The company now reported their results. The 4.1 mil loss was about 1 mil less than I expected. Now the stated equity is about 52 mil, market cap is about 5 mil. Huge gap because of a huge amount of uncertainty. What is certain is they will continue to lose business (not sure that is such a bad thing in trying to salvage the company) and lose money for awhile. What is most uncertain is whether the 52 million is "real." The insurance company (not a bad little company before CRM) is mostly in California. Claims in California are rising rapidly and the Bureau will file about a 30% increase in pure premium rates, none of which will be approved. I think the lawsuits are an expensive nuisance, but will probably not go anywhere. But other companies are adding to reserves.
Total premium on an annualized basis is 100 mil (with another carrier taking the risk on half of it). It is a gamble, but there might be more value in the company than 5 mil, but certainly less than 50 mil. I still think this will be conserved.
I am more intrigued by the fact that the resignation came on 8/5 but was effective 8/2! Nothing like two weeks or a month's notice. The fact that he is getting a severance check would suggest something, that basically he was forced out. But why? Big disagreement with the CEO & BOD about the next step? Big problem with reserves? Keep in mind that the CFO has to sign off on the financials and if he sees something that he thinks must be disclosed and his bosses disagree, he HAS to resign!
The main question mark, I agree, is adequacy of reserves. Being in California where everything is blowing up and everyone but the Commish is sounding the alarm, this is very serious. It could be the reserves should be bolstered 15%, which would put the total enterprise in the hole--or close to it. Then it is worthless. But I think Majestic still has enough reserves to run off the business, so might be worth something to someone.
The fact the accounting guy is leaving whether he is being fired or he is jumping ship, is a terrible sign. It MUST mean things are even worse than is known externally. Yikes.
First, the adequacy of the loss reserves is questionable, so we have to discount the insurance subs' net worth for that. But what supports the net worth of the insurance subs? I'll bet that there is some cross-ownership in there.
Good point. I think, if I read the numbers correctly, Majestic Ins Co has a stated net worth of about 70 mil, Twin Bridges
Reins Co has about 28 mil for a total of 98 mil or so in the insurance entities on a statutory basis. Of course, there is the possiblity that some of that is overstated.
The combined companies have a state net worth of 52 mil at the end of June, so the holding company by itself must be worth a negative approx 45 mil.
However, if they could find a buyer for Majestic Ins for 50 mil and sell Twin Bridges for, say 20 mil, they holding company would have a value above the current share prices. If the Departments of Insurance conserve Majestic and Twin Bridges, all the assets go with them and it will be about 15 years before they would release any money, if there is any to release.
Then, of course, if the true value of the insurance entities is less than that, there is even less in the true kitty.
I think the insurance company probably still has positive equity, but the holding company is in a negative position. I am sure when the commissioner conserves majestic, the other two entities will be3 forced to file for bk. But the equity of the insurance company, after all claims are accounted for (many years down the road) still belongs to the holding company, so if they could work out a deal or something with the regulator, there may be a net positive value. Long shot, but isn't that what people who have bought in so low are gambling for?
One thing is for certain. The regulators will not allow any of the insurance company money to be dividended to the parent until everything is positive. This is true for AIG and is true for a small company like Majestic.
I still think selling the company is a remote possibility and may make both stronger.