Guy Carpenter’s COTD shows the price-to-book ratio for global reinsurers is at a 20-year low:
Price-to-book, for the non-investor, is the ratio of stock price per share to book value (which is basically surplus) per share. A price-to-book of less than 1.0 implies that the market thinks the value of the firm is less than what you could get for liquidating said company.
I’m no investment expert but am curious why this might be. Liabilities (read: loss reserves) aren’t understated, from what I’ve read. (If liabilities are understated, then book value would be overstated.) Are assets overstated (which would have the same effect)?
The looming Solvency II could have an impact, as it will likely force all insurance organizations to hold more capital. But it will also create business for reinsurers as primary companies will have to shed risk to meet capital requirements.
Again, I’m neither buying nor selling stock here. I’m just curious.