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To: Valueman who wrote (9399)	3/25/1998 4:14:00 PM
From: Gregg Powers	Read Replies (2) \| Respond to of 152472

Valueman: I don't find it particularly surprising to find P&C companies trading on a net-net basis. Insurance companies, by their nature, collect cash upfront--net of underwriting income or losses--and get to invest this capital until claims become payable. So the left side of the balance sheet is generally very liquid; A/R, deferred taxes, minimal PP&E and a large pool of "investments". On the righthand side you have current liabilities (generally A/P, current taxes, current and actual claims etc.), long-term liabilities (the lion share being loss reserves) and, of course, shareholders' equity. The problems are straightforward. (1) Does Japanese accounting require the company to mark its investment portfolio to market? If so, how aggressive are the auditors/regulators in enforcing the guidelines? I strongly suspect that both real estate and private equity investments are being carried at values that hold little relation to current realizable values. This concern would obviously not apply to companies trading below net cash, however... (2) Under the best circumstances long-term loss reserves are nothing more than an educated guess. You must convince yourself that the economic liabilities, subsequent to ceded coverage (i.e. reinsurance), at least approximate the bookkeeping accounts. Evaluating reserve redundancy for a domestic P&C company is a nettlesome process, I almost cannot imagine how difficult it would be to really understand the complexities for Japanese companies. For example, in the U.S. many P&C companies automatically index your coverage to inflation, providing their insured with "replacement cost" coverage. Over time this indexation process often becomes delinked from the actual economic liability, leaving the carrier's shareholders open to a nasty surprise. Another example, in the U.S. there are often material differences between "regulatory" balance sheets (i.e. financial statements filed with state insurance commissions) and "public company" financial statements--almost invariably the former are more conservative than the latter. I am not trying to be a smart-ass here, but Japanese banks are legendary for their failure to recognize non-performing loans and Japanese companies are rather, shall we say, circumspect with their financial disclosures. All may not be as simple and clean as it appears. Caveat emptor. Best regards, Gregg