Shrinking the Share Count

This post was prompted by this post from Avondale Asset Management on how the share count from The Travelers has shrunk since 2005 (two years after their merger with The St. Paul, a company that I once worked for).� Only 57% of the shares remain.� Way to go.

Now, buying back stock is not a panacea.� It is only good when the shares are trading below or not much above fair market value.� What’s fair market value, you ask?� Well, that’s not an easy question to answer in most places, but in insurance, it means around 1.3x book value, adjusting for intangibles that have no economic significance.

Now if a company has some proprietary products, technologies or methods that give it a sustainable competitive advantage, that multiple can rise — AFLAC might be an example of that.� But sustainable competitive advantages in a mature and competitive industry like insurance are rare.� Above the 1.3x book value hurdle, it would be better to do special dividends.

Avondale was spot-on to feature The Travelers.� They are in the upper end of those that bought back shares 2005-2012.� Here’s my list:

Company Ticker Industry % of shares remaining since 2005 WellPoint, Inc. WLP 0706 – Insurance (Accident & Health) 52% Infinity Property and Casualty IPCC 0715 – Insurance (Property & Casualty) 56% Travelers Companies, Inc., The TRV 0715 – Insurance (Property & Casualty) 57% Aetna Inc. AET 0706 – Insurance (Accident & Health) 58% Employers Holdings, Inc. EIG 0715 – Insurance (Property & Casualty) 59% White Mountains Insurance Grou WTM 0715 – Insurance (Property & Casualty) 60% Torchmark Corporation TMK 0709 – Insurance (Life) 61% Assurant, Inc. AIZ 0709 – Insurance (Life) 61% Chubb Corporation, The CB 0715 – Insurance (Property & Casualty) 67% Erie Indemnity Company ERIE 0715 – Insurance (Property & Casualty) 68% RenaissanceRe Holdings Ltd. RNR 0715 – Insurance (Property & Casualty) 69% Endurance Specialty Holdings L ENH 0715 – Insurance (Property & Casualty) 69% Loews Corporation L 0715 – Insurance (Property & Casualty) 71% Allied World Assurance Co Hold AWH 0715 – Insurance (Property & Casualty) 71% W.R. Berkley Corporation WRB 0715 – Insurance (Property & Casualty) 72% Health Net, Inc. HNT 0706 – Insurance (Accident & Health) 72% Platinum Underwriters Holdings PTP 0715 – Insurance (Property & Casualty) 72% Allstate Corporation, The ALL 0715 – Insurance (Property & Casualty) 73% CIGNA Corporation CI 0706 – Insurance (Accident & Health) 75% UnitedHealth Group Inc. UNH 0706 – Insurance (Accident & Health) 77% Progressive Corporation, The PGR 0715 – Insurance (Property & Casualty) 78% Montpelier Re Holdings Ltd. MRH 0715 – Insurance (Property & Casualty) 78% Verisk Analytics, Inc. VRSK 0712 – Insurance (Miscellaneous) 78% American Financial Group AFG 0715 – Insurance (Property & Casualty) 80% StanCorp Financial Group, Inc. SFG 0706 – Insurance (Accident & Health) 80% Primerica, Inc. PRI 0709 – Insurance (Life) 80% Investors Title Company ITIC 0715 – Insurance (Property & Casualty) 81% Hanover Insurance Group, Inc., THG 0715 – Insurance (Property & Casualty) 83% Coventry Health Care, Inc. CVH 0706 – Insurance (Accident & Health) 84% RLI Corp. RLI 0715 – Insurance (Property & Casualty) 84% Kemper Corp KMPR 0715 – Insurance (Property & Casualty) 84% Axis Capital Holdings Limited AXS 0715 – Insurance (Property & Casualty) 85% First Acceptance Corporation FAC 0715 – Insurance (Property & Casualty) 86% Everest Re Group Ltd RE 0715 – Insurance (Property & Casualty) 89% Eastern Insurance Holdings Inc EIHI 0709 – Insurance (Life) 90% Prudential Financial Inc PRU 0709 – Insurance (Life) 91% Horace Mann Educators