Notes From Phone Conversation With the CFO of $UNAM

The new company I have been researching is $UNAM, a small property and casualty insurance company whose operations are in California.  I still have further research that I am going to do on the company and I still need to value them, but to this point UNAM looks like a potentially good investment after reading its annual reports back to 2004 so far.   I have come across a few concerns that I wanted to talk with IR about so I decided to call its IR department and I frankly wasn’t expecting much from because every other time I have called a company’s IR department I have either gotten no answers or they said they would call me back and still months later have not.

Once the nice lady I talked to at UNAM’s IR department heard that I was a prospective investor and had some questions that I would like to ask, she patched me right into the CFO, treasurer, and director of UNAM, Mr. Lester Aaron.  Over the time of our conversation, between 15-30 minutes, he took the time to answer all of my questions and he talked with me a bit about UNAM’s philosophy as it pertains to how the company invests shareholder and company money.  Below are my notes from the conversation.

Yesterday I had a conversation with the CFO of UNAM and had my first ever pleasant experience with a companies’ IR department.  He took the time to answer all of my questions and laid some of my concerns to rest about the company.   The bulk of my questions were about the company’s investment portfolio, currently only yielding around 1%, no investments in equities since at least 2004, and why there is a $2 million limit on equity investments.  Some highlights are below.

  • Multiple times he said that the company treats shareholder money as their own, that they concentrate on the long term, and doing what is right for shareholders.  This was his major point of emphasis during the call.
  • He thought that some of the other insurance companies were a bit crazy for writing premiums that led to an underwriting loss.  UNAM has had an underwriting profit since 2004 during a “soft” insurance market.  UNAM not compromising on the price of their policies to sustain the underwriting profit has led to a reduction in the number of premiums written in recent years.  An underwriting profit every year since 2004 is especially impressive due to the “soft” or unfavorable trend in recent years in the insurance industry, and of course I would rather the company be profitable than it wanting to expand premiums recklessly.
  • He did not want to “Gamble investor’s money” and he seemed to think that with all the risks around the world currently (Europe, currency, sovereign debt in the US and abroad, political issues, issues in the P&C insurance industry, etc) that UNAM felt that it would be gambling people’s money in the short term if they were to become a bit more aggressive with their investments.
  • They think about what is best for shareholders “Not five months from now but five years from now” and that they would rather earn 1% on investments than take unwarranted risks with the capital it has at its disposal.

All of which are some of the reasons why UNAM has become very defensive with its investment portfolio in recent years, currently only yielding around 1%, as the company is mostly invested in short term US treasuries, cash, and cash equivalents.  At least in part that it is also why the company has chosen to buy back shares in recent years and paid special dividends on occasion because “We think that the shareholders can put the dividends to better use than I think that we can currently in the market.”

The company has remained very disciplined over the years with its continued underwriting profits, having its insurance ratios well in excess of what they need to be, and well above the minimum required.  UNAM seems very shareholder friendly to say the least

The one quibble I had was that I think you can make more than 1% on investments without taking on a bunch of risk and still be able to pay insurance out when it needs to be paid, but he has a lot more experience in the P&C insurance industry than I do so I will trust their more experienced judgment.   I trust that they will keep their investment money in low risk short term investments as dry powder waiting for an opportunity to pop up or the insurance industry to turn more favorable.

Overall I came away very impressed with his answers and how he emphasized over and over again that they wanted to do what was best for shareholders over the long term.

I still need to do further research and value the company but up to this point it looks very promising and I am impressed with the company’s shareholder friendliness and discipline.  I will have my article written on UNAM as soon as possible and decide at that time whether or not to buy into the company.

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