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Strategies & Market Trends : Buffettology

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To: Freedom Fighter who wrote (1680)7/15/1999 9:33:00 PM
From: Shane M  Read Replies (2) of 4661

I think I looked into Mercury General about 6 months ago. I really liked their numbers and growth rate. (I think they are auto only?) If I remember correctly, however, they had large California exposure - and in the insurance biz California is known for being unpredictable in their regulations. The risk was kindof high in that regard. I asked our regional controller about them and he recommended I stay away from insurance in California because of the unpredictable regulatory environment.

The number one company on our radar right now is probably Progressive. Certainly not a value stock, but they're shaking things up. Of course State Farm is still viewed as probably the best run operation out there, but Progressive is definitely getting full attention from all players.

When evaluating Allstate, keep in mind that I primarily see the battle lines in terms of a direct and captive agency force. (I see the Independent agency channel under the Allstate brand name, but there are other Independent Agency companies within Allstate - Deerbrook is the primary name). Allstate is branching out increasingly into other distribution channels. We recently purchased CNA's personal lines which more than double our Independent agent capacity. We've also regularly been acquiring Life Insurance companies. I fully expect us to announce a direct channel product in the near future - hopefully before the end of the year.

So I'm seeing the battle from where things are the toughest right now. Industrywide, the Captive agency channel is shrinking and as usual the existing players are fighting harder for a shrinking piece of that pie. But the parts of the war that I'm seeing are not all that's out there. There are troops waiting in the wings, and Allstate definitely has the resources to put major capital behind any new foray. If we can deal with Channel conflict effectively, and if we don't stifle an internal direct channel company, I think we can do very well.

Here's another idea. Banks want to get into insurance? Well they need underwriting and claims service, right? Well, Allstate is recognized for having solid claims service, and the underwriting systems are in place. So why don't we farm out our strength in claims and underwriting and let banks be the front lines for this potential new growth market. I haven't head many people talk about this, but as top line growth becomes increasingly difficult, I think you'll see more people higher up in the company begin to think out of the box.

Another area I'd look for investment opportunity in insurance is to find the "insurance marketplace" on the internet. There's really not alot out there that's very good (with the exception of life ins. products which are rated on simple criterion), but as it becomes feasible to automate the purchase of P&C insurance on the internet (meaning I don't have to fill out 20 minutes of online forms) I expect value added marketplaces to emerge which aggregate offerings of multiple insurers. (Analagous to what we see with mutual fund marketplaces through Charles Schwab). I'd love for me to be able to enter my name, identification #, cars, and deductible/limits. and have the system automatically go out and get my MVR, do all the approproiate checks required by different insurance companies, and have it come back to me with quotes from 10 different insurers. Right now it's easier for most consumers to call several insurers to get quotes, but the time is coming when it'll be just as easy/easier for an aggregator to do the legwork.

Just my opinions on the industry.

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