The Insurance Sector

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holycow

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Wednesday, April 06, 2005 - 09:45 am:

Let's see if the Cockroach Theory applies here...

Remember although they said there is no material impact and there's sufficient fund to meet obligations, etc... but these are not the issues - the issue is their corporate honesty, integrity and their corporate governance as seen by their customers, the investing public as well as regulatory authority.

Accounts 'errors' to hit Zurich
By Lisa Murray
Sydney
April 6, 2005

After a nine-month internal investigation, the beleaguered insurer undertakes to correct three years of false accounts.

Zurich Financial Services Australia will restate four years of financial results after admitting that it published false accounts between 2000 and 2003.

The admission is the result of an internal review prompted by a nine-month investigation into its reinsurance dealings by both the corporate and prudential regulators.

In four formal "request for correction" forms lodged with the Australian Securities and Investments Commission, Zurich said there were errors relating to the accounting for reinsurance arrangements.

In November 2004, the board decided these arrangements "did not involve any transfer of risk".

The company said it would provide information on the financial impact of these "errors" when it lodged its 2004 accounts. However, it does not expect the impact to be "material".

Company secretary Cathy Manolios said in the statement, lodged last month, that Zurich's general insurance arm remained financially strong and "continues to more than adequately meet APRA's minimum capital requirement solvency test".

Last June the Australian Prudential Regulation Authority and ASIC launched a joint investigation into Zurich's past reinsurance arrangements, their accounting treatment and the role of certain officers.

Three weeks after the investigation was announced, chief executive John Butler resigned.

APRA also accepted an enforceable undertaking from former Zurich actuary Richard Mayo, requiring him not to work as a senior manager or director of a general insurance company for five years.

A report on the findings of its investigation has been delayed by a process referred to as "natural justice", or procedural fairness, which gives related parties the opportunity to respond.

The reinsurance transactions being investigated occurred in 2000. At least one was provided by General Reinsurance Australia.

Last month, APRA sent a letter to General Re, owned by Warren Buffett's Berkshire Hathaway, asking it to "show cause" why its financial reinsurance dealings should not be investigated.

General Re first came under fire for its role in the HIH collapse. It sold a reinsurance contract to FAI, which inflated its profits, shortly before HIH acquired it.

Financial reinsurance is not illegal, but it must be accounted for correctly. The types of contracts used by FAI and AIG were more like a deposit arrangement and were used to prop up their balance sheets.

They allowed the companies to defer premiums to later years but take the benefit of the recoveries upfront.

AIG admitted on its website last week that its General Re "transaction documentation was improper and, in light of the lack of evidence of risk transfer, these transactions should not have been recorded as insurance".

HC

"... if you've got a chart, I have an opinion!"

peterloh

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Wednesday, April 06, 2005 - 10:07 am:

Hi HC,

There is always a DANGER with generalisation.

PL

-------------------------------------------------
Disclaimer: Please note that comments made in this column is mainly for the interpretation of charts in technical analysis. It is not made in my professional capacity and should not be taken as advice.In my professional capacity I am only allowed to give advice on certain managed funds authorised by my license dealer.Any share discuss is for general interest and should not be relied on to make an investment decision.It is likely that I may own the shares that we discussed as a trade or as an investment. Please consult your stock broker or financial adviser in regard to your personal situation.

holycow

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Wednesday, April 06, 2005 - 10:19 am:

Peter,

I rather err on the cautious side. I will be looking at the insurance sector when the dust has settled and/if the market has corrected. I think it is a very profitable sector and I have no quarrel with them making good money...

HC

"... if you've got a chart, I have an opinion!"

peterloh

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Wednesday, April 06, 2005 - 10:49 am:

HC,

Some are very impressive and do have excess capital which they have to do something with. In a market which is volatile it is time to look at the defensive side.We have to look at the yield and the earnings per share.The important thing is general insurance is currently having an underwriting profit now without the presence of HIH and FIA which was basically buying business to stay afloat without a care about the bottom line.This was affecting the business of other insurers in terms of profitability. Higher interest is not necessary bad for this sector as they need to have the greater portion of premiums invested here to meet short tails claims.They also made provision in good times as a sort of reserves in the event they have to meet contingencies.More important is that they can afford to pick and select the type of business they wish through premium variation to encourage or discourage business they want or do not want.This sector is certainly worth looking at.

PL

msparks

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Saturday, April 16, 2005 - 10:34 am:

Talking insurance
What does an investor do to protect their profits ?
1/ sell a portfolio and waite to buy back in?
2/ use cfd's to short the stocks until the picture becomes a little clearer?
3/ use put options on the index ?

Realising the portfolio profits would probably create a big tax bill(loss) so which is the simplest and most efficient way to 'buy' some insurance against your portfolio for the shorter term?

Any ideas appreciated, however we should have discussed this a few weeks ago me thinks.

holycow

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Saturday, April 16, 2005 - 02:31 pm:

Mark,

The best way to protect your profit is to get out while the going is good... that was a couple of weeks back. The problem was you couldn't see it. Now that you are "seeing" it so clearly, you are actually late. Whatever insurance you are going to take will cost you either in $$$ or in your emotional capital.

At this point, the most useful/important thing to do is actually looking "inside" yourself and ask how's your psychological make up at the moment. Are you in control of your "emotions"?

If you are pre-occupied with hope and fear at the moment, I think your chance of having success in shorting the market is relatively slim. I think the best thing you can do is to find a way out with your existing stocks - this just what I'd do if I am in this situation. You still need to put in some work and decide for yourself.

