Learning Insurance
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What are the Olympics really about….?
Intense competition to take home the gold medal? Yes, the Olympics are a huge competition, but the event cultivates relationships between countries and brings the world together as a symbol of peace and unity. The summer Olympics are finally here and there is much excitement watching incredibly poised and talented athletes representing their home countries.
Here are some fun facts about the Olympics:
The Olympic ring symbol expresses the activity of olympic movement and represents the union of 5 continents
Gold, silver and bronze medals were not awarded until 1904. During ancient Olympics, the winners were awarded with an olive wreath
The United States has won more gold and overall medals than any other country in the Summer Games. Summer Olympian Michael Phelps is the most-decorated Olympic athlete of any nation, with 22 Olympic medals (including 18 golds)
12-year-old Syrian table tennis player Hend Zaza is the youngest Olympian to compete this year
The cost to put on the 2020 Summer Olympics in Tokyo is estimated at more than $26 billion. Postponing the games for one year added another $2.8 billion to the estimated total
Top 50 Microcap List - Erik Moquist
For this week’s Top 50 Microcap Investor, we present Erik Moquist, President and Founder of Dakota Asset Management. Erik obtained a bachelor’s degree in financial management from the University of North Dakota in 1998 before launching his career as an investment banker.
Learning Insurance
The insurance business has been good to Warren Buffett and Berkshire Hathaway. The “float” used by a well-run insurance company effectively serves as a source of cheap, or free, capital to fund other operations. As Warren Buffett has explained in the past:
Insurers receive premiums upfront and pay claims later. ... This collect-now, pay-later model leaves us holding large sums -- money we call "float" -- that will eventually go to others. Meanwhile, we get to invest this float for Berkshire's benefit. ...
If premiums exceed the total of expenses and eventual losses, we register an underwriting profit that adds to the investment income produced from the float. This combination allows us to enjoy the use of free money -- and, better yet, get paid for holding it. Alas, the hope of this happy result attracts intense competition, so vigorous in most years as to cause the P/C industry as a whole to operate at a significant underwriting loss. This loss, in effect, is what the industry pays to hold its float. Usually this cost is fairly low, but in some catastrophe-ridden years the cost from underwriting losses more than eats up the income derived from use of float.
As Mr. Buffett implies, the float can often be costly when competition is high and pricing is inadequate. So while difficult, finding an insurance business to invest in with a culture of sound underwriting, and buying it at a reasonable price, can provide an investment engine that one can ride for a long period of time.
What’s the best way to learn insurance? Warren Buffett got his first lesson from Lorimer Davidson back in 1951. And while we can’t all be so lucky to have such a capable mentor, studying the investor letters and annual reports of some well-known and well-run insurance companies can be a great way to learn about the business. For example:
And there are also books and other resources worth checking out as well:
Best's Guide to Understanding the Insurance Industry
Invisible Bankers: Everything the Insurance Industry Never Wanted You to Know
Basic Concepts of Accounting and Taxation of Property/Casualty Insurance Companies (PDF)
Functions of Insurers Paper
For a brief overview of insurance operations and functions, see this paper from our summer analyst.
Micro-Cap Updates
If you are interested in seeing weekly micro-cap updates join our Premium Membership! Premium members have access to a portal where we post these updates twice a week. We are tracking:
Insider buys
Election of directors
Share buybacks
Appointment of certain officers
Appointment of principal officers
Compensatory arrangements of certain officers
Election of directors
Departure of directors or principal officers
Readings and Podcasts
CNBC: OppFi CEO, SPAC sponsor Joe Moglia on its trading debut
Chris Bloomstran on the Planet MicroCap Podcast [For more from Chris, check out our chat with him after the Berkshire Hathaway Annual Meeting.]
The Highest Forms of Wealth - by Morgan Housel
Boyar Value Group’s Q2 2021 Letter
How much Fred Liu is in Hayden Capital? And how do you select your partners, Fred? A talk
If you have not already upgraded your membership…
Avenel Financial Group, a merchant banking, and advisory firm located in Charlotte, NC, launched a new business venture called the Co/Investor Club. The Co/Investor Club is a community of value-oriented investors that collaborate on investment opportunities and ideas. You are receiving this newsletter because you are a Free or Premium Member of the Co/Investor Club!
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