PROTCT - Protector Forsikring

[alwaysinvert]

Protector is a Norwegian insurance firm that has been growing at an amazing rate since inception in 2004. Their average historical combined ratio is 90%.

 

In 2012, 1,1b NOK in gross premiums came from ”regular” commercial and public insurance and 400m NOK from change of ownership insurance, which is an area where they are the market leader and low-cost provider (from what they say). But this may cause some fears for investors because the high amount of transactions are fueled by an ongoing property bubble and some legal ickiness.

 

From what I can gather, they basically insure the sellers of real estate, pretty expensively, against any hidden faults for which the seller by law is accountable 5 years out. They have high customer satisfaction but because of disputed claims from the buyers they often get sued. 

 

Underwriting has been profitable since 2005 and combined ratio has dropped every year since inception.

 

Gross premiums have grown very fast, from 104m NOK in 2004 to 729m NOK in 2008 and 1.5b NOK in 2012, with the lowest annual growth rate in any year in 2008 at 10%.

 

”Only one player has managed to gain market share in a super profitable sector in the last 15 years”

 

http://stocklink.no/Article.aspx?id=92122

 

”We are the most sued company in Norway”

 

http://stocklink.no/Article.aspx?id=92136

 

Investment portfolio is 3.9b NOK and market cap is 1.4b.

 

Investment portfolio more volatile than peers but ROI 2007 - 2012 is 5.8% (equities 10.0%).

 

Renewal rate 97%.

 

Dividend 1.20 ps this year

 

They have just expanded to Denmark and Sweden and say that both countries will turn profitable in 2013.

 

They have English reports and investor presentations: https://www.protectorforsakring.se/#!/om-protector/investor-relation/8

 

This one seems cheap to me, but I think I might need some help from the insurance gurus on this board. Hopefully I have piqued some interest even though I probably have left out a lot of valuable information.

 

What are some key things to look out for?

[beerbaron]

I'm always careful of insurers that grow fast..

 

Are all their policies for a 5Y period or is there some longer durations?

 

BeerBaron

[twacowfca]

Protector is a Norwegian insurance firm that has been growing at an amazing rate since inception in 2004. Their average historical combined ratio is 90%.

 

In 2012, 1,1b NOK in gross premiums came from ”regular” commercial and public insurance and 400m NOK from change of ownership insurance, which is an area where they are the market leader and low-cost provider (from what they say). But this may cause some fears for investors because the high amount of transactions are fueled by an ongoing property bubble and some legal ickiness.

 

From what I can gather, they basically insure the sellers of real estate, pretty expensively, against any hidden faults for which the seller by law is accountable 5 years out. They have high customer satisfaction but because of disputed claims from the buyers they often get sued. 

 

Underwriting has been profitable since 2005 and combined ratio has dropped every year since inception.

 

Gross premiums have grown very fast, from 104m NOK in 2004 to 729m NOK in 2008 and 1.5b NOK in 2012, with the lowest annual growth rate in any year in 2008 at 10%.

 

”Only one player has managed to gain market share in a super profitable sector in the last 15 years”

 

http://stocklink.no/Article.aspx?id=92122

 

”We are the most sued company in Norway”

 

http://stocklink.no/Article.aspx?id=92136

 

Investment portfolio is 3.9b NOK and market cap is 1.4b.

 

Investment portfolio more volatile than peers but ROI 2007 - 2012 is 5.8% (equities 10.0%).

 

Renewal rate 97%.

 

Dividend 1.20 ps this year

 

They have just expanded to Denmark and Sweden and say that both countries will turn profitable in 2013.

 

They have English reports and investor presentations: https://www.protectorforsakring.se/#!/om-protector/investor-relation/8

 

This one seems cheap to me, but I think I might need some help from the insurance gurus on this board. Hopefully I have piqued some interest even though I probably have left out a lot of valuable information.

 

What are some key things to look out for?

 

They don't operate in a vacuum.  Who are their competitors?  How have they been able to move in on their turf?

