Continuing with my tourist session of insurance holders. ENH is an insurer/reinsurer located in Bermuda and operates globally. Insurance constituted 1.1B of premiums in 2010 and consisted of Agriculture, professional, casualty, property and healthcare liability lines. Reinsurance premiums totaled 941M and consisted of catastrophe, casualty, property, aerospace & marine, and Surety/other specialty.
Stats: 0.7 P/TBV, 6.4 EV/EBITDA, 2.7% dividend, 8 year average ROA 5.32% vs current 1.79%, ROE has averaged 12.77% vs current 8.5%. BV has grown by 11.6% annually since 2003. Combined ratio 90.6% since inception.
The Good: Nice wide diversification (exposure?) to multiple lines. Agricultural line gives it a great play that most P&C insurers can't match. Their investment portfolio carries few derivatives and the portfolio duration (cash +fixed income) was 2.39 years in 2010 and has averaged <2.5 years for the past three years. Net earned yield= 3.32%, 4,97%, 2.35% for 2010, 2009, 2008 respectively. Blackrock owns 8.3% of SO and advises some of the investment management. Fidelity (Pyramis Global Advisors) owns 10.1% and offers the same advice. BV has greatly increased due to substantial share buybacks over the past year.
The Bad: The buybacks were mostly the result of Richard Perry selling his stake back to the company at 44.99/share. A large portion of their insurance line is tied to agricultural prices. Lower crop prices = more liabilities. Even with crop prices staying as high as they are combined ratio for Q1 2011 was 139.3%.
Conclusion: I haven't dug into management as much as AHL. There are some nice aspects to ENH and to a certain extent the investment risk seems slightly less (100bp rise in interest rates equals -127M for ENH vs. -197M for AHL). With that said the scary thing is why did Richard Perry sell his huge stake back? And why at a lower price than BV? Presumably he's a smart guy who gets the insurance industry, why on earth would he sell at such a discount? Coupled with the issues concerning crop prices being very high and the combined ratio being higher than most insurers I will pass. With diluted BV at 51.52 currently under 35/share will warrant more investigation. No position.
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