I own a number of insurers in my portfolio. Each of them has hard-to-replicate business models, with strong cultures, and good management teams (excluding HIG, which is merely a speculation at present). The tickers are listed below.
But Assurant is the best in my opinion. Unlike many companies in the life space, their liabilities are stable. Unlike many P&C insurers, their distribution model is inexpensive, and the downside is limited. Unlike many health companies, by focusing on individuals and small groups, and not using “teaser rates,” they have had decades of constant profitability. Unlike many life companies, if the S&P 500 goes up or down, they have no direct risk.
Earnings were in the $5+ range in 2007 and 2008. They should be in the same range in 2009, and with Assurant, the grand majority of earnings are free cash flow, which means they can do dividends, stock buybacks, debt buybacks, do tuck-in acquisitions (they do it so well), take writedowns, take more risk with assets, fund growth, or just keep slack cash for future opportunities. There are enough distressed assets out there, that I suspect they will do some small acquisitions and then grow them organically.
Asset problems are modest at Assurant relative to other life companies. Because of their flexibility, they have made the sales and taken the writedowns early, rather than hanging on and hoping. Are their assets loss-proof now? Of course not, and I would encourage you to look at the CIO, Chris Pagano’s presentation — it’s “Low risk, not no risk.”
As Buffett would say, when he invests, he likes to have a moat — an unreasonable advantage that is hard for competitors to attack. That is Assurant. With the possible exception of Employee Benefits, they are #1 or #2 in every sector that they compete in.
And, they invest in their people, developing skills, leadership, etc. I asked if they were still doing it now, and the CEO said it would be penny wise and pound foolish not to continue to do so. Good company, I tell you, and few insurers do that, though PartnerRe has something like it (if they can’t write business profitably, they don’t write, and then spend time improving their skills and models).
So with a P/E of 4, a P/B of 73%, and a P/FCF near 5, I am very comfortable owning Assurant, and if the price dips again down to the recent lows, I will probably make it a double-weight in my portfolio.
PS — for those that have the capacity to buy 25-year debt, would you like an 11% yield on a well run company? Buy AIZ debt as well.
Full Disclosure: long AIZ PRE SAFT RGA ALL and HIG (spit, spit)
