Singapore Reinsurance

[money]

if you are keen in investing in an insurance company, why not just invest directly in berkshire hathaway, the b shares are still quite affordable. I havent taken a close look at how SingRe invests its float but i am quite sure up to 90% of it is invested in bonds. If inflation runs high in the next 10 years, the bond portfolio will have ugly returns. buffett lived through the 1970-80s period of high inflation, berkshire's portfolio will be far more prepared for inflation.

Even for fixed income securities, berkshire has the financial power to demand high yield securities, eg. the preferance shares (yielding 10%) he sold to goldman sachs, general electric, etc + free warrants. Do you think SingRe can ever demand that?

If berkshire wants to raise money for growth, it can easily pay 3-4% for a 30 year bond, should SingRe think of doing that, it would have to pay 7-8% at a minimum (even olam has to pay something around this range).

Dont even bother about pricks like SingRe, just go for berkshire directly. U think SingRe has the money to employ top fund managers like Todd combs & ted weschler? Wait long long la

[yeokiwi]

if you are keen in investing in an insurance company, why not just invest directly in berkshire hathaway, the b shares are still quite affordable. I havent taken a close look at how SingRe invests its float but i am quite sure up to 90% of it is invested in bonds. If inflation runs high in the next 10 years, the bond portfolio will have ugly returns. buffett lived through the 1970-80s period of high inflation, berkshire's portfolio will be far more prepared for inflation.

Even for fixed income securities, berkshire has the financial power to demand high yield securities, eg. the preferance shares (yielding 10%) he sold to goldman sachs, general electric, etc + free warrants. Do you think SingRe can ever demand that?

If berkshire wants to raise money for growth, it can easily pay 3-4% for a 30 year bond, should SingRe think of doing that, it would have to pay 7-8% at a minimum (even olam has to pay something around this range).

Dont even bother about pricks like SingRe, just go for berkshire directly. U think SingRe has the money to employ top fund managers like Todd combs & ted weschler? Wait long long la

The purpose of analysing a company is to find out whether the company is undervaluated with respect to the current share price. There are definitely much better managed reinsurance company but they may not be available at an attractive price.

How good is an investment is highly dependent on the entry price of the investment.

That is why so many value investors are labouring through the entire list of SGX stocks looking for the forgotten gems.

[cif5000]

Doesn't that force the whole industry to very similar rates of return? How can some companies generate so much underwriting profits, while others are barely profitable? Can't the weaker ones just copy the rates of the stronger ones?

I may be wrong but insurance business has only a few moving parts. Other than hitting a low loss ratio, a number which I see parallel to the familiar gross margin, the underwriting profit or bottom line is hugely affected by 2 other factors - namely the commission expense and management expense. UOI has a negative commission expense but their management expense is higher.

If the price of insurance is more or less the same, and management expense is more or less fixed, the business then becomes purely volume dependent. If everyone maintains underwriting discipline (i.e. no slashing of prices), no one gets hurt. If they can earn a commission spread, that means they are a better sales office or have a more recognizable brand name than their reinsurers.

The other listed insurer, SHC Capital, is growing faster than SingRe and UOI. SHC has also a higher retention ratio than the other 2.

[d.o.g.]

is UOI just able to pay a very low commission for their policies?

While I do not have proof, logic suggests that for business that comes via referrals from other members of the UOB Group, UOI would pay little or no commissions.

[mrEngineer]

Wow. This is like the epic battle between Jackie chan, Donnie yen and Jet Li. Gentlemenly yet exciting. I am simply amazed at you guys ability to collect data, organize them, know what's important and not and communicate with a very clear conclusion that is almost infallible. I can never see myself reaching such standard of analysis. Respect.

[kayhian]

Singapore Reinsurance Corporation’s revenue came in flat at $36 million for the third quarter ended 30 September. Helped by a 31.4 percent increase in net investment income from the company’s reinsurance operations, earnings accelerated 17.1 percent to $3.7 million. For the nine months, revenue was up 16.4 percent to $110.4 million while earnings posted a gain of 10.1 percent to $13.5 million.

[theasiareport]

Interesting point to note, Fairfax which is run by the highly respected Prem Watsa in Canada has a sizable stake in Singapore Reinsurance.

Regards,
theasiareport.com

[HyperionTree]

To add some points to this thread.

Underwriting discipline
I have a similar view with cif5000 in that I'm not so concerned about fat profits from underwriting policies. To me, having underwriting profits means that you have a negative cost of float, which allows you to borrow for better than free and reinvest the premiums received. This is why insurance and reinsurance are nice businesses. I'm not too worried about low overall profits (yet) as long as there are profits, as this would allow them to maintain their leverage profitably.

Even with underwriting losses, an insurer can still be valuable. As long as the underwriting loss is less than the interest expense paid to raise a similar amount of funds via bank loans or bonds, the insurer is actually obtaining a cheap loan from its customers. As such, in a low interest rate environment, the bar is higher because the insurer has to make very small losses or it would be better for the insurer to just borrowing money from the market.

However, given the conservative leverage (Swiss RE and Munich RE are leveraged much more at about 400% to 600% [Liabilities/Equity ratio]) and historical underwriting profits, it lends weight to the argument that the book values do not need a significant discount. The fact that a majority of their investment portfolio is in corporate and public agency debt does put a cap on investment returns, but at least the return of capital is likely to be assured, and as I said in the earlier post, there might be added upside to come in future as rates revert to long-term averages, and the company is able to reinvest their sums at higher coupon rates.

On the hand, conservative leverage suggests overcapacity and/or an inability to find new business to underwrite. As of 3Q2014(30 Sep 2014), SingRe's Liabilities/Equity Ratio is still 200%++ which is below Swiss or Munich Re. SingRe is better off paying out more cash or underwriting more risks. Unfortunately, there might be some need to keep a minimum absolute amount of cash for prudence and thus it is unlikely the cash would be paid out to investors.

[SpeedingBullet]

SingRe's combined ratio isn't what you call stellar compared with the big reinsurers like Swiss/Munich and god knows how low BerkshireRe ratio is, but it's fair enough on average. Only problem is SingRe isn't expanding overseas so aggressive growth isn't on the cards for them. Their recent few qtrs were good though.

It's really tough to value insurers let alone reinsurers, but is combined ratio/leverage/ROE/BV sufficient? When interest rates normalize perhaps their investment income would be the engine driving their profits. Good stock though, 5% yielder, safe payout ratio. Even in 2011 (big cat year) they weren't doing too bad compared to their reinsurer peers (all of whom took a hit as well).

[lkw175]

Just curious, does the recent outbreak of Ebola affected SingRe in any way? Can anyone share your views? Thanks.