In my 12 years of investing, I only bought two stocks related to financial or insurance industry. The reason is that I have problem understanding their financial statement.
Lately, I try to look into MNRB, a reinsurance company.
According to Investopedia, Reinsurance is the practice of insurers transferring portions of risk portfolios to other parties by some form of agreement in order to reduce the likelihood of having to pay a large obligation resulting from an insurance claim. The intent of reinsurance is for an insurance company to reduce the risks associated with underwritten policies by spreading risks across alternative institutions.
In simpler term, reinsurance is insurance bought by the insurance company to transfer part of the risk to the other parties.
After getting to know their core business, I have to bypass this company simply because it will be much harder for me to understand their business as the formula below,
Reinsurance = Insurance x Insurance = Insurance2
For those interested to know more about this business, you can read the article on reinsurance here.
After reflecting for a while, my problem may be due to the lack of knowledge from my part where the understanding of the technical term like ROE came into play as in my previous post.
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