I'm avoiding Medibank Private Ltd (ASX: MPL) at today's prices.
It's not that it's a bad business per se, but Medibank operates in a competitive environment and has been losing market share to competitors for several years now. While the new CEO has plans in place to lift customer satisfaction, he's also made comments about the cost pressures facing customers.
With insurance premiums continuing to rise, customers could continue to drop their private health coverage in the future and competition could heat up, further squeezing Medibank's earnings.
I would much prefer to buy shares in CBL CORP FPO NZX (ASX: CBL), which is a specialty insurer with operations primarily in Europe. With a variety of niche investment products and a focus primarily on reinsurance, CBL has traditionally enjoyed less competition and greater profitability than many other insurers.
Unlike Medibank, CBL carries some debt (although overall it has a very strong net cash position) and the company is using acquisitions to grow into new markets, including the USA. Recent acquisitions have been either dormant insurers with minimal liabilities, or well-established and long-term partners of CBL.
This minimises the risks that have occurred in the past when other insurers like QBE Insurance Group Ltd (ASX: QBE) have expanded overseas. Additionally, CBL has highly experienced management who are major shareholders in the business, and the company has a track record of reinvesting successfully for growth over the past 5 years.
All things considered, I'd much prefer to buy CBL over Medibank at today's prices.
