Notes

CRM HOLDINGS (CRMH) is a leading provider of a full range of products and services for workers' compensation risk management. Headquartered in Bermuda, the Company provides self-insured groups with a comprehensive range of services, including assistance in the formation of self-insured groups, underwriting, risk assessment, safety and loss control services, medical bill review and case management, general management and recordkeeping, regulatory compliance and, in New York, claims management services. CRM also acts as a broker by placing excess coverage insurance and any required surety bonds for the groups. CRM's reinsurance subsidiary, Twin Bridges, insures a portion of this excess coverage. Through its subsidiary Majestic Insurance, acquired in November 2006, CRM is also a direct writer of workers' compensation insurance primarily in California, Washington state and Alaska.

1JUN07 $7.79

Market cap.: 130M

RATINGS
One analyst (Matthew Carletti from Cochran Caronia Waller ) rates it a strong buy.

Equity/assets: 30%, very good for an insurance company; most of equity is tangible.
PE: 9
PB: 1.5
PCF: 9

Estimates (only 1 analyst)
Sales. Next yr.: 15%
Earnings. Current qtr. 22%, next qtr. 38%, next year 20%

Thoughts: good, aggressive insurance buy. Small company with a growing business, yet low valuations. Worker's compensation seems like a very recession-resistant business. CRM generates income from fees for managing self-insured groups as well as underwriting insurance, which gives it a little diversity.

23AUG07 $6.13

Quarterly Report:
"...no warrants, options or convertible securities outstanding."

"In California and, most recently, in New York, we are currently experiencing a downward trending in the premium rates charged by insurers."

" Net Income. Net income for the three months ended June 30, 2007 increased 39%. ... Net income for the six months ended June 30, 2007 increased $1.4 million, or 19%.

Total revenues increased 171%, mostly due to an acquisition (Majestic).

"There were no material changes in the Company's market risk components since December 31, 2006. As of the date of this quarterly report, we have performed an analysis of our investment portfolio and determined that we have no material exposure to the mortgage and sub prime mortgage markets."

Its investment portfolio consists primarily of government and corporate bonds. It has less than 1% of its portfolio in mortgage-backed securities.
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Trailing P/E (ttm, intraday): 6.41
Price/Sales (ttm): 0.89
Price/Book (mrq): 1.19 (mostly tangible)

Price/Cash Flow: 6.80

Current ratio: 6.6
Debt/Equity: 0.5 (very good for an insurance company).

Only one analyst covered this company, and he seems to have dropped coverage. The average earnings growth rate for the last year is roughly 20%, which is excellent for a company with a PE of under 7.

Small insider purchase by a director on 14 August .

Thoughts: good, aggressive insurance buy. As a rule of thumb, a PE of 6.4 means an earnings growth rate of 6.4% is acceptable; CRMH is growing at 20% a year. Many insurers seem to have sold off irrationally along with financial companies, in response to the popping housing bubble and subprime murder mystery. But, why does a mortgage-based credit crunch harm worker's comp. products?

25NOV07 - $7.24

From the quarterly report:

"Three of the self-insured groups we manage in New York are voluntarily terminating their active operations during 2007. The groups, the Healthcare Industry Trust of New York, the New York State Cemeteries Trust and the Public Entities Trust of New York, provided approximately 18%, 1% and 1%, respectively, of our revenues from fee-based management services for the nine months ended September 30, 2007, and 23%, 1% and 1%, respectively, of our revenues from fee-based management services for the year ended December 31, 2006. The groups' decisions to terminate stemmed from several factors that, when combined, would make the groups' remediation from underfunded to funded status difficult. The factors included significant reductions in the workers' compensation rates set by the New York State Workers' Compensation Board that are attributable to the employers of the groups, increased market competition and pricing pressure, past and anticipated member attrition, regulatory restrictions on discounts offered to the members, and regulatory restrictions against adding new members. ....

"A number of our New York self-insured groups are significantly underfunded.
Adverse claims development has caused a number of our self-insured groups in New York to become significantly underfunded. The estimated ratio of regulatory assets to total liabilities of the groups has decreased significantly due to, among other factors, adverse claims development. Although these groups have not been deemed underfunded at this point, we expect that the New York Workers' Compensation Board may make such a determination following its review of the groups' financial statements. Accordingly, we will be working with the groups to develop remediation plans over the next several months, but are unable to predict with any certainty what the ultimate outcome of the discussions or the proposed plans will be.
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Management of self-insured groups is a declining part of the company's business. In the last nine months, revenue from premiums was $85 million while revenue from fees was $25 million. There was an acquisition (of Majestic, the insurance subsidiary) which accounts for most of the premiums. The company seems to be shifting its business from primarily managing self-insured groups to providing insurance.

Net profit doubled in the last quarter.

There are some discrepancies between what Yahoo reports and what Schwab reports.

YAHOO
Market Cap: 118.00M
Enterprise Value: 105.90M
Trailing P/E: 6.09
Price/Sales (ttm): 0.79
Price/Book (mrq): 1.12
Enterprise Value/Revenue (ttm): 0.73
Enterprise Value/EBITDA (ttm): 4.349

Profit Margin (ttm): 13.34%
Operating Margin (ttm): 16.26%
Return on Assets (ttm): 6.36%
Return on Equity (ttm): 21.42%

SCHWAB
P/E: 7.5
Price/Book: 1.4
Price/Sales: 1.5

Net Margin: 19%
Return on Assets: 4.7%
Return on Equity: 18.5%

In other words Schwab reports slightly worse numbers across the board....

Price/Cash flow: 8.3

Equity is almost all tangible, which accounts for 30% of its total assets. Very solid balance sheet, and good growth.

Some insider buying in summer, in the $6.50 range. No analyst coverage, no estimates. Schwab grade: C.

Thoughts: Probably a good buy, but shooting a little in the dark due to the lack of analysts, estimates, inconsistency about numbers, etc.

2SEP08 - $4.00

CRMH has had legal trouble in the New York state for not maintaining enough reserves to pay potential claims. If it increases reserves in the future, it will have to come out of earnings. More importantly, management credibility is now an issue.

"... the Company is reducing its profit expectations for the 2008 fiscal year. The Company now expects earnings per share for the full year to be in the range of $0.70 to $0.80.

Taking the lower figure of $0.70 the current price of $4 results in a forward PE (for the current year) around 6. That would be good, if you knew the reserves were adequate.

The valuations are certainly nice and cheap, but there are other insurance companies that seem a safer bet, e.g. AHL or ENH (has a lot of mortgage-backed securities).

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