[Packer16]

They have really low expense ratios 5 to 10%.  Do you know how this compares to other Scandinavian  insurers and what these guys do versus competitors?  You don't see that level of expenses in the US it is lower than even GEICO and some of the other direct writers.  I appears to be selling at 2x BV (not a cheap valuation) but given the low expense ratio (if it is sustainable) is a company to keep an eye on. 

 

Packer

[alwaysinvert]

I'm always careful of insurers that grow fast..

 

Are all their policies for a 5Y period or is there some longer durations?

 

BeerBaron

Of course, figuring out if they are picking up pennies in front of a steamroller might be hard because of their short history, but cr and the other metrics have constantly improved, so this far there seems to be no evidence that they are pricing too low to gain business.

 

In the real estate business the duration of their liabilities is 5y. The municipality and business segment is comparable to any other insurer, I guess.

 

They don't operate in a vacuum.  Who are their competitors?  How have they been able to move in on their turf?

They don't insure private consumers (other than in the change of ownership segment).

 

- Eiendomsmeglerne elsker oss. Gjett hvem som fikk alle klagene før eierskifteforsikring kom i markedet? Jo det var de, sier Bjerkeli.

 

- De selger dette produktet på våre vegne uten å ta betalt. Det er den eneste distribusjonskanalen i verden som er gratis. Jeg har aldri hørt om det før. 

 

Rough translation:

 

”The real estate brokers love us. Who got all the complaints before there was change of ownership insurance? It was them, says Bjerkeli (the CEO).

 

They sell this product for us without taking a cut. It's the only distribution channel in the world that's free. I've never heard of it before.”

He also says that the reason why they get this special treatment is that in case of the other insurers, they have to worry about getting their customers snatched (while Protector, unlike their conglomerate competitors, doesn't compete with the brokers).

 

In Scandinavia, the insurance industry is pretty oligpolistic. I guess Protector has won business by cutting out bureaucracy because their profitability seems comparable to the other companies despite being much, much smaller.

 

They have really low expense ratios 5 to 10%.  Do you know how this compares to other Scandinavian  insurers and what these guys do versus competitors?  You don't see that level of expenses in the US it is lower than even GEICO and some of the other direct writers.  I appears to be selling at 2x BV (not a cheap valuation) but given the low expense ratio (if it is sustainable) is a company to keep an eye on. 

 

Packer

I haven't found a comparison of expense ratios yet, but check attached document pages 35-36 for an overview of combined ratio and ROI in the business. Generally, the competition is much less intense than in the US.

Investor_presentation_March_2013.pdf

[krazeenyc]

This is totally anecdotal -- and a survey of 1. A friend of mine who lives in Norway told me that as an avg joe there -- he notices that they are marketing heavily. Also they attempted to sell him "buyers" insurance when they bought their apartment in Oslo. Wait -- Can they sell buyers insurance and sellers insurance for the same transaction? Isn't that a conflict of interest? My friend explained to me that buyers insurance meant that they would handle all the legal proceedings for them in case they had a claim against the seller.

[NewbieD]

They have really low expense ratios 5 to 10%.  Do you know how this compares to other Scandinavian  insurers and what these guys do versus competitors?  You don't see that level of expenses in the US it is lower than even GEICO and some of the other direct writers.  I appears to be selling at 2x BV (not a cheap valuation) but given the low expense ratio (if it is sustainable) is a company to keep an eye on. 

 

Packer

 

Nice to find a thread where I might contribute some value to this board. Very excited about this forum. Been reading for XX hours after finding it yesterday, missing my morning run this morning etc 8)

 

PROTCT is a very small niched insurance company, even for Scandinavia. The reason for the low (but increasing) expense ratios is their strategy is to only sell through brokers. The company has said itself the ER is not sustainable and are prediciting 13% this year. Local leaders Gjensidige, Tryg, Sampo have expense ratios of 17-23%.

 

I happen to work as analyst of property insurance at a competitor in Sweden and have started hearing about PROTCT the last year. They are currently taking a pretty big chunk of the brokered business, the low ERs helping them. They are also hiring to their very small office in Stockholm.

 

One thing in that stood out to me in the Q2 report was that reinsurance saved their CR. Gross claims ratio was 87%, up from 78%. Might not be a big issue for a single quarter but it continues I would expect their combined coming up with reinsurance expenses.

