Gable Hldgs Share Discussion Threads

[topvest] 28/5/2015 18:20

Emphasis of matter audit opinion on going concern, reserving and revenue recognition. Bloody hell what a dog this had turned out to be. The Chief Executive appears to be on some form of medication to be giving the outlook statement just given.

[garbetklb] 28/5/2015 17:55

Ram
Sorry to contradict you, but it's nothing to do with the FCA. Gable are not regulated by the FCA - they are a Lichtenstein registered company. At the time they set up the FSA were pretty reluctant to register new companies quickly. Most companies in a hurry went to Gibraltar where the legal system is UK based and where the claim was that regulation was to UK standards. Gable went to Lichtenstein - why?

adyfc
Yes, indeed. Include FSA in your search.
There's something else in the back of my mind along these lines, but I can't pin it down.

[adyfc] 28/5/2015 17:15

Anyone who doesn't understand this company needs to look up Dewsall's past and all will become clear.

[ramridge] 28/5/2015 16:38

Sorry to pile it on, folks. The report also states that Gable's solvency ratio as at 31/12/2014 was 108. This is way below the level at which the FCA starts to twitch and asks management serious questions about how they intend to strengthen their balance sheet. Gable will definitely be on the FCA's watch list.

The net impact of Solvency II will be to jack up the solvency requirements and the solvency ratio to a level above the current minimum acceptable.

It all adds up to a lot of red flags to me.

FWIW I bailed out last month and took a bad loss.

[ed 123] 28/5/2015 16:04

Thanks again, Garbetklt.

Your view from inside the industry has been illuminating. Investing in insurance companies is probably not for me at all.

I'll stick to those sectors I find easier to understand.

[garbetklb] 28/5/2015 15:55

I'd not noticed the comment about Solvency II.

We were talking about Solvency II when I left my last company - in 2008.

I've not really kept closely in touch with the reinsurance market, but my understanding is that it's very soft at the moment - layman's term would be "cheap". So there would be a good chance that someone would be around to give them a QS reinsurance - maybe even someone more mainstream than Qatar Re?

QS reinsurances are effectively the simplest form of reinsurance - the reinsurer takes a fixed % of each and every policy and the associated premium & claims. BUT the key thing (which I doubt you'll ever see) is the commission terms and, if the commission is not fixed, how GAH account for potential future commission adjustments.

There is also a slightly surprising comment under the heading of "Reinsurance" about reinsurance credit risk. It's completely accurate - although you could expand it to say "..to the extent that any reinsurer is unable OR UNWILLING to meet obligations..." I've not checked if it is normally included, but it struck me as a bit odd.

[battlebus2] 28/5/2015 15:13

Good luck Stegrego, i'm here at an average of 39.5p so not in as deep as long term holders but must admit to calling this wrong, foolish of me to treat an insurer the same way as any other stock, lesson learnt and will hold for now with a 30p stop loss.

[stegrego] 28/5/2015 15:07

Sold out here for a 40% loss and 2 percent folio loss.

Too much uncertainty here for me now, more than ever.

Outlook sounds good but they always do here.

Why not tell about the UK claim? Will they sort Solvency II in time? Why only now take notice of actuary?

I'm sorry Bill, but you are off my Christmas card list.

Good luck to those who stay put.

[battlebus2] 28/5/2015 14:37

Appreciate all your thoughts garbetklt.

[ramridge] 28/5/2015 14:36

Guys

Here is an extract from today's results concerning impact of Solvency II
"
Whilst Solvency II will not come into force until 1 January 2016, the Board has already commenced the process of assessing the impact of Solvency II on the business and, given the Board's expectation of continuing strong growth, assessing the required capital to support those levels of income. To this end, the Board has held discussions with providers of quota share reinsurance and structured debt products. Whilst there can be no certainty that negotiations with these and similar parties will be successfully concluded based on these discussions, the Board is confident that sufficient capital will be in place in advance of the commencement of Solvency II to support its ambitious plans. Failure to raise sufficient regulatory capital would hinder the company's growth plans and could also lead to sanctions being placed on GIAG and therefore on its ability to conduct future new business. This indicates a material uncertainty which may cast significant doubt about the company's ability to continue as a going concern.
"

What that says to me is (1) why the heck have they left it so late ( 7 months to go before D Day) and (2) if they don't get their capital requirements in place before 1/1/2016 then curtains as a going concern.
For this reason this company to me is totally uninvestable for now.

