The real asset of an asset management company is an investment manager, so compensation is the company's main expense. It often has excellent economies of scale and requires very little capital investment. Achieving a certain asset size is evidence that the industry has a stable competitive advantage. Another competitive advantage we are looking for is diversification (both products and customers) and asset stickiness (putting money in the company even during difficult times). A good asset management company can continuously bring in new funds and increase its management assets without relying on the market. Pay close attention to asset growth and be confident that an asset manager will bring in more capital inflows than outflows.
a. Diversified products and investors: Companies that manage many asset classes (such as stocks, bonds, and hedge funds) are more stable during the economic downturn. A shot is more unstable and may encounter severe fluctuations.
b. Sticky assets: viscous assets increase stability, find companies with a high proportion of high-stable assets.
c. Niche markets: those are unique Companies with assets and capabilities have the ability to control pricing and reduce competition for competitors' assets.
d. Market leader: The larger the size, the better. Companies that manage assets, have long-term good records, and a variety of asset types can provide customers with more professional services.
The life insurance industry's competitive advantage is relatively thin, it helps people protect themselves or their loved ones in case of catastrophic events (such as death, disability), or provide better financial protection and flexibility for retirement. The two main sources of income for life insurance companies are:
a. Reinsurance and fees.
b. Other investment income. Its two main expenses are: a. The proceeds and dividends paid to the policyholders; b. The amortization delays the fee. Checking a company's hybrid insurance products is critical to understanding how revenue and profits grow and how dangerous. In addition, it is important to understand what types of annuity businesses a life insurance company has. The best performing company in this industry has a long-term ROE of around 15%, which is a good underwriting constraint and cost control indicator. In addition, tangible book value is another key indicator of valuation.
a. Cautious premium growth rate: In general, the premium growth of a good life insurance company will not be significantly higher than the industry average.
b. Return on equity is consistently higher than equity cost: The positive difference between the return on equity and cost of capital is critical to the long-term operational success of a company.
c. High credit rating: Most first-class insurance companies are rated AA.
d. Diversified portfolios and proven risk management culture: Good insurance companies control higher levels of risk.
The benefits of such companies are often very poor. When an insurance company sells a policy, it accepts the risk as an exchange for collecting premiums. Insurance companies usually receive premiums that exceed the amount they need to pay and earn some of their investment income by using these premium investments. Look for insurance companies that invest no more than 30% of their stock. Property and disaster insurance companies have low pricing power or lack of pricing power, mainly because of low entry barriers and insurance products are easily copied by competitors. Most of the most important expenses of an insurance company are uncontrollable or unpredictable. The insurance industry also exhibits considerable cyclicality and faces many regulatory constraints.
a. low-cost operators: insurance companies that can achieve the minimum cost are the most promising to earn higher returns;
b. Strategic acquirers: Acquisition-driven growth may be a risky strategy, and experienced management teams may often underestimate low-cost acquisitions during the insurance cycle;
c. Professional insurance companies: Specializing in niche markets may often develop specialized underwriting products that bring reasonable benefits;
d. Record of financial strength: Insurance company customers usually prefer companies with financial strength, viability, and claims ability;
e. Look for management teams that are loyal to create value for shareholders: These teams often invest large amounts of personal property in the companies they run.
The asset management industry is heavily influenced by the market and often creates top-notch operating margins. The insurance industry is fiercely competitive and it is difficult to create a lasting competitive advantage. Note the differences between the two industries in China and the United States.