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Insuring Profits: Life and Specialty
Posted by: Vanin Aegea (IP Logged)
Date: October 8, 2013 09:57PM
I have heard many people comment about the insurance policies for cars, houses, life, assets, etc. The arguments always revolve around the same issue: Is it really necessary? What are the chances to be hit by a Hurricane, or to meet a sudden death? Well, nobody really knows. Some individuals however, sleep better when they know a policy backs their life investments. Here, I will look into three insurance companies that concentrate on different policies, or geographies. These are: China Life (LFC), and Conseco (CNO).
Based in Beijing, China Life is the leading individual life insurance provider. Additionally, the firm provides group life insurance, accident and health insurance, and annuity products throughout mainland China. Most recently, the Chinese government has loosened the grip on insurance interest rates, opening the way to new profitable opportunities.
China Life short-term outlook is promising given a strong brand name, wide domestic network, stable ratings, and aggressive investments. Such characteristics have granted the company safeguards to counter stronger domestic competition, and bolster top line growth. Holding the largest customer base and distribution network, coupled with a dedicated customer service have raised the quality in service, keeping competition at a distance.
Future outlook for China Life is very positive given its market penetration and extensive service and distribution network, focused on quality customer service. Also, a strong brand recognition and high agency ratings places the firm at an enviable market position. More, being the first in the business and holding a diverse portfolio, the company has built a positive reputation and reduced operational risks. Last, the new Chinese regulation offers a great opportunity to greatly improve performance in the long-term, as profits are expected to sky rocket as the market begins to operate more freely.
Finances are strong for China Life. Currently the stock trades at 25.4 times its earnings, barely over the industry average. Jim Simons thinks the company is a good investment and has increased his position by more than 200%. I share his optimism given the characteristics before mentioned and its market leading position.
With operations across the USA, Conseco is a holding for a group of insurance companies offering supplemental health insurance, life insurance, and annuity products. Its operations are divided among the following three segments: Bankers Life, Colonial Penn, and Conseco Insurance.
Conseco’s credit ratings upgrades, strong portfolio investment, and expected capital deployment provide for a positive outlook. Additionally, increasing businesses and effective cost control policies, amid concerns around underwriting and pricing obstacles, will sustain the bottom line for the upcoming future. However, Banker Life´s decline, higher expenses, and rising benefits will cut performance short.
The long-term outlook for Conseco is supported by a recapitalization strategy started in 2012, improving debt costs and financial flexibility. Most importantly, the investment portfolio has been insulated from market fluctuations through the holding of trading securities and changes in the insurance policy benefits. Such business model guarantees a positive long-term prospect, securing organic growth and profits for managers and shareholders. Although operating costs and expenses witnessed a decline in the first half of 2013, we do not expect a sustained improvement in the same owing to the company’s intentions to engage in acquisition activities and increasing business locations
Financially, Conseco is moderate because the company holds a risky business profile with about $934.2 million of direct corporate obligations. Currently the stock is trading at 19.6 times its earnings, or a 20% discount to the industry average. Jim Simmons reduced his position within the position by 48%, feeding my pessimism. My sentiment derives especially from the lack of action in front of a continuous lagging segment.
I recommend China Life over Conseco because of its position within the market where it operates. Also, China Life does not operate lagging segments and government regulation will open an important door to future profits. Last, in addition to Jim Simons, Paul Tudor Jones and Steven Cohen, have opted out completely from Conseco.
Disclosure: Vanina Egea holds no position in any of the mentioned stocks.
Guru Discussed: Jim Simons: Current Portfolio, Stock Picks
Paul Tudor Jones: Current Portfolio, Stock Picks
Stocks Discussed: CNO, LFC,
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