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About that Pricing Cycle… January 2010- Market Outlook Our Findings: Meetings and data gathering over the past several months uncovered mid-cap, specialty insurance companies that appear well positioned with niche products to raise prices, which would contradict current perception that prices for insurance products continue to decline. Who Cares: A change in the pricing cycle from negative to positive for insurance is similar to the favorable impact on bank stocks once NCOs and NPAs begin to improve. The signal in both cases – for banks and insurance stocks – is that profitability is about to move up. Survey Says: A multi-year decline in the pricing cycle has weighed on insurance stock valuations. Month-after-month of survey data supports the current perception that prices charged by insurance companies for a wide range of coverage continue to decline.
Perception Matters Most: As of January, investors likely expect conference call comments regarding pricing to simply echo prior quarters-- “pricing continues to decline at a mid single-digit pace”. This perception matters because a downward pricing trend is reflected in the earnings expectations, and valuations, of insurance stocks. Surprise: Our view is that investors are in for a positive 4Q surprise regarding the most recent direction of pricing, which bodes well for insurance stock valuations. However, to change views regarding pricing that have been in place for years it may require a string of favorable data from several, well-followed, large cap P&C insurance companies. Stay tuned. If you have questions regarding the financial services sector, or would like to discuss our investment approach, please contact us at the phone number below, or visit our website. (www.PhiloSmith.com)
E. Stewart Johnson
PHILOSMITH Six Landmark Square Performance (YTD 2009) Year-over-year through December 31st, 2009 |
Philo Smith & Co. entered the Investment Management business in 1975 and is a recognized investment specialist in financial services companies worldwide.
The firm's extensive knowledge of insurance and financial services companies contributes to the firm's ability to effectively analyze those companies and produce above-average long-term investment performance.
Philo Smith & Co. offers both Separately Managed accounts and US-based Private Partnerships. The Separate Accounts and Partnerships are investment vehicles for investors looking to invest in insurance and financial service companies. PSCO Partners Two, launched in October 2005, has a long/short strategy. The firm is an investment manager for many leading institutional investors worldwide. The Investment Management products offered by Philo Smith & Co. are managed by a team of experienced investment professionals. The investment objective is above-average long-term capital appreciation. Philo Smith & Co.'s investment approach is based on "fundamental" research, emphasizing individual stock selection. The Investment Management team researches companies carefully and develops relationships with top management. The firm's goal is to buy stocks in which risks of loss appear relatively limited, and the chances of success appear to be clearly defined. |
