Insurance Security Analysis

Elucidor advises major hedge funds and other institutional investors on valuing securities issued by insurance and reinsurance companies.

Our deep insight into the target investments has provided our clients with a better understanding of the value of potential investments.

We have a particular expertise in focusing on distressed insurance companies.  We use public and when available private information to assess insurance companies’ true economic value of liabilities, projected profitability and cash flow generation.

Our reports include some of the following analyses:

  • Economic Value of Liabilities:  Is the company employing aggressive valuation practices to understate the value of its liabilities?
  • Liquidation Value:  What is the liquidation value of the assets and liabilities?
  • Strategic Alternatives: What strategic alternatives, such as reinsurance, asset sales, closing of new business and rate changes are available to the insurance company to improve its profitability?
  • Market Value Trigger Events:  What trigger events could occur that would result in a change in the market perception of the value of the company?
  • Hidden Liabilities:  Do the statutory of GAAP financial statements allow the company to hide any material liabilities?  For example, many insurance policies have embedded options, the value of which are not well captured by either statutory  of GAAP statements.  We appraise the embedded value of these options.
  • Risk-Based Capital: How will risk-based capital requirements impact the ability of the company to grow out of any of its problems?
  • Dividend Paying Capacity: What is the dividend paying capacaity of the insurance company and will this be sufficient to meets its fixed corporate financial obligations.

Sample projects on which we have worked include:

  • Conducting a quarterly appraisal of an insurance conglomerate based solely on public information
  • Conducting a review of a GMDB carrier’s liabilities in light of falling equity markets
  • Assessing the true value of liabilities of a disability reinsurance company using statutory filings and other public data
  • Performing an assessment of the strength of reserves of a mortgage insurance carrier
  • Appraising various insurance-linked or related securities such as XXX bonds, and traded GICs
  • Assessing how a large P&C carrier was using financial reinsurance and other techniques to obscure their financial reports

Furthermore, we have  been involved in a number of M&A private transactions of insurance targets.  Please see Mergers and Acquisitions Actuarial Consulting for more details.