It's definitely a positive from the standpoint of raising the US MI ratings while not affecting the holding company ratings. If it keeps them writing MI biz and they can make a decent margin in light of the paid interest, it's a positive for that reason as well. The interest rate is a good deal lower than they were paying in 2012 on new issuances, which is a positive as well. It's a negative from the standpoint of increasing leverage at a time when they are trying to deleverage.
I do trust that McInerney is working in the company's best interest. IMO the board did a great job in picking him to be CEO - he comes off as credible, well-informed, and accessible. He even placed higher in the "top 50 business people" list of Fortune (or Forbes?) than Alan Mulally, which was quite a surprise to me.
Didn't unload as much as i was thinking i was going to - still holding a large position here - will reconsider again at $17.50, but will probably continue to hold until LTC premium increases and USMI rebound are more priced in.
Will do. Likewise, it would be great if you post something here about any potential good ideas you have. Regarding mREITS, they are all so complex and leveraged that it is hard to pick which ones are good. Personally, the opportunity i'd like to see is the whole sector get hit based upon something that happens to one of the more poorly-run companies. Given CMO's long operating history and successful performance in many different interest rate environments, if that one suffered collateral damage from the problems of another, i'd have to look at it hard. But i'm not familiar enough with any of them to make any sort of call right now.
Thanks for the news RP - as usual, the analysts are a bit late to the party. Nevertheless, i do have to recognize that Schwab and S&P have maintained fairly consistent ratings (A/B for schwab, Buy for S&P) for awhile now.
My plan for a long time was to hold until $15 and then reassess. Now that we are there, i still think that there is good long-term potential for gains, plus now we have momentum on our side, which is always fun. McInerney has won the confidence of a lot of investors apparently.
That said, I do need to rebalance my portfolio - with the recent gains, i'm way too GNW-heavy (went about 3/4 in at low prices - average basis $4.00). I'll probably keep 1/3 of my total portfolio here. Not sure where to put the rest just yet, but considering other financials - still lots of long-term gains to make in the sector. Also waiting patiently for a potential mREIT meltdown when short-term interest rates rise - if panic sets in that market, some of the more conservative players may become good bets (after the panic of course - i've learned to buy after the crisis, rather than during the crisis).
Cheers to fellow long-term holders - this has been a great run.
Trading - here's a fun fourth possible scenario - they are splitting life and mi from one another, and thus Kelleher no longer needed as McInerney will be leading the life division.
That would be fun to hear some day.
I can see at least three possible scenarios. First, he decided to move on. However, he was given an incentive to stay on board and not quit for 2 years during the turnaround, so i'm not sure how likely this scenario is. Second, McInerney just wants to put his own guy in that position - as a life insurance veteran, McInerney no doubt knows a lot of good people for this position. I think this is more likely. Third, all of the noise over the last couple of years about needing to take a big LTC charge is true and one is coming, and Kelleher is taking the fall in anticipation. I hope this is not the reason.
LTC charge worries have been circulating for a few years now. For example,credit suisse estimated that a 2B charge was coming when they stated their $5 or so price target a couple of years back. That hasn't materialized. I'm not sure if that analyst even covers GNW anymore.
Different reasons have been given for the perceived need for the charge - e.g. similar charges taken by competitors to boost reserves, implementation of solvency II in Bermuda. GNW continues to state that it doesn't need to take one, and points to its earlier and more extensive use of hedging compared to competitors.
The upcoming LTC investors day presentation is supposed to address this topic. Hopefully the topic will be put to rest by then, as it is a drag on the stock price.
Cure rate was 94% in August, compared to 83% last August. 94% is very good for this time of year. Total number of defaults was down almost 20% from last August, and also down somewhat from July. NIW was just a little big higher than last August.
They let their last revolver lapse sometime in the last year or so. The prior revolver saved their skin when they lost so much in their investment portfolio back in 2008 - they had to draw it down to contribute capital to the life companies. Analysts were surprised last year when they didn't renew the prior revolver, as that took away some financial flexibility. Thus, the new facility isn't really out of the blue - its establishing something that they used to have and that contributes to their financial flexibility.
Booker - see below from the transcript:
"There are other competitors who have done IPOs of USMI. We will look at that. We could IPO more than just the U.S. business. We could do a convertible, we could do debt. So we have plenty of ways to raise the capital."
and just a bit later...
"And given where the MIs are trading, so, we’re looking at everything and we’ve got a lot of choices and we’ll end up picking the choice if we need to raise it, we pick the choice that’s the best shareholder value choice."
I agree - he really handled that meeting well - spoke off the cuff and gave frank answers to the questions, rather than talk through the usual dull BS powerpoint slide presentation. And he's trying to put the years of rumors and analysts reports about insufficient LTC reserves to rest once and for all - regarding the upcoming LTC presentation, he stated "And I want to do as much disclosure and understand that whenever disclosure we give, we’re going to give forever, every quarter. " I really like his approach.
If you bring US MI up closer to RDN's or MTG's valuation, you can get another approximately $2+ of value per share. And that's just for the current valuation - if they can get LTC performing well and when US MI more fully recovers, the valuation should be even higher.
Looks like he made a good case for why the LTC rate increases will be approved by the states, stated that his goal was to increase the statutory profitability of the life side of the business through such rate increases, and hinted at a possible IPO of US MI, which was very interesting. I'm impressed with McInerney thus far.
The AU IPO market really appears to be heating up. Lots of news in the last couple of weeks on positive momentum and good valuations. One article lists 13B in expected IPOs over the next year, most of which are expected before Christmas of this year. GNW is listed as one of the expected floats. Hopefully a sign of things to come.
LNC, PL, MET, PRU, all down. Low interest rates are bad for life insurers generally. We need the taper to start.
RDN and MTG have the advantage of being a monolines - the "story" is not complicated. GNW has too many parts that are influenced by too many different factors in too many different economies. It makes for a complicated story, with many downside scenarios (Yellen low interest rates hurts LTC, Summers high interest rates hurts MI, Canada housing bubble, Au housing bubble, etc).
The sum of the parts keeps me around. Using q2 book value numbers, if you apply RDN's multiple to GNW's US MI, a multiple of .9 to international MI (MIC's approximate ratio), a multiple of zero to LPI, a multiple of .5 to runoff (this is low, since a big majority of this was wealth management, which sold for close to book), and a multiple of 1 to the negative equity of the holdco, then at the current market cap, life/ltc has a multiple of .23x book.
Make runoff multiple .8 (closer to reality) and international MI multiple 1, and life/ltc multiple becomes 0.17. Incredibly low for a business that is profitable, even if marginally. And especially for one that can produce 300-500M per year in earnings just from applied-for rate increases on the current book.
This is excluding AOCI, but including AOCL. And giving zero value to LPI.
Management is taking the right steps so far to up the value here. But the waiting does suck.
Rising interest rates will be very helpful for insurers generally .
In GNW's specific case, what will help even more is getting the LTC rate increases and new policies approved. This will increase profitability, lead to higher ratings (per S&Ps comments in the recent upgrade), and enable return of capital to shareholders. Good news on this front should help the stock price.
Ii do think pulling off a successful IPO in AU would be helpful too - they could retire some more debt and maybe add more capital to US MI. New US MI biz has a higher ROE than AU right now, and minimum US MI capital levels may go up in the future, so it makes sense.