I’m making a long term cash deployment.
music selection: “Down To Earth” — Jem
weigh-in: 209.8 (2.0) – new low!
I often say that insurance is the best business in America. The reason is simple. Insurance companies have “float”. Money that is not theirs that they can invest on their own behalf. Good insurance companies have profitable underwriting which is the same as having access to a negative cost of capital. One insurance company that has been on my radar for some time due to its history of solid underwriting is Traveler’s (TRV). I finally hit the right combination of valuation and available cash to make a deployment. This is a non-options position intended as a buy and hold investment.
Traveler’s sports a 12.5% return on equity (trailing twelve months) and regularly posts a ‘combined ratio’ of 90 or less. For those of you who don’t speak insurance, combined ratio is a measure of underwriting success with 100 being breakeven and 90 being a very strong score indicating 10% margins on underwriting. Anything the company makes above this from investment of float is gravy for investors. I expect long term growth in book value per share from this company over 15% a year. Shares also yield 2.27% annually.
Action taken: Bought 85 shares of TRV at 117.62. I’ll be holding with a 25% trailing stop and otherwise hope to let it run forever.
Devour your prey raptors!