Hey Sahara,

This is one of the things I struggled with as I went along in the process of writing this article. I realized that while I had learned a lot about float over the past month or so, I realized I had not learned how to value float. The base valuation and very conservative valuations, along with some of the other valuations I did and did not include in the article, were done using techniques I learned from a few sites about how to value float which I will share with everyone here pretty soon. The high valuation is one that I put together thinking that that would probably be pretty close to the private market value of the company if Mr. Biglari or anyone else were to buy the company.

But as I started to read The Davis Dynasty, which I will write up a mini review for shortly, I saw that generally he liked to buy insurance companies who had ROE’s in the range of 10-15%. Along with some other research I did, and correspondence with a fellow value investor with more experience in the insurance field he also pretty much said the same thing.

I think that UNAM’s book value is most likely understated, which if I remember right Buffett either does or used to do with Berkshire to keep expectations low and the companies numbers conservative so to avoid having to put more money into reserves. So I think that UNAM is most likely selling at a bigger discount to book value than it currently appears. Even then the ROE numbers have gotten to the point that they started to bug me quite a bit and I have now decided to put this potential investment on hold until I gain more knowledge in the industry.

Before starting to read The Davis Dynasty my conclusion to the article was that I had planned to buy them in every account I manage and my own once capital came available but decided after reading the book, further research into the industry, and correspondence with another value investor I realized that I needed more information to make that decision and feel comfortable about it.

The company is still by far the best insurance company I have looked at to this point but now I am a bit worried that the insurance industry as whole is generally not that great right now, and any kind of relative look at it will make a company like UNAM look exceptional, which is what I found in comparison to those others.

Another thing that bugs me is that I am an extremely conservative investor and the management of UNAM is far beyond me when it comes to being conservative with its investment portfolio, and I would like to see them use more of that to actually invest like I said in the article too. That is also why I said I would like to own this company outright because I am pretty sure I can earn more than 1% on investments.

For these reasons I have chosen not to invest in them right now and plan on reading and learning even more about the insurance industry.

I’d personally hate to hold shares in an insurer right now. Earning a decent ROE purely from underwriting (considering the poor general environment for investing) is an enormous ask.

I can see why UNAM would be an attractive candidate for a buy out though. If you have a company that good at underwriting, with a highly skilled portfolio manager to run its investments, then it would do very well.