InvestorPlace Blogs is powered by Marketocracy. Marketocracy has authorized Investor Place Blogs as an official registrar for voting through Marketocracy's Investment Research Rating service. Registered members of InvestorPlace Blogs are linked with a Marketocracy account to establish voting power based on their performance of trading and posting on stocks.
Placed a market order to buy 1,200 Chubb (CB), stock stood at 48.85
Chubb is a large property and casualty insurance company, operating in three areas of the buinsess: personal ines, where they are strong in meeting the needs of high end customers, commercial lines (when I was in the business, they had a reputation for skillful and disciplined underwriting), and specialty insurance, to include Directors & Officers and Professional Liabilty (not easy classes of business, requires expertise.)
At 48.50, they are trading at 10.7 X my projected 5 Year Average EPS. This is the lowest price on this metric that they have had in 7 years. Five year results include some Asbestos liability reserve increases in 2002 & 2003 which are beginning to fade into ancient history. I sort of half look past them, they were so long ago, although in the insurance business it seems like there is always something like that over any substantial period of time. They took a hit on Katrina but still made money, also included in their 5 year average EPS.
Insurance is a cyclical business, and historically the companies have not been able to stand prosperity. Anytime they start making real money they have a price war until they lose money and one or several of the weaker players approach insolvency. I think the current cycle, which is starting down after several outstanding years, will deteriorate more slowly than in the past.
Insurance companies also invest heavilyin bonds, to include Mortgage Backed Securities. I read the section of the 10-K for 2006 which summarizes their exposure. After reviewing it, I am confident that they will not be involved in meaningful losses from any subprime that may exist in their portfolio. As a practical matter, many of their liabilites come from long-tailed lines of insurance and they would of necessity be careful to make safe long-term investments.
Reason to expect that the P&C price cycle will moderate: 1) companies, to include CB, are showing a preference for using their profits to buy back shares rather than underprice new business 2) the bad press around credit risk will give them every motivation to continue to make underwriting profits, since investment profits may be more volatile than reason would call for.
Putting all this together, I see a stock at an extreme buy point. I am starting with 40% of my planned position. This buy is going to give me a heavy concentration in insurance: however, I was in the business for many years and I am comfortable investing in it. I have made good money over the past 3-4 years on insurance stocks, to include CB.
| 
RSS 2.0