 

Have some experience evaluationg insurance policies but very little an entire company, so very interested to hear more opinions on the valuation of this one. Main thinking bullets for me are - how would they be affected by increasing interest rates? and how to check if claims handling is 'good enough' to retain/increase business?

 

Market wise, I can see that PROTCT is adding value to the commercial insurance sector in scandinavia by being a low cost challenger to the oligopoly in place.  I expect they will be able to grow premiums using their current pricing for at least a couple of years. Most companies are still in the process of lowering their CR targets to compensate for decreased rates, so price competition won't become harder from my point of view.

[alwaysinvert]

They have really low expense ratios 5 to 10%.  Do you know how this compares to other Scandinavian  insurers and what these guys do versus competitors?  You don't see that level of expenses in the US it is lower than even GEICO and some of the other direct writers.  I appears to be selling at 2x BV (not a cheap valuation) but given the low expense ratio (if it is sustainable) is a company to keep an eye on. 

 

Packer

 

Nice to find a thread where I might contribute some value to this board. Very excited about this forum. Been reading for XX hours after finding it yesterday, missing my morning run this morning etc 8)

 

PROTCT is a very small niched insurance company, even for Scandinavia. The reason for the low (but increasing) expense ratios is their strategy is to only sell through brokers. The company has said itself the ER is not sustainable and are prediciting 13% this year. Local leaders Gjensidige, Tryg, Sampo have expense ratios of 17-23%.

 

I happen to work as analyst of property insurance at a competitor in Sweden and have started hearing about PROTCT the last year. They are currently taking a pretty big chunk of the brokered business, the low ERs helping them. They are also hiring to their very small office in Stockholm.

 

One thing in that stood out to me in the Q2 report was that reinsurance saved their CR. Gross claims ratio was 87%, up from 78%. Might not be a big issue for a single quarter but it continues I would expect their combined coming up with reinsurance expenses.

 

Have some experience evaluationg insurance policies but very little an entire company, so very interested to hear more opinions on the valuation of this one. Main thinking bullets for me are - how would they be affected by increasing interest rates? and how to check if claims handling is 'good enough' to retain/increase business?

 

Market wise, I can see that PROTCT is adding value to the commercial insurance sector in scandinavia by being a low cost challenger to the oligopoly in place.  I expect they will be able to grow premiums using their current pricing for at least a couple of years. Most companies are still in the process of lowering their CR targets to compensate for decreased rates, so price competition won't become harder from my point of view.

Välkommen! Awesome to have an industry insider here. I have some questions that maybe you can add som colour to.

 

Is Protector's low-cost advantage something that can be maintained? And how can they keep prices so low compared to the competition and yet be able to put up those kinds of expense/combined ratios? Is this just down to lack of bureaucracy compared to the giants? How are the barriers to entry in the insurance business in Scandinavia in terms of legislation? If Protector has done it so magnificently, what's to say there won't be a number of other start-ups that will enter the market and compete away much of the underwriting profits in the near future (like in the US)?

 

What do you think about the explanation the CEO has for their success, that they are the preferred partner for the insurance brokers? If what they do is mainly down mainly due to a good salesforce and low pricing, it would probably be easily repeatable. In the change of ownership insurance they have over half the market, so that indicates that they have an advantage in that area. It's not something I want to hinge an investment decision on, though, since the Norwegian property market looks crazy to me. But what about the other the other business areas?

 

Rising interest rates should be comparably good for Protector, since they seem to have a relatively low allocation in stocks.

 

Isn't there considerable seasonality/volatility to the claims ratio?

[NewbieD]

Tack! An insider with all of 15 months of experience. Doing my best to learn though.

 

The cost level of 13% could certainly be sustainable, if they are willing to stay small and focused enough. I would think it would be sustainable if you solely focus on the commercial brokered segment across all scandinavian countries. Then you need no sales. Mostly claims people / underwriters and a broker desk. But if they want to grow beyond that I think they would have a hard time keeping it.

