Verisk Analytics (VRSK
) detracted from our performance during the quarter. While little known to investors even today, Verisk has a long and rich history dating back to its incarnation in 1971. Prior to Verisk’s IPO, it was discreetly called Insurance Services Office (ISO) and began as a nonprofit association for U.S. property and casualty insurance companies. Such insurance companies are regulated by the states and these regulations were quite burdensome and required significant data and documentation. Yet from state to state, insurance companies’ regulatory filings became a duplicitous task. This is where ISO stepped in to become a central – and quite critical - depository and gatherer of data for the association of insurance companies. Over the course of the next 25 years ISO would morph into a private for-profit company, leveraging their access to reams of valuable data and then in turn creating even more valuable analytical products and services. They branched into actuarial loss estimation, standardized policies and proprietary risk classification. In late 2009, the association of insurance companies desired, and needed, the considerable liquidity embedded in their joint ownership of Verisk, so the association sold their respective stakes in Verisk through an IPO that raised $1.9 billion. (An aside: Warren Buffett
was the only association shareholder who kept Berkshire Hathaway’s respective shares.) We first invested in these shares in August of 2011. Today, the Company’s suite of risk assessment services and decision analytical tools includes, of course, the P&C insurance industry, but also covers the reinsurance, mortgage & financial services, healthcare industries and government entities. Verisk counts all of the top 100 P&C insurance companies as clients – with a not-so-insignificant renewal rate of 98%, while over 70% of the company’s revenues are prepaid, booked subscriptions. This unique franchise, as one would suspect, generates uniquely attractive operating margins in excess of 40%. The Company’s products and services significantly underpenetrate all of the non-P&C industry verticals. We expect Verisk to continue to capitalize on an annual double-digit growth opportunity, as well as to continue to execute a smart consolidation of industry actuarial peers in conjunction with meaningful, opportunistic share buybacks.
From Wedgewood Partners Third Quarter 2012 Review and Outlook