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!

Buy The Traveler’s Companies (TRV)

Never miss another opportunity to devour prey!

9 thoughts on “Buy The Traveler’s Companies (TRV)

  • January 31, 2017 at 5:22 am
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    I cannot say that I have ever followed the TRV. However, after much deliberation, in 2011 we chose TRV to insure our rental property in the US, which has worked out well. Not exactly a ringing endorsement to buy the stock I realize, but satisfied customers are ultimately what drives company profits. Good luck with your purchase.

    Reply
  • February 1, 2017 at 7:11 pm
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    Travelers has been on my radar for awhile, but never picked up any shares. I always leaned more toward reinsurance, but recently got out of that business due to declining returns.

    What do you feel future TRV returns are going to look like?

    Reply
    • February 1, 2017 at 10:33 pm
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      As long as combined ratio hovers around 90, returns will exceed ten percent (book value per share) a year. Add in the distribution yield and you have a nice return.

      Reply
  • February 8, 2017 at 11:20 am
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    Hello Raptor,

    Can you point me to a stock screener where you can select and rank P&C insurers based on combined ratio?

    What’s your view of MKL and SAFT?

    Why didn’t you pick up any of the insurance companies from your six-part post back in 2015? Do you think TRV provides better value?

    Reply
    • February 8, 2017 at 3:10 pm
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      Unfortunately, I don’t know of a screener. You have to open press releases and tally them up manually.

      I own MKL and don’t know anything about SAFT.

      Travelers is the best bet of what I’m watching right now. I also like Fairfax but that is more speculative as their combined ratio sometimes goes in the red. They are making progress in that area and acquiring only strong underwriters so I think the future is bright.

      Reply
  • February 15, 2017 at 2:08 am
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    I’m interested in stepping into TRV for a long term hold and possibly adding 50-100 shares a month for a while. Are you concerned about this market being overheated? It drives me crazy when I buy and a stock then decides to shave off 10% because of a general market downturn. I know this may be irrational, but I prefer to buy when we’ve had a few days of sell-off.

    Reply
    • February 15, 2017 at 3:06 am
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      I feel you Mike. In my experience the strongest technical indicator of a coming decline is my personal long interest. If you are going to add 50 shares a month…you are dollar cost averaging. Rest easy.

      On the whole, I think it is a fallacy that bull markets die of old age. The current market doesn’t feel anything at all like the 2000 dot com top. People are still saying things like (are you concerned about the market being overheated). There is a lot of fear which is not a signal of euphoria. When the bag boy at the grocery store starts giving you hot stock tips, and everybody (EVERYBODY!) is in the market and starting to lever up…that is the top. Also, the most explosive gains are at the end. I think the bull has legs to run and I’m staying long.

      Reply
  • February 24, 2017 at 2:36 pm
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    Lord Lizard
    I am very interested in your decision to holding with a 25% trailing stop”. Have considered something like this on new long positions. Then once the dividend reaches mature height I would remove the stop. Would love to know your thinking here and how you determine the 25% level.
    Thanks

    Reply
    • February 24, 2017 at 2:56 pm
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      James,

      I keep a column in my MS Excel spreadsheet for the closing high which I update daily. A second column takes the high less any distributions or premiums earned. That difference is multiplied by 0.75 to determine the trailing stop which I act on based on closing prices only. It is a bad idea to enter your stops in the market as the market maker can “pick you off” with a mid-day movement. I have a 25% trailing stop on almost all my longs. The few I don’t are 50% trailing stops which is where I had FNMA before I decided to exit on the lawsuit ruling. I have 50%tsl on my bonds that have converted to equity through bankruptcy as well. Hope this helps.

      Reply

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