[garbetklb] 28/5/2015 14:09

Ed

Your 2nd para is pretty much spot on. What we would do for long tail was :
- Initially reserve what we would be anticipating the outcome of a year to be - but never less than, effectively, 100% COR.
- For the first couple of years of a particular underwriting year's development, add to our reserves if anything unexpected / nasty appeared. But never take anything out of the reserves.
- Then as time went on, if the business within the underwriting year appeared to be running off well (ie low COR), start cautiously releasing some of the excess reserves as profit. But stuff money back in if there was deterioration.
- At our level - being the underwriter of the excess layers of reinsurance, it would take 6+ years before we had reasonable confidence in how the year was looking and around 10 years before the result was pretty clear.

For GAH, the timescales could be shorter as it tended to be the big claims that took longest to resolve - and those would go off to the reinsurers. BUT GAH appear to carry quite large retentions under their excess of loss programme(s).

And as a new & listed company with fairly naive shareholders, GAH would be under pressure to show results in a shorter timescale - and this is NOT a criticism of GAH.

But the level of reserve strengthening seems pretty high to me - suggesting either :
- far too much early optimism over the likely results of the biz written
- significantly worse underwriting results than might have been expected
or a combination of both.

[ed 123] 28/5/2015 13:06

Many thanks, Garbetklb, for your kind explanation. :-)

Hmmm.... The long tail parts of Gable's business will tend to flatter initially. Also, by growing the scale of the business each year the damage of any consistent underpricing of risk can be concealed to a point.

I guess Gable's shares are going to continue looking cheap in the market, as I'd expect institutions to sell into any strength.

Gable and Aviva may be in the same stockmarket sector but the risk of holding their shares is very different.

I'm neither long nor short here, btw.

[garbetklb] 28/5/2015 12:33

Hi Ed

The short answer is Yes.

There are essentially 2 sorts of reinsurance, normally as annual policies covering the whole of a particular class of business :

Proportional
Here the reinsurer takes a share of the premium and the same share of the claims - the Quota Share they have with Qatar Re is one of these. The reinsurer is in it to make a profit, so will set the commission it pays to GAH at a level where it thinks it will make a profit. The commission may be more, or less, than it costs GAH to acquire & run the business. The commission may be variable depending on results - good if the biz runs well. But if it runs poorly and a negative commission adjustment is due, there's a double whammy for GAH. And the reinsurer will look at renewal in the light of what it expects the result for the current year to be.

Non Proportional or Excess of Loss
Here the reinsurer, by virtue of their wider experience, charges a rate to take any part of a single claim that exceeds a certain amount. Pretty certain that this is what Gable have - and comments about reinstatement premium for the fire claim bear that out. So GAH have nothing (too much) to fear about a single big claim - it's much more about the accumulation of claims falling below the excess point of the reinsurance. And, in whatever year the recently recognised claim falls, they appear to have an excess of £2m for whatever class it is - and my guess is that it's a liability claim and could have occurred anywhere between last year and whenever GAH started underwriting. GAH look (to me) to be running an unusually high excess.

GAH writes principally long tail business (eg liability) - where it takes a long time for claims to mature. Sometimes they are not even reported to the insurer for several years, sometimes the extent of the damage doesn't become clear for years, sometimes liability is in doubt for years. Long tail accounts need a significant reserve buffer for many years to cater for these unknown (and almost always negative) developments.

This is what GAH are topping up this year (£6.3m) and next year (£7.5m) - so I would consider the past results have been overstated by these amounts - £13.8m.

From a quick glance at Stockopedia, results 2008-2013 come to £16.25m

And reserving is not an exact science, much as actuaries might like to disagree, so their overall reserves could end up as more than enough, or still short.

