FDIC Insurance limits

100k is not a lot of money. When I used to be a broker people with over 100k spread their money around in different banks and I always wondered why. I just assumed these large known banks were safe. I was naive. IndyMac had 1 billion of uninsured deposits. If I ever had 100k in the bank I would use a brokerage firm that has private as well as FDIC insurance. Usually there are 25 and 50 million dollar options for private insurance. Which is more reasonable to me in 2008. And if you have more than that you need to diversify. I would diversify anyway.

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Category 6 storm

There is no such thing as a category 6 storm, at least what anyone has seen. What a category 6 storm is, is a storm that comes only once every 500 years. This is for insurance actuarial purposes, but in theory could happen. Insurance companies need to have reserves that could pay for 1 category 6 storm. Here I am talking about P&C or property and casualty insurance companies. These storms are hypothetical storms. However, to actuaries they are real, they are a mathematical calculation. It seems that storms are getting bigger and more dangerous, perhaps because of global warming. I have yet to see a real category 6 storm, the big one. One that could wipe out an entire state for example and I hope I do not. Category 5 storms come once every 3 years on average.

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What is reinsurance

Reinsurance is insurance for insurance companies. Insurance is all about spreading risk, diversification. Insurance companies buy insurance to cover themselves against huge losses. This is particularly applicable for P&C or property and casualty insurance companies that have potential exposure to large storms.

Besides risk transfer another reason why insurance companies use reinsurance is income smoothing. That is they can create more predictable income streams as reinsurance will reduce large losses.

Basically insurance companies must choose reinsurance companies carefully as they transfer insurance risk for credit risk

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White Mountain Insurance insider trading | WTM

There is not way you can judge a companies future value by the trading by the insiders. The value of the company is based on the numbers and the business. Insiders trade stock for various reasons. Often connected to personal situations or company politics. When people point to White mountains chief Ray Barrette buying 800,000 dollars of the stock, approximately. You can also look at the Chief of investments John Gillespie selling 1.5 million dollars, approximately. Insiders have millions and move stock and trade stock for reasons unknown to outsiders. WTM has a P/E of 17.6. In my opinion for a financial company this is high, further its been in a strong downward trend. These are more important determinate factors in a stocks future than who buys what. Look at how close actual earnings comes to projected earnings and future P/E, earnings momentum etc not insider trades. Also look if there are better companies to buy now. Although WTM might come back from its 200 point fall from 600 to 400, I will wait for more evidence than insider trading at White Mountain Insurance | WTM before I personally buy.

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Liberty Mutual Insurance in China

Liberty Mutual is opening an office in China. Liberty will focus on personal lines and small to mid-size businesses. This will include Auto. Over all its only one office in Beijing but strategically a very good move for Liberty mutual insurance. I think if you just run the number about how many people have become middle class in China and their buying power, the potential for profits is huge. Insurance is a well calculated gamble and insurance companies always win. The main thing that held Liberty from having a branch in China before was the regulatory agency; however, Liberty mutual received approval from the China Insurance Regulatory Commission and this is a start. I have seen Liberty Mutual make large gains in Poland. I think Liberty is generally a strategically very forward looking company.

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White Mountain Insurance | WTM | White Mountains Advisors

White Mountain Advisors like all insurance companies invest in fixed income securities to safeguard their investment assets which are the assets of their policyholders of White Mountain Insurance group’s subs.

The question is how much trouble is David Linker the Asset/mortgage back security expert at White mountains advisors in? I do not know. Until I get the facts I would say no. They are not in trouble. But I would say I want to see their investment returns.  What I do know is White Mountain Advisors invested a lot of money and trust and David Linker’s affection for Mortgage backed securities. White mountain advisors had in my opinion a heavy investment in these securities. For White mountain insurance, certainly they yield more than safer more traditional fixed income investments, I really am curious to peak at the loss or gains connected with WTM investment portfolio, which was over 11 billion in assets. If they did take a big hit this year, I am curious about what affect it would have on their parent company. White mountain Insurance.

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White mountains insurance WTM stock in a downward trend

Since 2004 White mountains insurance stock has been in a strong downward trend. I believe the trend is your friend. That is unless there is a strong reason to reverse the trend the trend will continue. In 2004 they moved a lot of things (IMO smoke and mirrors) around in the company internally and it gave White mountains insurance (WTM) a nice short term boast in terms of stock price. However, the company for 4 years has been in a strong downward trend, since its dizzing highs around 600 dollars a share. I do not understand why fully, however, I do know the investment company of WTM was invested in large stock positions of mortgage back securities. These were approved by John Gillespie as he is the head of the WTM’s investment management firm. However, John sold 1.4 million dollars of WTM stock in the spring of 2008. I do not know why, it could have been for personal reasons. Overall I personally would not buy this stock for a long time to come until it shows any signs of life from this large downward trend. I am not an expert but rather an observer.

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How insurance companies make money

So you think you know how insurance companies make money? Guess again. Most companies do not make a profit on the premiums they get from you, in fact many have an operating loss. Its all about something called the ‘combined ratio’. This is a measure of profitability from the core business. Many insurance companies have combined ratios of greater than 1.00, (1.07 for example) which means they in theory are paying out more than they earn.

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Liberty Mutual insurance buys Safeco insurance

Liberty Mutual insurance company is a very well run insurance company, the management team is top. I believe Liberty Mutual’s objective for buying Safeco insurance is to create value from Safeco’s slack lines. Management at Liberty mutual is solid and I think it will not be hard for them to extract greater value from Safeco then the current management team in place now at Safeco. Safeco’s main weakness was from losses experienced in its auto insurance lines.

Liberty mutual will move from position six to position five in terms of property and causulaty insurance companies. I beleive that insurnace is going through a long term conolidation and similar to banking in the 80s, the insurance industy will find an equilibrium with more effciently run multi state insurance companies.

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Why CT and MA have so many insurance companies

The modern insurance arose mostly connected to shipping and trade. In the United states it is not coincidence that the insurance capital is in Harford, CT also with a strong presence in Boston, MA. This is because the English ships bringing trade to the colonies at the time needed a place to be insured against lost at sea. Boston and New England in general where the first stop from England and a go between point for the other colonies. Therefore, insurance was a natural growth from this trade.  It is further no coincidence that CT and MA are among the richest states in the USA, and has a lot to do with the Insurance industry.

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