r/valueinvesting
Insurance Comapnies
Author praises Kinsale, Chubb, Travelers, Arch, and NMIH as high-quality long-term insurance compounders, awaiting better prices.
- High-quality insurance companies with excellent long-term track records, strong combined ratios, and prudent capital allocation.
- Strong growth potential and consistent profitability, acting as reliable long-term compounders.
- Favorable valuation metrics relative to their tangible book value and long-term earnings power.
- Current valuations are not cheap, trading at high multiples which limits the margin of safety.
- Inherent underwriting risks mean occasional bad years are inevitable in the insurance cycle.
Kinsale
It’s not cheap, it may be trading at \~x17 while others are much cheaper, but the company has a growth potential that called my attention. They are doing a fantastic job.
Chubb
Probably one of the best insurance around the world. It’s fairly priced. At the current level I think you may compound your money in the range of 8-12%. I’m waiting for the go down some 8 to 20% or to the earnings and TBV ex-AOCI to grow a little at the same price.
The Travelers Group
Another fantastic company. If Chubb is an AA quality company then The Travelers Group is an A+. Like Chubb it’s fairly priced right now.
Travelers had 1 bad year in 19 years. It’s fantastic.
Chubb is a long term guaranteed compounder. But I think the three of them are going to perform well over time.
I’m just waiting for them at a little better price.
If you are looking for a good enough quality company then ARCH is cheaper, but I may expect them to have a bad year every 10 or so. But it’s a good quality insurance.
If Chubb is a AA , KINSALE is a AA to A+, Travelers is a A+ and ARCH is A.
That’s my humble opinion :)
Have a good one y’all ! Let’s make a shit ton of money together.
BTW: This are long-term holdings.
PD: NMI Holdings. If I can get it with a little discount I’d like to add some money to it.
NMI holdings belongs to the mortgage insurance companies, and form that group It’s the better quality company. Has the best metrics over time.
Obviously there are other great or good enough quality insurance but I think they are a little expensive right now considering their TBV ex-AOCI, their current adjusted Earnigns on Price and Long-Term performance.
By Long-Term performance we are talking about their Combined Ratio over Time, they reserves estimations over the same period of time, the managements capital allocation, and their ability to grow without doing something stupid like underwriting bad insurance.
Have a good one! Let’s make a shit ton of money together.
KNSL is the best from your list , great company at a fair price and long term i see a lot of growth potential so for me it’s a strong buy rn
To be honest, I work in the industry and I keep seeing KNSL get mentioned a ton in this sub and I've never heard of it, Chubb, Travelers, Arch, All State, Progressive etc... on the other hand I'm very familiar with. Kinsale seems to be a non-admitted E&S carrier from my basic research which isn't bad, those lines of business can be lucrative but they are hard to place for a reason, they're a lot more risky and unpredictable than standard P&C insurance that admitted carriers primarily do, meaning those other companies OP mentioned wouldn't touch whatever Kinsale is insuring. Again it's not bad but probably harder to predict and riskier of an investment than the others.
What about Palomar Insurance? (PLMR)
I like Chubb too but curious what you think about them laying off 20% of their entire workforce? They are historically the gold standard when talking insurance carriers but that caused me to raise an eye brow.
I agree with your assessment of Chubb, except I believe it’ll compound between 10-12% at a pretty steady pace. Another business I like is Markel, although it’s not a pure play insurance company. It is currently undervalued and should compound in the low to mid-teens for a long time.
MKL ! Another great company.
I studied their insurance side. They are growing their float at around \~7% per year and had a profitable underwriting 10 out of the las 10 years. It’s impressive. And not only that but they estimated accurately they reserves 21 out of the las 21 years. My god that is amazing.
Again, because it is earning almost \~$1B to shareholders (adjusted earnings, leaving the noise of “fair vale investments” fluctuations that appears on the income statement but have actually nothing to do with their profitability) and it’s trading at \~$23B, I am waiting for a bigger discount.
To use your method of valuation, you also need to subtract MKL’s $12 billion stock portfolio from its market cap, and you get an earnings multiple that’s barely over 10.
RLI is AAA, but priced like it. Also lots of insider buys unlike the others.
You’re right. It’s another fantastic one with a great growth. 30 years of profitable underwrtiting.
Their Causalty business is exceptional (10/10 - Profitable underwriting in 10 out of the last 10 years)
Their Property business is great (8/10)
Their Suerty business is exceptional too (10/10)
But all together gave profits to its shareholders.
Is a great company with a bigger growth potential than CHUBB or TRAVELERS (that are safe but slow, specially because of their size)
I’m waiting for RLI to trade with a little bigger discount 😁
ROOT
ROOT? In the last 8 years their underwriting was profitable only in 2 of them. Their adjusted earnings (last profitable) gave $35M to shareholders while it’s trading at \~$825M.
Why do you like it? What am I missing?
Asic
I studied ASIC. It has such a short duration that my conslusion was to keep an eye on it over the next years. What called my attention was the interesting management they seem to have.
If you like ASIC is probably because their management is very high quality. You may like BOW too, it also has a short duration but an outstanding management. Both are trading at similar relative prices than KNSL.
I was adding +$20.000 to one, and I just picked KNSL for the proven track record and because it was growing its float at around \~30% CAGR.
I have great expectations for ASIC and BOW. Their management may surprise us.
Yes, I haven’t checked out BOW yet, but I will now! Thanks for plugging me in. Yes, ASICs leadership seems to be stellar. Stuart Zimmer comes from an intelligent family and has steadily grown his wealth over the last 15 years.