No. of Recommendations: 4
Gator1984:
All actual Q3 numbers except Grove #1 - Operating earnings. I used previous year earnings plus 10% growth. I also use a $30 BB deduction from cash for reserves.
I get a value of around $475.
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AdrianC:
I did mine, FWIW.
Same $30 BB deduction from cash.
Used actual op earnings, rolling 4 qtrs, 15x
Insurance underwriting earnings, rolling 4 qtrs, 10x
Deductions for taxes due on equities if sold.My question for either of you: when you deduct the $30b in cash, I presume that is because Buffett has said that he would not use that cash for acquisitions. But nevertheless, it IS invested, usually in short-term treasurh bills, with 1-month Treasuries currently yielding 4.75%. Seems like it should still be in the valuation, even if it's not available for buying stocks or companies.
Also, underwriting from just 4 quarters or even a few years is going to be volatile. Why not use a number like the 20-year average underwriting profit, applied to current earned premiums? When I looked at this a couple of years ago (
https://www.shrewdm.com/MB?pid=679561978) I got a 22-year average of 3.2% (pre-tax) underwriting earnings on $74.6b in earned premiums, which was $2.3b pre-tax, $1.9b post-tax. Mungofitch mentioned at that time that he does a similar calculation, and arrived at 2.70% of earned premiums in the same date range.
Updating this for 2023, we had earned premiums were $83.4b (the increase stemming largely from the Alleghany purchase), and relatively good earnings at $5.4b (6.5% of earned premiums). Updating my table with those number, and calculating what is now a 23 year time period (cherry-picked just to include the awfully bad 2001) we would have an average of 3.35% now, which would give us very smoothed pre-tax underwriting earnings of $2793m.
Curious what you think of this reasoning and how that underwriting compares to the one that you put in your grove analysis.
DTBN