Corporat HMN 0715 – Insurance (Property & Casualty) 92% FBL Financial Group FFG 0709 – Insurance (Life) 92% AFLAC Incorporated AFL 0706 – Insurance (Accident & Health) 93% Cincinnati Financial Corporati CINF 0715 – Insurance (Property & Casualty) 93% Kansas City Life Insurance Co KCLI 0709 – Insurance (Life) 93% Kingsway Financial Services In KFS 0715 – Insurance (Property & Casualty) 93% HCC Insurance Holdings, Inc. HCC 0715 – Insurance (Property & Casualty) 94% Unum Group UNM 0709 – Insurance (Life) 94% EMC Insurance Group Inc. EMCI 0715 – Insurance (Property & Casualty) 95% eHealth, Inc. EHTH 0712 – Insurance (Miscellaneous) 95% OneBeacon Insurance Group, Ltd OB 0715 – Insurance (Property & Casualty) 95% Aspen Insurance Holdings Limit AHL 0715 – Insurance (Property & Casualty) 96% Unico American Corporation UNAM 0715 – Insurance (Property & Casualty) 97% Markel Corporation MKL 0715 – Insurance (Property & Casualty) 98% Safety Insurance Group, Inc. SAFT 0715 – Insurance (Property & Casualty) 98% Humana Inc. HUM 0706 – Insurance (Accident & Health) 99% Atlantic American Corporation AAME 0709 – Insurance (Life) 100% State Auto Financial STFC 0715 – Insurance (Property & Casualty) 100% A.F.P Provida SA (ADR) PVD 0718 – Investment Services 100% American National Insurance Co ANAT 0715 – Insurance (Property & Casualty) 101% Baldwin & Lyons, Inc. BWINB 0715 – Insurance (Property & Casualty) 101% Mercury General Corporation MCY 0715 – Insurance (Property & Casualty) 101% Marsh & McLennan Companies, In MMC 0712 – Insurance (Miscellaneous) 101% National Western Life Insuranc NWLI 0709 – Insurance (Life) 101% Brown & Brown, Inc. BRO 0712 – Insurance (Miscellaneous) 101% Selective Insurance Group SIGI 0715 – Insurance (Property & Casualty) 101% Sun Life Financial Inc. (USA) SLF 0709 – Insurance (Life) 101% Life Partners Holdings, Inc. LPHI 0712 – Insurance (Miscellaneous) 101% Aon PLC AON 0712 – Insurance (Miscellaneous) 102% ProAssurance Corporation PRA 0715 – Insurance (Property & Casualty) 102% Principal Financial Group Inc PFG 0706 – Insurance (Accident & Health) 102% First American Financial Corp FAF 0715 – Insurance (Property & Casualty) 102% China Life Insurance Company L LFC 0709 – Insurance (Life) 103% Genworth Financial� Inc GNW 0709 – Insurance (Life) 103% Navigators Group, Inc, The NAVG 0715 – Insurance (Property & Casualty) 104% National Interstate Corporatio NATL 0715 – Insurance (Property & Casualty) 104% Amerisafe, Inc. AMSF 0715 – Insurance (Property & Casualty) 104% Cna Financial Corp CNA 0715 – Insurance (Property & Casualty) 105% Donegal Group Inc. DGICA 0715 – Insurance (Property & Casualty) 106% Stewart Information Services C STC 0715 – Insurance (Property & Casualty) 106% Berkshire Hathaway Inc. BRK.A 0715 – Insurance (Property & Casualty) 107% Prudential Public Limited Comp PUK 0709 – Insurance (Life) 107% Willis Group Holdings PLC WSH 0712 – Insurance (Miscellaneous) 107% Crawford & Company CRD.B 0712 – Insurance (Miscellaneous) 111% Old Republic International Cor ORI 0715 – Insurance (Property & Casualty) 112% Molina Healthcare, Inc. MOH 0706 – Insurance (Accident & Health) 112% United Fire Group, Inc. UFCS 0715 – Insurance (Property & Casualty) 113% Partnerre Ltd PRE 0715 – Insurance (Property & Casualty) 113% Protective Life Corp. PL 0709 – Insurance (Life) 114% Manulife Financial Corporation MFC 0709 – Insurance (Life) 114% Independence Holding Company IHC 0709 – Insurance (Life) 116% ACE Limited ACE 0715 – Insurance (Property & Casualty) 116% Reinsurance Group of America I RGA 0706 – Insurance (Accident & Health) 118% Citizens, Inc. CIA 0709 – Insurance (Life) 119% Universal Insurance