White Mountains Insurance (WTM) - Analyst Day

White Mountains Insurance (WTM) is a publicly traded insurer that does not get a lot of publicity. It is part owned by Berkshire Hathaway and keeps a relatively low profile spending its limited time running its businesses. It has grown tangible book value at a rate of 17% since it IPO'd in 1985. This is an extraordinary achievement as this time period encompassed hard markets, soft markets, high interest rates, low interest rates, inverted yield curves, steep yield curves, flat yield curves, recessions, expansions and management changes.

The company just had its analyst day up in NYC on June 8, which I unfortunately was unable to attend, but due to the wonders of technology I was able to listen to it on a web cast. This may be even better because I could rewind when I had to.

A 17% growth in book value is extraordinary but the real question is - can it continue going forward? There are indications that they can grow book value in the mid teens long term even though the management team admits that the lines they are in are becoming more competitive. Specifically, half its capital is deployed in White Mountains Re where according to management:

"Market has been going sideways or down and will be a real challenge to maintain margins going forward...has been one of our better businesses but the reinsurance business becoming more competitive and will be a challenge to keep it a better business."

So how can they grow book value in this environment? Two reasons come to mind

1) WTM has seen soft markets before and can manage its business well through a down cycle. A question was asked later in the call about whether the company would consider exiting this business as a cycle management strategy - the way it bought One Beacon at a time when this business was out of favor. The response was that in reinsurance there is not a lot of infrastructure to support so rather than sell they could just cut back or stop underwriting new business rather than sell. This affirms the credo of WTM, which is - underwriting comes first.

2) The second reason has to do with time horizon and diversification - 2007 may be tougher for White Mountains Re but they have other parts of the business that are doing well to offset and if management takes a long term view of the reinsurance business, then they will manage through this. If things get tough in reinsurance, other companies will make mistakes and exit and WTM will be there to make strategic purchases at the right price.

WTM is trading at a reasonable price to book relative to its history - $415 of book value for $585. It is not rock bottom cheap and there have been times when it has sold at tangible book value.

I am putting my raw notes from the analyst meeting in another post. They are raw so they may have misspellings and abbreviations and may not capture fully the point management was trying to make but there is so little information out there on this company I figured I would post it.

Disclaimer - I own this stock.