For you dividend hounds: CGI

[brewer12345]

This is something that I own a little of and am considering buying more of. They arethe dominant auto insurer in Massachusetts and have consistently made an embarassingly large amount of money. The stock has been sliding lately because the entire industry is going down on hurricane fears. Since CGI has ~90% of its business in MA, it is not exactly likely to be hit with a bad hurricane. Mgmt owns a big slug of stock and the company does not like to attract attention to its results (no conference calls, analyst love fests, etc.). This is the only company I have ever seen announce record earnings on a Friday after the close.

Yeilds close to 3% and has increased the div steadily for years. I suspect that they will eventually start either paying out more of their earnings as divs, or start buying back stock again.

 

[Nords]

They are the dominant auto insurer in Massachusetts and have consistently made an embarassingly large amount of money.

Isn't that sort of like being the biggest lumber cutter & gold miner in the Amazon rain forest?

Don't we have a poster here who's spending something like $4000/year for car insurance in the Boston area, which is just about the value of one of my cars? Unless you had a DUI in Ted Kennedy's livingroom, how can an insurance company justify those premiums? More importantly, how can they keep raising them to improve future earnings?

I'm not saying that they're necessarily a bad company, and their fundamentals might look great, but it's pretty hard to maintain the "wide moat" if they're in the crosshairs of every insurance company & industry regulator on the East Coast.

 

[brewer12345]

Isn't that sort of like being the biggest lumber cutter & gold miner in the Amazon rain forest? 

Don't we have a poster here who's spending something like $4000/year for car insurance in the Boston area, which is just about the value of one of my cars?  Unless you had a DUI in Ted Kennedy's livingroom, how can an insurance company justify those premiums?  More importantly, how can they keep raising them to improve future earnings?

I'm not saying that they're necessarily a bad company, and their fundamentals might look great, but it's pretty hard to maintain the "wide moat" if they're in the crosshairs of every insurance company & industry regulator on the East Coast.

To put it simply, MA is a dysfunctional insurance marketplace and likely will remain so for the forseeable future. The state sets the rates and insurers don't have much of a say. There aren't big differences in what people pay for insurance, so the urban drivers get undercharged and the rural guys get overcharged. Meanwhile, insurers have fled the state in droves, in many cases paying CGI to take their book of business. Nobody wants to come into this state and if they did, the easiest way would be to buy CGI.

How do they raise earnings? They are the biggest player by far, so they have economies of scale over all the other players in the state. I also think they have suceeded in cherry-picking insureds. They have also expanded into commercial auto business. I also think they are reasonably canny investors, considering that they are operating within the confines of insurance regulation.

Ultimately, I think the founder will croak and the company will go on the block for a fat buyout.

 

[retire@40]

Don't we have a poster here who's spending something like $4000/year for car insurance in the Boston area...

Well, $4K is on the high side, but I know plenty of parents that are paying in the $2500-$3000 range for their newly licensed teen drivers. Being a step 9 (lowest possible), I'm paying $550 a year.

CGI is very popular in Mass, followed by companies like Arbella, OneBeacon, and the Travelers.  Being a customer of CGI myself, knowing some people on the inside, knowing some autobody guys, and the people in the middle (the appraisers), the reason I see that CGI dominates is because they make the customer happy first.  They usually don't squabble about paying on a claim, they are very efficient in getting from claim to payout, they know how to play the game (legally, but practical) with the auto body shops asking for supplements, and they usually side with the customer.  IOW, they keep the volume up.  Happier customers means more customers and more customers means more income.

I don't own any CGI stock, but I wish I bought some a few years ago.  It still has lots of potential, so I'm not out of the market yet.