy it… but it’s also a stock that has typically traded at a small discount to book value, and the acquisition is at something like 1.5X book, so Axa shareholders are not so pleased.
Axa is huge, so they can certainly absorb it and not have it be too dilutive to book value for long… but lots of folks watching M&A in this space now.
Bloomberg article today: https://www.bloomberg.com/news/articles/2018-03-05/france-s-axa-agrees-to-buy-xl-group-for-15-3-billion-in-cash
Being an underwriter, I’m not sure what hard market they are musing about. Most of our regulated investments are in Government securities. So, as rates rise, bonds fall.
Consolidations may be in the offing, but appears to be market share and expense play.
That’s more about the price of risk (in P&C) versus the profit earned on the investments… and if the portfolio is dropping in value, presumably that puts more pressure on the underwriting to be conservative and the pricing to be “hard.” Are you not seeing rate increases in your business?
Rising interest rates do, of course, bring a writedown in the current value of a bond portfolio — so the immediate impact is negative on book value, all else being equal — but the positive impact is much greater if rates rise considerably over time. Generally, from what I’ve read the impact of rising rates on investment income lags by a couple years because of the time it takes for the portfolio to roll over (though it’s different for each company — some insurers have longer-lived risks and have to reserve for 20-50 years and have very long-term bond investments that match those reserves, but most are not likely to have gone far out in maturity with the bulk of their portfolios in recent years given fear of rising rates) … so maybe 2-3 years after rates start rising the income from those higher coupons begins to have a real impact on the portfolio.
Thanks for chiming in!
Boston Omaha dipped again today, any chance you’re thinking of adding again or are you waiting to see if your guess that it might fall to near book value will possibly pan out?
Very interested in this stock, but also taking to heart your sound advice that the investment is mostly a pure confidence in young management play at this point.
$BOMN Looks like the young Peterson and Rozek may have hit a snag:
“Andrews & Springer LLC is Investigating Boston Omaha Corporation for Potential Breaches of Fiduciary Duty and Securities Violations”
https://finance.yahoo.com/news/boston-omaha-bomn-shareholder-alert-120100424.html
Think this will weigh down the stock for a great buy-in opportunity or do these initial investigations tend to pan out poorly investors? Im asking, because outside of loosely following what GE has been going through recently, I haven’t been investing long enough to know how these stories usually end.
Lawsuits are a pretty regular occurrence, especially from “boutique” firms who are out to be the next Rainmaker (or just make a few bucks from a settlement). I can’t imagine how there can be any merit to this one considering all the risks to SPAC investing are fully disclosed. These firms have every SPAC on their watch list waiting to open a suit as soon as their first acquisition is announced, and I’m sure SPACs have a line item in their budget for their own legal fees. Just another cost of doing business!
That said, as a GE shareholder who would like to believe otherwise, their legal issues should be taken a little more seriously. That company is like the reverse of a SPAC – just an old fashioned Wall Street garage sale, taking cash offers for whatever people will buy. Fortunately, they have stuff worth selling.
Indirectly related to $BOMN: Netflix offering more than $300 million for billboard company
https://www.reuters.com/article/us-regencyoutdoor-m-a-netflix/netflix-offering-more-than-300-million-for-billboard-company-sources-idUSKCN1HD1FK