A Vertically integrated insurance holding company which, through its various subsidiaries, covers substantially all aspects of insurance underwriting, distribution and claims processing.
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This is the anti-Berkshire insurance company.As a casualty insurer, UVE is an anomaly. It claims >100% ROE at current run rates, which is not only unsustainable, it leads me to ask what's going on.UVE is completely unlike the norm for casualty insurance companies. Read Warren Buffett's letters to his shareholders to learn how this business is supposed to work. The insurer should roughly break even on underwriting, and then make its profits on investing the float from the premiums. This investment should involve a sophisticated use of bonds to cover liabilities plus equities for the surplus.Instead of that, UVE is claiming extremely high underwriting profits while investing its assets entirely in cash. That cannot last.Buffett tells us that any casualty insurer can claim large profits in the short term just by writing bad policies.How long before the music stops on the reported high-earnings for UVE?
Excellent points! Amazing how easily greed can disarm sound reasoning.
I wonder if these folks are retaining too much risk and eschewing reinsurance. That might explain the big short-term underwriting profits. If that's the case, even a moderate hurricane season could sink this small-cap boat.
I noticed that in their 10Q... all the monies were in cash... kinda dumb. I appreciate your post.
An anomaly indeed... and the anomaly is Florida. The market is essentially predicting that Florida will be wiped out by an asteroid. Yes an asteroid. Not a hurricane. Because UVE is heavily reinsured for hurricanes, the market having fully discounted an asteroid is the only explanation for this company's share price.
Welcome to Florida Homeowner Insurance. With the big guys not writing, little guys step in filling the void in a Darwinian role. "Allstate, State Farm, and Nationwide are sidelined as players in Florida. Florida companies utilize re-insurance to cap the large losses possible from a hurricane. That may account for carrying a large portion of cash when it does not seem prudent. No one was sure what re-insurance rates were going to do. And yes a CAT 3 or greater hurricane can put a strain on the capital of a small insurer. I am an Independent agent in Florida and had Francis, Jean, and Wilma hit us point blank. UVE is still here along with some other players and writing profitably. Want to figure out how much bigger they can get, determine the big 3s premium dollars going out the door. My guess is they can keep knocking down big numbers for at least 3 more years. With that said, It would make me happier to see all these companies pump up their reserves.