Investing in Insurance Companies

I’ve been dabbling a bit in some side investing, taking the ‘buy what you know’ approach to picking stocks with some mild technical analysis to cement my confirmation bias. The only two industries where I know much more than your average investor is gambling and insurance. Maybe that’s just one industry.

Anyway, how do you approach an investment as an industry insider versus investing in a broader index?

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for one, you can do insider trading as an insider


The only “investing” I’ve done in my sector is trough my company’s stock purchase program because we get to purchase at a discount. It basically makes for a guaranteed return. Otherwise I don’t like any of the companies as long term investments because I think they are all run by amoral idiots, my company included. I’m certain that if I worked in a different industry I would think all of that industry’s managers were amoral idiots too.

Maybe as an industry insider I have more insight into who is best between United, Anthem, Humana, Centene, and Molina but it still does very little to determine how the market will price those companies. I might be able to look at some sort of rate or survey filings and better predict when they will have an off year or something but that is way more work than I want to put into picking stocks. Easier, and less risky, to invest in an index fund. Unless you want a company with stable dividends. Then you might have some insight into who will be around in ten years or something. Or you might have a better idea of a company that could get bought out.

specifically prohibited by my employer, and I take that crap seriously

I think it’s hard to argue you’re better off investing in an insurance company based on better investment analysis than just investing in a broad index.

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I threw some money into KIE back in March 2020. That’s about all I’ve ever done here

NormalDan, I agree with you and I will take it a step or two further.

In my younger days, I went ahead and picked individual stocks to invest in. I made some money but I lost some money. While I thought I had good intent at the time I made purchases, I picked some clunkers. Even some winners (I was into AMZN pretty early on) I got scared off by the volatility and got out too soon or at inopportune times.

Broad based ETFs, low cost mutual funds, index funds… this is where I have made long term money.

Agreed, and I think most people will tend to look at their track record with rose tinted glasses. If you’re going to take the additional risk of investing in just a few companies you should expect a significant return premium over and above, say, the S&P 500 for taking on that risk, let alone merely making money. Then you’ve got to factor in the time spent even doing the research, unless it’s volunteer work.

Weird that I find myself being the ‘active investing’ voice here, as I’m generally an advocate of EMH, passive investing, low expenses, etc. But my n=1 experience with investing in the industry outside of my current employer went pretty well so I’ll regurgitate that confirmation bias here.

In the beginning of COVID my prior employer got crushed more than most. It was trading at a significant discount to book-value and I thought new management seemed promising and the price/book-value drop seemed unfair and unjustifiable compared with other comparable insurers. I had zero inside knowledge and I certainly could’ve been wrong but it worked out. I think being an actuary in the industry did give me more faith in assessing the value of a company and understanding the financials. But in general, that wouldn’t outweight the diversification benefits I get from being invested outside of my industry of employment, with a handful of occassional exceptions.

In summary, my approach is : in general I don’t attempt to apply industry knowledge to get an investing edge. But occassionally if you see a valuation that seems unjustifiably low and implies a discount over book-value, with competent and ethical managent, why not

You in trouble girl.
The cops are coming.

take a look at the insurance company’s loss ratios. If the are consistently 60%, that’s a winner

Depends on what LOB.

60% is terrible for…say, surety.

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60% would also be terrible for a company with an expense ratio in the mid-to-upper 30’s.

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don’t get upset at me just because ur company has crappy loss ratios

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I think you have it backwards…you’re the one saying 60% LR is good…

it is. if ur loss ratios are too low, it means ur prems are too high, and u run the risk of anti selection

The question is: do you really know more than the analysts that follow the sector in terms of investment opportunities AND aren’t barred from trading for some reason? I think the answer is likely no for most.

Analysts certainly grasp loss and expense ratios so that sort of simplistic analysis won’t get you anywhere.

analysts don’t know crap either, else they’d all be super rich

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anyway, investing in insurance companies is not gonna make u rich, but it won’t make u poor either (unless it’s AIG 15 yrs ago)

there are plenty of failed publicly traded insurers. If you think it’s only AIG I’m guessing you are 23.