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Wednesday, October 03, 2007

Recommending UNAM again

Shhh. Here's a little secret.

There is a stock I've owned for 5 years. It's gone from $4 a share to over $11. And you know what? It's STILL trading under its book value of $11.80.

This company is Unico American Corp. (symbol UNAM), which trades at 10x earnings and generates around 10% ROE. It's kind of like a bond yielding 10%, backed by book value and with upside potential.

UNAM is a California property & casualty insurance company. UNAM is conservatively managed, with very disciplined underwriting. Several quarters ago, UNAM's book value and shares got a boost, as loss estimates were marked down thanks to good underwriting. Here's how UNAM states it: "Despite the increased competition in the property and casualty marketplace, the Company believes that rate adequacy is more important than premium growth and that underwriting profit (net earned premium less losses and loss adjustment expenses and policy acquisition costs) is its primary goal." Now that's the smart way to run an insurance company. So don't be fooled by the declining sales numbers. They are intentional and investor friendly. It's tough not to chase business, but it's the right thing, as UNAM's stock price proves. In addition, UNAM has not chased risky assets like CDOs. Rather they remain conservatively invested in short-term treasury bonds.

Their market cap is under $65 million, yet their latest 10Q shows $146 million in assets (mostly short-term treasuries) and shareholding equity of $64 million (which is the real thing, coming from retained earings, not from goodwill or other funny stuff).

The subprime market fallout caused this stock to move down from $14. However, this stock has absolutely no exposure to the financial crisis. If anything, it will benefit, as there might end up being less competing capital in the insurance markets.

It's hard to find value in today's market. But if you invest in UNAM, you're likely to find true value, again and again.


  • may want to consider migp. a conservative managed p&c co that has tangible book value of $19.05 and bv of $19.93 as of end of june 30, 2007.

    By Anonymous Anonymous, at 12:55 PM  

  • Book value at September 30, 2007 was $20.83 per share.

    By Anonymous Anonymous, at 3:56 PM  

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