 

This is probably apparent to you, but the reason they can do good CRs with low pricing is precisely the low ER. If their ER is 10% and competitors is 20%, and both have a target CR of 90% this means they can have a price which is about 70/80 ~= 13% cheaper than competitors with the same profitability. The reason the ER is possible is, in my mind, that most competitors have a lot of corporate dead meat. A small upstart like PROTCT likely has a big advantage in not inheriting a history and being able to pick the most attractive parts of the market anew. If you have a focused strategy on only insuring simple but large risks (for example large real estate complexes with such a high deductible that you basically only pay fires, which are rare) you could get rid of a lot of people doing trivial errands. I think this is basically what protector are doing.

 

Regarding entry into the commercial property market I think that long-term you are right to worry about more capital allocation to it. Especially the norwegian market has been very softly priced. AFAIK it's fairly easy to start a new insurer in scandinavia, legislation wise. I think the main reason it hasn't happened to a greater extent yet is that we are a fairly small market. Especially if you are talking the medium sized ( 10 - 500 people ) which is where the broker channel is most used. But yeah, all companies are learning and getting more efficient and better at pricing.

 

Sure, claims ratio is variable. The reason I brought it up is they didn't exactly highlight the gross claims outcome, but put more focus on the fact their CR was lower than projected.

 

I agree with you the transaction insurance is likely the least sustainable part of their income. It will either start to be eaten by competitors or discarded by customers who realize they don't need it. When it comes to the commercial property market my feeling is that niche could go quite well for them for a while (say 3-5 years). Afaik they are the only company solely focusing on that sales channel. But like you say, competitors are always learning and if it goes too well others will start taking their pieces.

 

Right now, the bottom line for me is that they are one of very few companies with a clear niche in a market that is not super efficient and softly priced. And I think that during the next 3 years or so they will be able to grow their premiums further while maintaining current profitability. My conviction is not huge, but then again, it almost never is. So I'm going to make a small initial investment and evaluate when more info comes.

[jouni1]

hej på dej svenskapojkarna! if i understood correctly protector competes with sampo? how do you as an insider (and not a finn) feel about going against wahlroos? he has said he's "in for one more round" which i believe means an economic cycle. i have huge respect for him in this business and think that anyone trying to take business away from him is going to end up less than good.

[NewbieD]

Nice to see that Wahlroos enjoys such respect in Finland, I'm a fan too!

 

Actually, I don't see PROTCT as going against him. It's like saying that buying GOOG is going against Bill Gates. I also like Sampo and had a large part of my portfolio in Sampo for last 15 months. Now I feel it's time to lighten up and part of that will go into PROTCT.

[jouni1]

i got out of sampo way too early. lucky for me my dad bought some for me in the early nineties. might have to take a closer look at this as i really like the insurance business but rarely find anything good and cheap enough to buy.

[alwaysinvert]

Significant rise today on this news:

 

January 1st renewal date is significant for Protector

and therefore we'll give a volume statement to the

market.

 

The company has a strong growth in January and

expects in 2014 a total premium growth for the entire

business of 16 %. The strongest growth is in

Sweden/Denmark. In Norway, we expect a moderate

growth within the commercial and public lines of

business. Within change of ownership insurance zero

growth is expected.

 

The company experienced also a strong premium growth

in Q4 2013. Gross premiums written amounted to

NOK 238 million, up 20 % compared with Q4 2012. GWP

in 2013 was NOK 1.861 million, up 23 % compared to

2012.

 

Further and more detailed guiding for 2014 will be

given 26 February together with the preliminary

annual result figures for 2013.

 

 

Oslo, 23 January 2014

Protector Forsikring ASA

 

I've had a position for a couple of months now. If CR continues near historical levels, this is still a steal.

[alwaysinvert]

When publishing the Q3-results, the company's

guidance for the full year 2013 (notification to Oslo

Stock Exchange 31 October 2013) was 22% growth in

gross written premiums, a combined ratio of 88% and

an operating result of NOK 380 million.

 

Preliminary figures for 2013 shows gross written

premiums of NOK 1.861 mill (23% growth), a combined

ratio of 86,7% (86,2% in 2012) and an operating

result of NOK 430 mill (NOK 394 mill in 2012).