Cheers.

ps: If you are talking as an investor with the intention of going long, and IF your decision is to hold and ride the current correction out, here are my views:

1) be patient and wait for the correction to blow over and refrain from buying back in too early; bear in mind that this correction could/would potentially last all the way to end of October;

2) as reverse to a topping market, for you to get back in and go long it is a MUST that you "see" it! That is, you can see clearly a bottom has been formed before you buy your first stock;

3) you only hold on to good sound (fundamentally) stocks - stocks that are still earning good profit, enjoying good profit margin and paying dividends at least, for eg; in short, stocks that are "suffering" now as result of sentiment and NOT of their own poor performance shouldn't/needn't worry you too much;

4) good luck.

HC

"... if you've got a chart, I have an opinion!"

dogalog

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Saturday, April 16, 2005 - 02:46 pm:

The market could just get 'choppy'too,HC.
Stall,neither particularly rise or fall from anytime next week on,
You can still be badly burnt shorting for sure,hey HC?Especially if you've only read about the concept in a book.Wait it out,practise,research.It's not as low as it can go or higher even.
regards,

d'jr
i don't scratch.

msparks

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Saturday, April 16, 2005 - 07:13 pm:

Hmmm
Didn't really get the answers i was looking for.

There are many good stocks which have risen by a huge percentage since last June.(and beyond)
To sell now, or several weeks ago ,is to realise the tax which could take half the profits.

Sell them and waite.

Surely not!
There must be a better way to protect a portfolio of good fundamental stocks when your in for the longer term and can see danger ahead ,not without some cost but possibly a cheaper alternative to paying the money to Tax Dept.

Whats the cheapest way to buy protection and not realise the tax payable.

ann

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Saturday, April 16, 2005 - 09:24 pm:

There is always another thought Mark,

You can hang on to your stocks if they dump on you, sell the little suckers and buy them back or get new ones, retain the losses and offset them with the profits of the upwardly mobile stocks that will raise their pretty heads in a few months time.

Ask any good mining company owner about the joys of retained losses!!!

Now is the time to sit down all comfy like and write out your wish list. You know about reading annual reports. Find out which companies derive their profits from investments and those that make their money from actually producing something. I reckon someone clever like yourself could work out which companies will do well after the carnage.
Feel free to share anything that looks good with us.

Cheers
Ann

dogalog

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Sunday, April 17, 2005 - 01:07 pm:

"Buy protection and not realise the Tax payable."?????
To pay tax you have to have moved from paper to cash in the bank.
To NOT pay tax you can
1)wait til the 50% cash profit potential is off the paper.

that'll do it.Easy,hey?
YOU have to realise that every $ off means less tax of 50cents is Wrong.You are protecting your 50 cent profit,first and almost foremost,who knows when you'll be able to offset more further Losses this season.The $$$'s taken may yet turn 'tax-free'.Work it out,it's simple but you must get that idea concreted into your head-Every DOLLAR,why that's at least %)cents in a year free and CLEAR.
&%< if you've held for more than a year.
You aren't saving!NIX ya losing.

HC-don't leave me here filling in blanks.

CHEERS Mark,went to a baby shower last night.New girl to 46 year old Dad.OOOh he'll be 60,she 14.i went thru that by 46 not bringing it on d'sextataurian.oh to cope.

d'jr
i don't scratch.

holycow

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Sunday, April 17, 2005 - 03:10 pm:

Dr,

I am sorry I may have to let you fill in the blanks after this one coz I am still sore with some silly bugger's absurd accusation. But before I disappear into oblivion, here are a bit of hot air (or I won't call meself holycow for nothing) :-)

...

1) for those who are hoping, thinking, wanting, loving a short sharp correction - dream on! You are not going to get it. Not by a long shot. Many will soon learn the new definition of "cheapness" in their stocks.

2) for those who are still wearing a tax mask consoling themselves over the lost opportunity, they will soon find out whether which is a better option - selling at a profit and pay their taxes vs selling at a loss. Time will tell and only they will know their situation. The best one can get out of all these hullabaloo is "NEXT TIME - take your profit and pay your taxes, and be happy!".

3) For those investors who are holding large amount of CASH, this correction is a godsend and I hope you won't miss it this time - the keywords to remember are patience, patience, patience. Don't waste your opportunity in jumping back in too early.

An INTERMEDIATE CORRECTION in a 2-year bull market will not end in two days, neither will it end in two weeks; or even in two months! So bide your time, and if your GOD is by your side, I can even give you this GUARANTEE - YOU WILL MAKE YOUR MONEY THIS TIME IF YOU TIME IT WELL.

This is the time to rejoice if you are in cash.

For those who are still fully invested,... well, what can I say? It's gonna be a long ride from now on, the possibility and the probability of your stock value to shrink has now become a diminishing function of time, with each day, each week going by, you will have new worry in your portfolio - it will take a heavy toll on your investment as well as your emotional capital.

Remember, there's always a choice for you - you can either take heed from the market, or you can hang on to your view and go against the market - the ending is always the same.

... but always ask this question - how many times an old dog needs to be trained to learn a new trick? Or never?

4) in the next few days there will be a bear rally (and many more), those who are astute will make a lot of money trading with the swings, those who are not so smart will get their money all tied up one more time... I just hope they will learn something from this - CONTROL YOUR GREED!

There are times to be greedy and there are times to be fearful. And fear is spelt as "NO GREED" this time.

5) in both bull and bear markets, there are always winners, losers and silly buggers - the winners would listen to the market; the losers would fight the market; the silly bugger? They blame others...

"Such is life" - Darren Hinch.

HC

"... if you've got a chart, I have an opinion!"

msparks

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Wednesday, April 20, 2005 - 01:19 am:

This thread gives a good rundown on insurance for a long term portfolio.
Just incase anyone missed it in the trading psycology thread.
http://forum.incrediblecharts.com/messages/11/303868.html

(Message edited by msparks on April 20, 2005)

holycow

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Post Number: 1613
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