No question about it, that was a bad earnings report, the worst since I've been a shareholder.
Let's deal with reality. The investment losses, though not entirely, were largely of the "mark to market" variety. That means that something on the books has to be revalued because the market is placing a low current valuation on it, or can't put a reliable value on it because of rampant fear and instability.
Some people think the mark-to-market rule makes sense as a perfect disclosure of the current status of a basket of assets. Other people deride mark-to-market as "mark to panic" and say it creates unnatural swings when there happens to be no liquidity for certain assets. I'm not going to take sides -- I think there's merit in both arguments. But as a shareholder I think you have to be aware of the issue and its potential for causing volatility that can mask fundamentals. In today's market virtually no financial stock can trade materially above book value. Mark-to-market caused SIGI's book value to fall substantially, and its stock market price went right along with it for now. This fall masks two crucial interrelated facts:
1. SIGI's operating cash flow is fine. The dividend is stable and will be paid as normal. Dozens -- hundreds -- of other financial firms would not be able to do this. But SIGI can because its balance sheet is strong and its capital management has been conservative precisely in order to prepare for this kind of storm.
2. SIGI's insurance results are also fine. Murphy said yesterday the insurance market is not firming up as quickly as he would like. But even then, SIGI's underlying business fundamentals are right on track. Again, I await anyone who can address the internal questions that others are posing, but it doesn't follow that the investment writedowns, temporary or otherwise, were connected to those issues.
Thus, if the poster who posed the "going under" question about SIGI was just using it as a catch phrase in an analysis to score on a short or a bearish options position, then congratulations. If he means it literally, is SIGI going under, then it remains as ridiculous today as it was yesterday. It's a solid investment and management will work through the current asset valuation issues, and I trust all the while keeping their eye on the insurance-fundamentals ball, as it appears they clearly are. Responsible comments welcome.
I have been watching this board for a long while and finally had to sign on to join the fray. My investment in this company will be keeping me from retiring from my current job and, no, I am not a sigi employee. My losses will keep me teaching your young uns for a long time to come. After the split and the stocks didn't go up much, I thought I should sell but have delayed too long. Penny stocks now?
But PTK, you are an insider. You can deny it all you want (and your PTKs is a give away) but no investor/shareholder has the kind of inside information presented in such dynamic fashion as you do. Just look at the opening sentence of every paragraph you write and you give yourself away. You might be a shareholder but so are all the executives at this company. Isn't your name on the list of Insider Transactions? And so I wonder if there isn't some ethical if not legal issue with your extensive postings on here.
And why hasn't anyone addressed gal investor's questions about the relationship of HO and the field? Key managers in this company seem to turn over more than leaves in the wind. Have you ever checked the job boards for this company? The ones who stay lack credibility and leadership. Those who remain are so uncommitted they seem to have one foot in home office and the other on the pedal as they head up/down the turnpike heading home on their Blackberrys, checking for messages from their headhunters. Offices become turtle shells offering protection and coming out occasionally to hiss. If there is no SVP of Underwriting, how long can this go on? Who else is going? None of this continuous turnover (forcible?) can be good for investors.
SIGI, like most insurance companies, is good to its profitmakers and mean to everyone else. Seems this CEO is good at that. If it was a profitable strategy, I'd applaud. But it's not. It's just mean. And maybe it's time for the Board to take a harder look at what's going on underneath the top layers.
In the meantime, I will continue to lament that fewer shares of oil and gas would have been so much smarter than more shares of this.
<<< But PTK, you are an insider. You can deny it all you want (and your PTKs is a give away) but no investor/shareholder has the kind of inside information presented in such dynamic fashion as you do. Just look at the opening sentence of every paragraph you write and you give yourself away. You might be a shareholder but so are all the executives at this company. Isn't your name on the list of Insider Transactions? And so I wonder if there isn't some ethical if not legal issue with your extensive postings on here. >>>
You know what, I've decided to take this as a compliment. Thank you! As I sit here in Anytown USA laughing my head off at another person wasting their energy on a wildly inaccurate post, I'm going to take some pleasure in having done my research in such a way as to generate this crazy stuff. You need that kind of grounding to know what to do when a stock drops. I guess I got it!
Actually, the rest of this discussion isn't bad. Thanks to those who have made points or clarified their earlier ones. Three comments:
-- I want to be clear on mark-to-market. Again, while I can make the case for or against it, if those are the rules, those are the rules. My point is not to criticize the rule, it's to note that if the accounting is now especially conservative, and the market price not only rides directly down with the book value but below it as opposed to a period with arguably more "lax" rules but a premium to book value, you should factor that into your analysis of the valuation. Has it overshot? That's what I'm offering up.
-- Regarding an acquisition, both the company and investors should be careful about screaming for this. My longstanding belief is you gotta play offense. If an acquisition happens, it happens, but you don't want to sell yourself short (so to speak). Of course this is assuming there are operating and balance-sheet fundamentals on your side. Besides, I don't really know if there are true buyers available right now despite recent years' deals by foreigners for U.S. insurers.
-- I'd be happy to see any market share statistics. But remember that the central thesis on SIGI has always been that when the tide goes out on a soft market, SIGI won't be the one holding the bag on aggressively solicited but poorly written business. The current financial market turmoil is obviously providing a strong cross-current of challenges, but that's still the underlying dynamic.
Just to let you know I did not short the stock nor am I hoping they go under. I own the preferred stock and was concerned about their prospects. It was not meant to scare current investors or make them think that SIGI could go under. I was simply asking the question as other insurers are facing some serious liquidity issues.
Any talk of the company "going under" is ridiculous. However, the stock is close to a 52 wk low and not going anywhere in the near future. But, all carriers are feeling the effects of FAS 157.
As an investor, all you can do is sit tight (unless you want to take a real loss). I like the idea of a sale of the company to a foreign investor. But, given the strength of the dollar, this could pose a problem in terms of an entity paying too much for Selective.
Internally, management needs to lead and stop all of the infighting internally and with the field offices. While the organizational structure may provide a "benefit added" to the agents, it is causing operational issues in terms of effectiveness.
Good comments PTK. I was wondering what would happen to the insurance companies when Mark to Market took hold. I was afraid that we would see this happen. At the moment, being in these financials is going to be brutal and I think the rest of the insurance companies will face a similar fate.
I agree, but everyone has to play by the same rules. So, I'm not adverse to FAS 157 as it gives everyone a true picture of the current worth of their investments.
My 2 cents is that at this stock price Selective would be a great take over target by a foreign insurer. Plus, the company continues to lose market share as it is being challenged by the real players such as Travelers and CNA. And, at some point, management is going to have to admit that its eroding personal lines results in New Jersey may force them to walk away from the line entirely.
My vote is to start looking for a buyer.