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Recommendation: Buy Verisk Analytics (VRSK)
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Secular risk trends
 Exposure in risk transactions are increasing
 Number of participants is large and asymmetry of
information among participants is substantial
 Failure to understand risk can lead to large and rapid
declines in financial performance
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Verisk is the leading provider of risk management solutions
and analytics to the insurance, mortgage, and healthcare
industries.
Helps customers understand, evaluate, and weigh the
consequences of risk
Segments of VRSK’s business
 Risk Assessment
 Decision Analytics
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Risk Assessment
 Revenue were $140.5M in 2Q11, grew revenue 4.6% Y/Y, 43% of VRSK
 Provides statistical, actuarial, and underwriting data for the US Property &
Casualty (P&C) insurance industry
 Very stable, slower growing
 84% of business is subscription and long term agreement based
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Decision Analytics
 Revenue were $186.8M in 2Q11, grew revenue 26.7% Y/Y (12.5% organic), 57%
of VRSK
 Provides analytic solutions by combining algorithms and analytic methods,
which incorporate VRSK’s proprietary data to help customers in Insurance,
Mortgage, Healthcare, and Supply chain
 Very dynamic, fast growing, increasing acquisitions & international exposure
 58% of revenue is subscription based
Customers who also use the solutions created by VRSK’s
data
2. Agreements with data contributors in which the particular
uses of data are specified
3. “Mining” data found inside transactions supported by
VRSK’s solutions
4. Source data from public sources including Federal, State,
and Local governments
5. Physically gathering data at the request of property insurers
6. Purchasing data from data aggregators under contract
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Historically, VRSK’s costs to source data are < 2% of revenues
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No competitor can rival the breadth and
depth of data
Data is key, because the more data, the
easier it is to draw conclusions from valid
and precise trends
Verisk is embedded into the insurance
company's structure, software, systems
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US Customers
 All of the top 100 P&C insurance providers
 4 of the 10 largest Blue Cross Blue Shield plans
 4 of the 6 leading mortgage insurers
 14 of the top 20 mortgage lenders
 The 10 largest global reinsurers
VRSK Investment Information
6 Month Price Graph (StockCharts)
SWOT Analysis
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SWOT analysis, and how each point impacts company EPS/valuation multiple
Strengths
Highly scalable, leverageable model
Services critical to clients’ workflows
Embedded solutions support pricing power
Subscription revenue model = recurring,
Weaknesses
Significant exposure to US P&C Industry
Depend on new verticals, acquisitions for
growth
Only 5% exposure to international markets
profitable revenue
High rates of customer retention
Veteran C - level management
Opportunities
Threats
Secular trends, “Mastery of risk”
Deeper penetration of existing verticals
Weak P&C Insurance cycle continuing
Acquisition integration risk in Decision
with high growth potential
Organic growth: New Products
Acquisitions
Decision Analytics: Key to international
markets
Share buybacks
Analytics business
Selling shareholders trimming business
relationships with VRSK
Potential loss of access to key data
Investment Thesis
•We should own Verisk Analytics now because of it’s profitable
subscription based revenue streams, strong pricing power,
rapid Analytics expansion, and the secular trends today of
increasing risk based management and analytics in the P&C
Insurance, Mortgage, Healthcare, and Supply-chain industries.
•Potential catalysts are acquisitions, organic growth in both
Risk Assessment and Decision Analytics, and share buybacks.
Portfolio Placement / Recommendation
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Sector : Financials
Industry Group: Insurance
Current Holdings: XLF, GE, ASPS
Target Sector Allocation: 10.47%, $47,989
Current Sector Allocation: 6.80%, $31,168
Remaining Allocation: 3.67%, $16,821
BUY 200 shares of VRSK at a Limit Price of $33
($6600, 1.44% of portfolio), Set another limit order
for 200 shares at $31
2012 year end target price: $45.00