Hope this helps a bit.

Disclosure - No position (long or short) now, or in the past in GAH and no intention to open one.

[scaramanga1906] 28/5/2015 12:20

As mentioned above, it looks like the smart money got out here last year. The question is whether all the bad news is now in the price. I opened a small position here today as I think it might be. A couple of chunky buys of 100k and 400k have gone through today. Hopefully the smart money getting back in.

[ed 123] 28/5/2015 11:56

Garbetklb.

Sobering. Thanks.

A question to you regarding the reinsurance market, if i may. Do reinsurers watch the ratio of claims to premiums for those insurers they do business with? What I'm getting at is, do some reinsurers charge higher rates or avoid insurers who get a reputation for underestimating risk? I'm guessing they must do, as it would be a sensible precaution. If that were to happen, then an insurer could have to pay out a higher claims level for premiums taken, while at the same time having more of their potential profit swallowed up by the higher charging of the reinsurers. So, an insurer in this situation would be doubly squeezed. Does that sound reasonable?

[garbetklb] 28/5/2015 10:43

BritishB & others

Just think about where they are regulated - and what level of knowledge the regulator is likely to have of UK Law & the UK Insurance market.....

Who said the new claim was a fire claim? Or, indeed, that it's a new claim? Gable have said neither - read the RNS carefully, as it's written very carefully.

So Italian insurers are just going to happily relinquish this stream of steadily profitable business? Maybe in the interests of European harmony?! Why?

Let's start thinking here :
- Which years need their reserves strengthening & by how much?
- And what ultimate projected loss ratios will that bring those years up to? And how do these loss ratios compare with the loss ratios they are currently predicting for more recent years? And why should they be very different?
- Which year did the newly "recognised" claim occur in? Might be a surprising wake upo call for some....
- And for the more current years where we're being told the COR is a truly wonderful 87% (and no, I'm NOT being sarcastic - a COR of 87% for long tail business IS truly wonderful), that includes the retained losses of £2m for the new claim and £3.1m, so the underlying, attritional, claim experience must be out of this world.
- Shame that, having "recognised" the new claim late in 2014, they didn't feel it appropriate to mention it in the Feb trading update......
- and another £7.5m of reserve strengthening already announced for 2015.....

What could possibly go wrong?

[toldot2] 28/5/2015 10:32

Premium income substantially up
Reserves substantially increased and reduced tax rate.
Claims ratio below 90%
It does seem that we can expect regular dividends.
The attrition losses are well within expectation and sensibly reinsured catastrophes are all part of the game

[britishb] 28/5/2015 09:52

Hmmm all the way back in 2011 I said



"Hmmm so company declares profits using provisions a full 6m below actuaries best estimate. Hmmmm....no doubt that's helpful for getting bonuses paid. Either the actuary is way out or the company, I guess."

And now they say "We anticipate making a final charge of £7.5m in the current year, following this we anticipate that our internal and external actuarial ultimate loss ratio estimates will have converged"

How on earth have the auditors and regulators allowed this situation to persist for so long???

I hope all those that got monster bonuses along the way have enjoyed them!

[battlebus2] 28/5/2015 09:44

Looks like a buy of 400k...

[mw16] 28/5/2015 08:26

Avoid aim shares. The odds are stacked against you.

[aimingupward2] 28/5/2015 08:24

Indeed, Shuffle Man and not only is the mkt cap 'only £43m' but this is barely more than the net cash of £42m so the future growing business is being valued at virtually nothing. Fair enough if they they go on making a loss, but the likelihood of that is slim surely.

[adyfc] 28/5/2015 08:24

When this company was formed it was for one reason to write selective policies in the market, after a couple of years the revenue wasn't increasing so they went off and started writing any business they could.
This is a lifestyle business for Dewsall, end of.

[the shuffle man] 28/5/2015 08:11

The Market Cap is only £43m. They could write £100m of gross premium this year. They still have the potential to make a decent profit on this so the shares could look cheap. Waiting to see brokers updates later today.

[cottoner] 28/5/2015 07:29

Would be very surprised if we don't see a few director buys today.