<<There is, as you note, no theoretical reason that this must be so, and good reasons to believe that the two should diverge over time--they just haven't yet. So far, "about 1.5 times book" has almost exactly the same meaning in terms of valuation level as it has for many many years, at least well within the margin of error that it always had. >>

Here’s part of that elusive “reason” lol… the rise in cash which is now well over $300 Billion. Thats $300 Billion, approaching 1/3 of the company, that should be carried at 1.00 X. Yes, that’s a depressant on the multiples one should apply to overall BV. A higher multiple demands putting a chunk of that 1.0x book cash to work.



There are always a bunch of different factors pulling fair IV to higher or lower Price-to-book value ratios. You can say a large cash balance deserves 1x but what if half that cash is float valued in book value at *negative* -1x. What if instead of 6 month duration the "cash" was moved to 2 year notes and stopped being called "cash" - would that change anything? You can look at Chubb's price to book with a more conventional bond portfolio. Nobody backs out the fixed income as "cash" for other insurance companies because the duration is slightly longer.

When large acquisitions of operating companies are more recent, closer to 1x makes sense. When large operating companies were acquired many years ago, higher BV multiples make sense.

The value of float changes with underwriting experience, prevailing interest rates, etc. Is it negative 100%? Is it more valuable than equity since it grows over time and we are paid to hold it? We can probably all agree float is worth somewhere between negative 100% (the accounting treatment for this liability in BV) and positive 150% (more valuable than equity). That's a big spread.