Have been adding to our position in PIH since last week when it was announced that 1) the company would be making their long awaited expansion into Florida to write homeowners and wind-only coverage 2) Larry Swets Jr. CEO of a previously researched company and investment of ours KFS would become Chairman of the company.
Mature Florida property and casualty insurers are selling well above 1 times book in most cases and above 2 times book in a few cases. PIH all the meanwhile is basically being neglected in a dark, moldy closet trading at less than 1 times book, despite have some pretty outstanding prospects for accelerating return on equity dramatically moving forward, while currently maintaining an overcapitalized balance sheet that will assist greatly in the process. This conservatively positioned balance sheet also mitigates a great deal of risk for shareholders at these levels.
A diversified geographic base also mitigates the worry of having too much exposure to disaster prone regions such as their primary market in Louisiana. The company nevertheless has been effective in their reinsurance strategy, having faced an inordinate number of weather events over the past few years in Louisiana.
Additionally, the company has an activist presence with Fundamental Global, PIH's largest investor. Although shareholder activism by hedge funds has now become more of a marketing strategy as opposed to an investment strategy, Fundamental Global has waged some successful campaigns in the past, proving to be beneficial to shareholder interests over the long-term.
Maintaining growth in Louisiana while responsibly underwriting policies in Texas and now Florida should easily yield a near 20% return on equity, which will result in a premium to book value reflecting this new growth. A 1.5-2 times accelerating book value is easily achievable here upon some relatively straightforward execution moving forward. And, of course, barring any anomalous, weather related events.
In a market of premium valuation, PIH remains an attractive, undiscovered proposition.
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