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Strategies & Market Trends : Value Investing
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To: E_K_S who wrote (55386)5/31/2015 5:04:41 PM
From: Spekulatius2 Recommendations

Recommended By
E_K_S
Jurgis Bekepuris

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Re BWINB - they used to pay large special dividends before the financial crisis and that of course reduces book value growth. They paid the last special dividend in 2010 $1.25 plus the regular $1 per year) - then they lost quite a bit of book value due to the catastrophes and investment losses in Y2011 (turned out to worse them 2008 for them). Since then, their book value has bounced back.

Their investments are ~78% very conservative fixed income (which does not yield much currently and is part of their earnings problem) and the remainder being some equity exposure via long term stock investment and some limited partnership assets. The latter is clearly excess capital, since most insurance companies carry about 20% in debt and BWINB has none.
The equity gains for the most part run as comprehensive income so they don't show up directly as earnings , but they do contribute to growth in book value. So in a way, this is a Mini BRK except that their equity exposure is much smaller and they don't purchase entire companies like BRK does. Given their small size, buying entire companies is not really an option for BWINB anyways. Reading through the 10k's, I found that they had positive reserve releases since 1986 (!) which speaks to the their conservative reserve practices. They also look at underwriting profits before market share and have a goal to be at an underwriting ratio of 95% or below. This is all fine, but the issue seems to be that they carry so much excessive capital and are so conservative in their fixed income (almost half their fixed income were government issues with a Duration of less than a year in some years) that it reduces their returns. It seems to me that current management has been there such a long time and is nearing retirement, that they are more in preservation than growth mode. That is fine, but it really means that the returns are going to be subpar as long as interest rates remain low in the current environment.
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