 

The company's preliminary profit for 2013 (profit

after changes in security provisions, tax and

components of comprehensive income) was NOK 293 mill,

up from NOK 208 mill in 2012.

 

As earlier announced, Protector Forsikring ASA will

publish its financial statements for the fourth

quarter 2013 on 26 February 2014.

 

 

Oslo, 28 January 2014

Protector Forsikring ASA

[alwaysinvert]

Haven't updated much on this. The stock has been on a tear, but there hasn't been much of a multiple expansion, if any at all.

 

If we assume a 4% return on the investment portfolio (4.7b) and 90% CR on the prognosticated GWP for 2014 (~2.2b), it trades at 6.5x pre-tax earnings. The underlying profitability is actually somewhat understated masked, because the Swedish and Danish businesses have not yet hit critical mass, but are expected to do so later this year. 

[klarmanite]

Strong numbers. Stock on a tear again. I'm still twiddling my thumbs and missing out on one of the greatest stock stories I've seen in my life -: Only negative I can see (except that I'm not long) is that their investment portfolio can wipe out most of the equity in the company if a severe bear market hits, it's very risky with mostly unrated high yield bonds. Until then, PROTCT will keep rising no doubt. This is painful to watch from the outside.

 

 

[alwaysinvert]

Now that the counting underwriting profits has been sanctioned by the church of St. Warren, maybe some more people could be interested in this company. It is still my largest holding.

 

The biggest story of the last year is actually in my opinion an investment in their equity portfolio which has been a huge home run. The company is called Norwegian Finans Holding and trades OTC in Norway. You might want to check out their reports - it is probably the most profitable financial company I have ever seen. I have attached the latest annual report and earnings presentation.

 

Annual_Report_2015_Norwegian_Finans_Holding_ASA.pdf

NFH_4_quarter_2015_results_presentation.pdf

[HJ]

 

Now that the counting underwriting profits has been sanctioned by the church of St. Warren, maybe some more people could be interested in this company. It is still my largest holding.

 

The biggest story of the last year is actually in my opinion an investment in their equity portfolio which has been a huge home run. The company is called Norwegian Finans Holding and trades OTC in Norway. You might want to check out their reports - it is probably the most profitable financial company I have ever seen. I have attached the latest annual report and earnings presentation.

 

 

 

Wow, the numbers of both Protector Forsikring and Norwegian Finans Holding look fantastic over the years for as long as they existed.  Is it something about the Norwegian financial system that produces these very high ROE financials, which seem to be quite unusual? 

 

Separately, how much impact do you think a sustained period of low oil price would impact these companies? 

 

Thanks

[alwaysinvert]

 

Now that the counting underwriting profits has been sanctioned by the church of St. Warren, maybe some more people could be interested in this company. It is still my largest holding.

 

The biggest story of the last year is actually in my opinion an investment in their equity portfolio which has been a huge home run. The company is called Norwegian Finans Holding and trades OTC in Norway. You might want to check out their reports - it is probably the most profitable financial company I have ever seen. I have attached the latest annual report and earnings presentation.

 

 

 

Wow, the numbers of both Protector Forsikring and Norwegian Finans Holding look fantastic over the years for as long as they existed.  Is it something about the Norwegian financial system that produces these very high ROE financials, which seem to be quite unusual? 

 

Separately, how much impact do you think a sustained period of low oil price would impact these companies? 

 

Thanks

 

I don't think so. Bank Norwegian is the way it is in terms of profitability and high growth because of its association with Norwegian Air. In the insurance market there has been very little price competition for quite a long time (both the Norwegian and Swedish markets are very oligopolistic, Denmark a bit less so). So the opportunity for a company with a very low expense ratio has been pretty good. 

 

As for oil price, sure it could have a bit of an impact. Both companies are doing their main growth away from Norway, however. And I don't think Norway is a one-trick pony. They will survive after oil, it's a country full of high real capital and they have a gigantic sovereign wealth fund. I think they will be fine.

