White Mountains Insurance (WTM) Analyst Day - Introductory Comments

White Mountains Insurance (WTM) held its annual analyst meeting on June 17, and I finally got around to listening to the webcast. The URL is here if you want to listen yourself.

I wrote a post on the Reserve Issue at WTM, and this is a summary of the balance of Ray Barrette's introductory comments.

Introductory Remarks

After discussing the reserve issue at WTM Re, Barrette talked about undeployed capital at WTM and the plans for its use. He then used that as a vehicle to launch into a defense of the Berkshire transaction (buying Berkshire’s share of WTM). WTM is buying back 1/6 of the outstanding shares of WTM from Berkshire Hathaway. They believe that this is a prudent use of its capital.

Barrette said, “so $485 was the price and we hit the bid and I think when you look back five years from now or ten years from now, whether it was $485 or $450 it will have been a good deal for the company...We think the deal will close in the third quarter and we are happy with it.”

Barrette then hinted that share buybacks would restart if the price continued to stay down in the mid $400 range. “We also bought back some shares at $500 average last year, 291,00 we still have 700,000 shares as a buyback program, its not a program it is an allowance from the board, we still have excess capital but we are entering Cat (catastrophe) season so we have to be a little bit more careful about being too thin during the Cat season but as our businesses shrinks in the soft market as we produce I believe good underwriting results, good investment results we will generate more undeployed capital as we go forward here so at this price I can tell you we are buyers of our shares.”

Barrette next talked about the purchase of Answer Financial (AF), an online insurance agency. WTM spent $30 million to buy 69% of AF, and it will be used to help Esurance convert more of its incoming rate inquiries into business. The current conversion rate is 8% and WTM's goal is to double that rate. AF also has large net operating losses (NOL’s) that can be used.

Barrette said, "“It’s a good financial deal. We paid a discount to what we think is the real solid value of the company but that value is not a book value it is not an insurance company, it is an agency. We are buying intangibles so for the first time in a long time you will see us put up some intangibles and some goodwill to our balance sheet but we tell you we have a very good deal but the numbers are not huge.”

My Comments

Barrette made a spirited defense of the purchase of Berkshire Hathaway's stake in WTM. The price on the day of the analyst meeting was $442, which was 10% below the $485 paid to Berkshire, so maybe he was getting some heat from shareholders. Later during the analyst meeting, management went into further detail on the transaction. WTM also bought the balance of Answer Financial in July, and now owns 100%.