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Strategies & Market Trends : Bosco & Crossy's stock picks,talk area

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To: JoeinIowa who wrote (3271)	2/22/2003 2:42:00 AM
From: Crossy	Read Replies (3) of 37387

re: SMAN - Standard Management Corp $3.45 - News Earnings out - Q4 EPS at $0.18 Message 18613857 Message 18613858 The quarterly was quite good and in fact 2 PR's were issued. First the Gain on sale of discontinued opps was restated. This affected last quarter. Since the amount it was sold for nor continued operations were changed by it, the difference had to come from book value - my feeling is that in this way they wrote down some book value or goodwill in the process. The full 10K will provide clues. On the DAC and PVFP I certainly don't share the stance of some Yahoo posters who point to "negative tangible book value" due to DAC. While this is technically true, this would assume 100% of the holders of policy to defeat immediately - a highly unlikely proposition. The ratio of DAC to total premium is what counts - the smaller the amount the more conservative the accounting is. SMAN used 10% of DAC to premium ratio and recently took the opportunity to becomoe more conservative. Let's see what the 10K will bring us in this respect. While I advocate to take out goodwill to adjust stated Book Value to a reasonable number I cannot advocate the same for the DAC component. Reason ? Simple - Goodwill is ambigous, it'S a paper profit - usually related to acquired business. The title to the earning stream this balance sheet item refers to is highly indirect, an amalgamantion of assets purchased. DAC is insofar different as it refers to the policies written. There's a direct link to an earning stream which is only so far at risk with regard to cancelled policies. Why did SMAN "hike up" the absolute number of the DAC so much ? Easy - with policies written they incurred upfront costs which are partially amortized over the lifetime of the policy. That exactly is the DAC item. So business success (premium up 66%) translates instantly into higher DACs but ultimately should translate into nice bottom line numbers. This is the way insurance works. Annuity premiums have been on the rise constantly. And it'S just not correct to assume that SMAN is "merely into interest related products". A sizeable part (I think more than 40%) is into EQUITY LINKED ANNUITIES, unaffected by interest rate differentials and levels. The quarterly itself was quite good and brought us an EPS of $0.18 per share. The more conservative they become (Ratio DAC to Premium deposits) the higher future EPS will be. Future growth is to come from life insurance and the newly set up health segment. best rgrds CROSSY

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