Today we talk about my current most favorite insurance company for the dollar. That is Allied World Assurance Company Holdings, AG (AWH). I’ve addressed over and over again the importance of profitable underwriting. AWH is the champ in that area. Average ten year combined ratio is 85.5, the best performance by far out of our group.
Price to sales is a little steep at 1.6 but price to book is very reasonable at 1.04. And it is book value where we expect to be rewarded with AWH increasing book value on a 220% pace over the past decade. That’s 8.2% in compounded annual growth rate. The current yield is 2.2%. AWH also expends cash at about twice the dividend rate to repurchase shares (last 3 years.) The company is also very safe with long term debt more than covered by current assets. Debt financing should be readily available if needed.
AWH is also the smallest of our insurance companies at 3.94 billion market cap, making it the most likely buyout target. We could get a quick shot in the arm from a bigger fish. But make no mistake the most attractive thing here is the excellent underwriting performance. Fourteen and half cents out of every dollar of sales is basically free money AWH can invest for the long term. They can invest very conservatively and still outpace the market.
Devour your prey raptors!