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National Western Life Insurance Company Message Board

  • bengrahamman bengrahamman Jan 29, 2013 2:36 PM Flag

    Quick thoughts and then Semi OT:

    The fourth quarter is an important quarter IMO. This is where we will see if there are any unanticipated events. Possible, yet not excpected events would be something such as a negative resolution or progression in the Brazil situation, or perhaps a material writedown of DAC's.

    Putting those aside, the interest rate environment has been difficult for insurance companies. I imagine NWLI will have a quarter like the last 3 or so. If that is the case, we perhaps can conclude that even in the most difficult of environments NWLI can generate a respectable profit.

    As others, I would very much have preferred a stock buy back at prices much lower than todays. Yet, if that were the case, and consistent with what I have written previously, I think the price would rise to a level that would be potentially prohibitive for a buy back.

    The followinging is semi - OT

    The 10 year US treasury is yielding 1.98%. The same yield was 1.40% last July. One way to look at it is that rates have gone up 42% off of July lows. FED mandate is to keep rates low. In theory, the world could dictate our interest rates and not the FED. FYI, 30 year rate is at 3.15%, versus 2.47% in July 2012.

    You can follow rates on yahoo with following symbols ^TNX and ^TYX

    I have no idea when and where interest rates are going. I think Greenspan once said that interest rates can not be predicted.

    My hopes are that FED can continue to dictate interest rates, and when they feel it is proper to start to raise them. My fears are if the world ignores the FED's mandate, and rates rise quickly.

    Who is John Galt?

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    • I think the good thing this time is rates are rising in spite of the fed due to better expectations about the market and less fear about Europe, etc. If rates rise for this reason, NWLI benefits from better investment returns, not using market value accounting (AOCI will be hit, but not EPS), and better stock multiples.

      NWLI doesn't invest much in government bonds, so I look at LQD (investment grade bonds) and HYG (High yield bonds) as proxy's for how their investments might do, although I doubt they have too much in what would be considered high yield.

      The current yield on LQD is 3.8%, probably is a reasonable proxy for what NWLI could invest money at going forward. Last quarterly (Sep), NWLI reported investing money at 3.47%, so Q4 will be slightly worse than this, but Q1 around the same. LQD rose into mid-Oct, but has been dropping (yield rising) for 3 1/2 months now, so, if this trend continues, that will help.

 
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