Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How to Profit from Three Desperate Companies

Companies / Investing 2009 Sep 22, 2009 - 07:35 AM GMT

By: DailyWealth

Companies

Best Financial Markets Analysis ArticleI heard an interesting story last week from the CFO of an insurance company I follow...

This company had insured a restaurant in Miami last year. It's a modest restaurant with a property value of $1.5 million. It's located six miles from the coast, which makes it "zone one" in terms of hurricane risk.


The insurance company had written a $1.5 million property insurance contract on this restaurant and a "companion" contract for a further $1 million to cover additional liabilities. It collected $46,000 in premium for writing this insurance.

When it came to renewing the contract this year, the underwriters reviewed the case and decided the property was worth more than $1.5 million. They ran the new data through their risk models and decided to raise the price of their insurance to $54,000.

The increase prompted the restaurant to shop around for a better deal. It found three other insurance companies willing to write the insurance for less than $40,000.

The CFO used this story to explain to shareholders why his company is losing business every quarter. "The appetite from a lot of the competitors is much stronger than [ours] right now."

The key to banking is, you never lend money at an interest rate that's too low, even if it means you lose business to a more aggressive lender. It's the same in insurance. Never write insurance when it's not profitable, even if it means you lose the business. There's a saying in the insurance industry that makes the point: "Volume is for vanity, but profit is for sanity."

MarketScout tracks pricing trends in the insurance industry. In June, Richard Kerr, MarketScout's CEO, announced three publicly traded insurers were "clamoring for premium, seemingly at any rate." He called these insurers "the terrible trio," and said they were responsible for keeping insurance prices low across the whole industry.

(Kerr didn't identify the terrible trio, but AIG is one of them. With the company on government life support, AIG's underwriters went on a massive insurance binge, collecting as many premiums as they could, as quickly as possible.)

Here's the thing: These acts of desperation by a few large players almost always mark the bottom of the insurance price cycle.

Towers Perrin's Commercial Lines Insurance Pricing Survey (CLIPS) is the most accurate pricing survey in the insurance business. CLIPS shows prices in property and casualty insurance have fallen every quarter for the last four years... and are now down as much as 66% from their peak after September 11, 2001.

The chart shows the year-over-year change in insurance prices, as measured by CLIPS. When the line is above 0%, insurance prices are rising. When the line is below 0%, insurance prices are falling. Prices were still falling in the first quarter of 2009...


But the most recent survey shows prices fell less than 1% from the same time last year. "The smallest decline in four years provides increasing evidence that the soft market is reaching its end," says Insurance Services Network. The classic insurance cycle takes a decade to go full circle. Once the cycle turns, we should get three to five years of strong prices.

As an investment analyst, I've studied all kinds of income products that can compound your wealth – including bonds, real estate investment trusts (REITs), blue-chip dividend growers, and high-yield stocks. But I've never found a mature business that compounds wealth better than a high-quality insurance company.

One company I follow has compounded its stock price at 23% per year over the last 23 years. This includes the last weak insurance cycle, where shareholders made nothing for seven straight years. Another company has generated 16% compound annual growth in stock price over the past 25 years, but the CEO expects his company to "comfortably" exceed these returns going forward.

Of course, the classic example of an insurance company that'll make excess returns in an insurance bull market is Berkshire Hathaway. It's the best insurance company in the world... and Warren Buffett, Berkshire's CEO, expects shareholders to compound their money by about 7% a year.

With the insurance cycle about to turn, it's the perfect time to load up on top-quality insurance companies... Berkshire Hathaway is a great place to start your research.

Good investing,

Tom Dyson

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2009 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in