 

As far as I'm aware none of the companies have any direct exposure to oil. Protector doesn't do any oil/sea related underwriting and they have actively avoided oil related securities completely (until last quarter when they apparently bought some). Norwegian Air should actively benefit from low fuel prices, but of course it may hamper demand. Maybe some effect will be seen at Bank Norwegian.

[NewbieD]

Thanks for the update alwaysinvert. I haven't been following PROTCT closely as of late (I sold most of my shares about a year ago because I didn't want exposure to NOK).

 

At a first glance Bank Norwegian seems like a fantastic business. Reminds me of Collector with Björn Kjos playing the role of Erik Selin:)

 

That it's still OTC despite the relatively big market cap is interesting. Is it a hint that the major owners know they are sitting on a golden goose and are not worried about selling out? Have you considered a direct investment?

 

One question that comes up is why so much of the profits of the Norwegian brand end up in this vehicle rather than the airline (that has negative profits). Are there structural reasons to keep it this way? Taxes?

 

As a side note on the Norwegian subject my last two holiday flights, that we used to do with Ryanair have been with Norwegian because Ryanair stopped their service. Two different airports. Don't know if this is a common scenario. If I didn't have a rule against airline investing it would've been interesting to investigate..

 

Regarding protectors core business they seem to be making okay decisions. I think it's a good sign they are trying to find profitable underwriting opportunities outside their main markets rather than signing off on less good opportunities where they are already operating.

 

[alwaysinvert]

I don't know the full story behind Bank Norwegian yet. Trying to learn more as I go. It could be to some extent that it is a question of insider incentives where the profits go, yes. I was mostly referring to their abilitiy to very quickly grow their customer base and savings on marketing etc. But there might be some misalignment of incentives vis-á-vis outside shareholders in Norwegian Air as well.

 

Protector's UK plans are a big question mark in my view. It doesn't strike me as obvious that they will be able to replicate what they have done in Scandinavia there. But what do I know, they are the insurance experts, not me. Hopefully it won't be too expensive if it fails. 

[NewbieD]

Well, I think in commercial insurance of type they do the set of opportunities is fairly limited. They have probably made estimates for the risk for most of the existing business in norway and sweden already at least once. They got some and some were not attractively priced in their view. Of course some new factories/energy plants etc are built, but it would be hard to continue growing quickly. Expanding geographically makes more sense than to say enter private insurance. That would break their model which is based on low expense ratios. Whereas a fish farm in the UK probably works a lot like a fish farm in norway. It is probably easier to penetrate into new territory via brokers than other sales channels. Although it would take a while before brokers know they are good to deal with.

 

Risks for Bank Norwegian I'd like to understand better:

  - Interest rate. Now they pay 0,9% on their money, and earn about 4% on top of that, after reserving and costs. An interest rate shock would obviously be bad. How long would it take to pass through higher funding costs? How much less business can they do if the entire market ups interest 2%?

  - In one of the presentations on their site they present the norwegian market for their type of loans. It went down 90% in a single year in 2009. Why? Can this happen again? Now back around 2008 levels. Good business or not now might not be the best time in a cycle to buy into this.

[alwaysinvert]

My alternative was not to keep growing quickly into other segments but to accept slower growth for the company overall. And it's not like growth is slow anyway, they grew about 60% in both Sweden and Denmark in 2015. I don't see the need to rush into the UK. But I could be wrong, maybe it is the opportunity of a lifetime for them.

[John Hjorth]

Now that the counting underwriting profits has been sanctioned by the church of St. Warren, maybe some more people could be interested in this company. It is still my largest holding.

 

The biggest story of the last year is actually in my opinion an investment in their equity portfolio which has been a huge home run. The company is called Norwegian Finans Holding and trades OTC in Norway. You might want to check out their reports - it is probably the most profitable financial company I have ever seen. I have attached the latest annual report and earnings presentation.

 

NewbieD,

 

What's your basis for your assumption about PROTCT still being invested at the same level in Norwegian Finans Holding?

[alwaysinvert]

Norwegian Finans took off like a rocket the other day after announcing their intention to get listed on the OSX in the 2nd quarter. This was not really news (only a more definitive timeline), but I guess that's testament to how inefficiently priced OTC traded stocks can be.