Life Insurance Company of Alabama Update: Shareholder Dissatisfaction and Share Repurchases

If you haven't been following Life Insurance Company of Alabama (LINS / LINSA), see our previous LICOA posts from the past year: original post in November 2019, shareholder activism post in May 2020, and shareholder letter in June 2020. Below, we will update with some new developments.

We saw a new letter posted on the Concerned LICOA Shareholders website,
To this stockholder (and, I daresay, to many others), both your President’s “update” to stockholders and LICOA’s 2019 financial statements are far more of a cause for concern than comfort.

Your update claims that LICOA “had a net gain after taxes for the year”. This is patently untrue. In fact, according to the “Summary of Operations”, LICOA had a pretax loss from operations of $843,000 and an after-tax loss of $276,000.

Your letter also presents the capital expenditure which “will flow through the income statement over time” as though this is a positive development for shareholders. In fact, the considerable depreciation expense will reduce both future earnings and stockholders’ equity. Moreover, it is difficult to see how a mere increase in appraised value of self occupied premises will ever deliver direct value to stockholders.

Finally, your statement that LICOA is “committed to providing a positive return for investors” is certainly a worthy aspiration, but your letter fails to communicate any plan to accomplish it. There is no effective market for LICOA stock, the annual dividend is a negligible 1% of stockholders’ equity, and the difference between 2019’s miserable results and an acceptable rate of return on shareholders’ equity is most certainly not just the difference of 50 basis points on a portfolio of bonds.

LICOA has not been managed successfully in the interests of all its owners in many years, and there is no visible indication that things will change for the better in the long-term future. Under these conditions, I appeal to you: please take steps to sell LICOA to an entity capable of providing an acceptable return to stockholders, or take LICOA private. Continuing to run LICOA for the benefit of the extended Daugette family rather than for the benefit of all shareholders is an ongoing disgrace.
Something else very interesting has been posted on the activist website:
In July 2020, LICOA agreed to repurchase stock from the family of Mayo Clark. The price paid was $400,000 for 5,346 shares of LINSA class stock and 1,440 of LINS class stock. Since the LINS stock has 5 times the economic interest of the LINSA stock, this is economically equivalent to repurchasing 12,546 shares of the LINSA stock, which would be equivalent to paying $31.88 for LINSA stock. This was higher than the lowest trade price in July 2020 of $11.85 per share, but lower than the amount of capital and surplus per A share.

This was disclosed in the LICOA board minutes for July 2020. The LINSA shares of LICOA are currently offered for $17 on the OTC. 

Obviously, there's no way to know whether the dissident shareholders will be successful, and we don't know everything that transpired between the company and the family of Mayo Clark, but interesting nonetheless.

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