Analysis of Insurance company

Insurance firms are normally comprised of financial assets and under IFRS they are mostly under fair value.

What would you consider as current assets (apart from cash and short-term investments) given assets such as bonds, ETFs, mutuals, mortgage loans, loans to policyholders, and derivates. Again taking note that these are carried under fair values, this might suggest the short-term nature of investments but these are also tied to the long term commitment of policyholders… Can some with experience and knowledge in these reconcile for me these things?

Also on liabilities side, i am unsure how to determine (or even if i should) and differentiate a long term to a short term liability.

Lastly, what are the most important aspects of analysis of insurance companies?

-I want to start with the ability to pay benefits and claims - solvency and liquidity

-also profitability

-what else?

Cheers, thanks for the help anyone!

In insurance company valuation, book is king.

I’m currently in the process of valuing one. I’m considering various comps and, for the most part, the median M2B ratio hovers near 1 (forget Progressive as it’s aberration trading at over 2x book).

I’ve also struggled with analyzing the balance sheets. Insurance companies seem to treat all debt the same (no difference between short and long-term) and all their assets are considered to be fairly liquid as they’re one of either cash, marketable securities, or receivables (premiums, reinsurance, etc.).

When it comes down to an investor considering the purchase of an insurance company, earning power is second to the portfolio of assets the company holds and how it’s managed. This leaves book value as the truest indicator of the value.

What kind of insurance company are you considering? I’m working to value a P&C/Surety company.

Book value is a poor reference point - there is a wide distribution of MKT/BV ratios and they do not provide insight into whether a security is over/under valued. AIG trades at 0.7x, Beazley trades at 1.5x, Hiscox trades at 1.7x, RLI trades at 1.9x, and MGIC trades at 2.7x. There is also significant volatility in movement. Assured Guaranty was trading at 0.5x a year ago, and 0.9x now. Like Tobin’s Q – book values subtantially different from 1.0x can persist for very long times.

Insurance companies are among the most difficult enterprises to value, and the outlook for the industries for which they provide coverage is a better leading indicator than book value alone.

Depends on the type of insurance company. Are you talking life or non-life (P&C)?

looking at ACGL vs RGA…RGA seems cheaper on most metrics except margins.

however ACGL been killing it over 5-10 year period (even destroying brk.b) but similar results over last few years.

is RGA the better long term play?

so how would you go about analyzing these cos?