We mentioned in November that LICOA's third quarter regulatory financials showed that the company repurchased a huge block of stock at an accretive discount to tangible book value.
We knew that on June 14th, a block of 205,221 LINSA (LICOA non-voting) shares had traded for $24 per share, and that the same block traded again on July 22nd for $32 per share. That amount of stock was a huge percentage (~20%) of the company. But we did not know who had bought for $24 (a $4.9 million purchase) or $32 ($6.6 million). Subsequently, we saw in the regulatory financials (which were released in November) that the company made a $6,576,662 repurchase of treasury stock, and presumed that they bought this block for $32.05 per share.
We have since learned that this block sale was between an investment bank and broker-dealer dedicated to the community banking sector (JWTT Inc.) and LICOA. We have also learned that LICOA bought more stock from JWTT on October 14th: a smaller purchase of $32 per share for 2,131 shares. So it would appear as though the company has an appetite to make repurchases at accretive prices now. (Meanwhile, very little stock has traded since a $24 print in early November. It is unclear whether the market is incorporating news of these repurchases yet.)
The information below is from a portfolio review of LICOA's investments dated as of September 30, 2021. Something interesting is that LICOA has significant unrealized gains in its investment portfolio (market value $11.7 million greater than book value), which comes from fixed income securities.
When looking at LICOA tangible book value per share, it may be appropriate to add back certain reserves in the statutory financials ("interest maintenance" and "asset valuation"), and also make a market value adjustment (less a reserve for deferred taxes) to the investment portfolio, in order to better approximate the GAAP book value. We will take a look at these calculations in the upcoming Issue of the Oddball Stocks Newsletter.
Also noteworthy in the table above is the income on the bond portfolio -
about $3.5 million after tax. The company has earned far less than this in recent years. As an insurance company, it takes risk and uses leverage (from policyholder float), only to deliver income and rate of return that is less than the unleveraged income and return on the bond portfolio.
Hence the need for shareholder activism...
As the minority shareholders (who sued the company in the US District Court for the Northern District of Alabama in 2019) state in their complaint,
The economic purpose of an insurance company, from a shareholder perspective, is to raise funds from policyholders and invest them at a profitable spread. Using borrowed money (“Float”) from the insurance customers as leverage and investing it in a bond portfolio ought to offer shareholders a higher return on their capital. But because the controlling shareholders of LICOA overpay themselves and otherwise waste money, the return on equity that minority shareholders receive is lower than the underlying yield on the bond portfolio. The minority shareholders bear all the risk of an insurance company's financial leverage (where the total assets are approximately three times the shareholder capital) but without the benefit of any increased return.
Those shareholders are currently awaiting a ruling from the Court on the company's motion to dismiss the suit.
Previously, regarding Life Insurance Company of Alabama:
- Life Insurance Company of Alabama Repurchases Massive Block of Stock ($LINSA)
- Life Insurance Company of Alabama 2020 Annual Report
- Third Amended Complaint Filed in Life Insurance Company of Alabama Shareholders' Lawsuit
- New Order in LICOA Shareholders' Lawsuit
- Life Insurance Company of Alabama ($LINS $LINSA)
- Life Insurance Company of Alabama
- Shareholder Activism at Life Insurance Company of Alabama
- Letter Sent to Life Insurance Company of Alabama (LICOA) Shareholders
- Life Insurance Company of Alabama Update: Shareholder Dissatisfaction and Share Repurchases
- Life Insurance Company of Alabama - Notice of 2020 Annual Meeting
Be sure to check out the Concerned Shareholders of Life Insurance Company of Alabama website as well.