Holdings, UVE 0715 – Insurance (Property & Casualty) 121% Phoenix Companies, Inc., The PNX 0709 – Insurance (Life) 122% AEGON N.V. (ADR) AEG 0709 – Insurance (Life) 124% Symetra Financial Corporation SYA 0709 – Insurance (Life) 124% Arch Capital Group Ltd. ACGL 0715 – Insurance (Property & Casualty) 127% Fidelity National Financial In FNF 0715 – Insurance (Property & Casualty) 128% Hilltop Holdings Inc. HTH 0715 – Insurance (Property & Casualty) 130% Arthur J. Gallagher & Co. AJG 0712 – Insurance (Miscellaneous) 131% ING Groep N.V. (ADR) ING 0709 – Insurance (Life) 135% Argo Group International Holdi AGII 0715 – Insurance (Property & Casualty) 136% Seabright Holdings Inc SBX 0715 – Insurance (Property & Casualty) 138% Global Indemnity plc GBLI 0715 – Insurance (Property & Casualty) 141% Metlife Inc MET 0709 – Insurance (Life) 143% MBIA Inc. MBI 0715 – Insurance (Property & Casualty) 145% Hartford Financial Services Gr HIG 0715 – Insurance (Property & Casualty) 146% American Safety Insurance Hold ASI 0715 – Insurance (Property & Casualty) 150% CNO Financial Group Inc CNO 0709 – Insurance (Life) 153% Universal American Corporation UAM 0706 – Insurance (Accident & Health) 153% Radian Group Inc. RDN 0715 – Insurance (Property & Casualty) 155% American Equity Investment Lif AEL 0709 – Insurance (Life) 159% Hallmark Financial Services, I HALL 0715 – Insurance (Property & Casualty) 160% Validus Holdings, Ltd. VR 0709 – Insurance (Life) 160% Lincoln National Corporation LNC 0709 – Insurance (Life) 161% Enstar Group Ltd. ESGR 0715 – Insurance (Property & Casualty) 169% Meadowbrook Insurance Group, I MIG 0715 – Insurance (Property & Casualty) 172% Greenlight Capital Re, Ltd. GLRE 0715 – Insurance (Property & Casualty) 173% Alleghany Corporation Y 0715 – Insurance (Property & Casualty) 191% Tower Group Inc TWGP 0715 – Insurance (Property & Casualty) 196% Alterra Capital Holdings Ltd ALTE 0715 – Insurance (Property & Casualty) 197% CNinsure Inc. (ADR) CISG 0712 – Insurance (Miscellaneous) 208% XL Group plc XL 0715 – Insurance (Property & Casualty) 215% MGIC Investment Corp. MTG 0715 – Insurance (Property & Casualty) 220% Amtrust Financial Services, In AFSI 0715 – Insurance (Property & Casualty) 259% Assured Guaranty Ltd. AGO 0715 – Insurance (Property & Casualty) 262% American International Group, AIG 0715 – Insurance (Property & Casualty) 1265%

On the top side, and I did not see any of these, be aware of reverse splits, which can reduce the share count, are a sign of a badly run company, but do nothing for the economics of a firm, aside from keeping them listed on a major exchange.

On the bottom side, factor in large mergers paid for with shares.� Most large-scale mergers don’t work out well, so I don’t mind those companies being near the bottom of the list.

On a closing note, there is a weak positive correlation in most mature industries between stock price performance and relative decreases in share count, assets, and sales.� This sounds counter-intuitive, but good management teams know when to grow and when not to grow.� They don’t do acquisitions for scale.� They don’t grow sales if the sales growth won’t justify the cost of capital.� Building the assets of the company bigger does nothing for the bottom line; selective asset sales can free up cash for more productive uses.� Good management teams do not build empires — they add when it makes sense (grow), subtract when it makes sense (shrink), divide when it makes sense (spinoffs), and multiply when it makes sense (IPOs, JVs, new projects).

PS –� What does the WSJ have today?� An article on buybacks.� Enjoy.

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