Big Data is a big buzz word. But it's nothing new or trendy to
The New Jersey-based risk-information firm has been collecting
and analyzing data for decades.
"We were Big Data before Big Data was popular," said Chief
Executive Frank Coyne.
) was founded as a non-profit agency in 1971 to provide data for
owner insurance firms, such asTravelers (
),American International Group (
) andHartford (
It expanded into analytics as it built ever larger databases
-- the equivalent now of some 2 petabytes of data. That's a lot
of data: 1 petabyte equals 1 quadrillion bytes, or 1,000
Using that data, the company's decision analytics business
helps customers predict future losses, price risk, detect fraud
and quantify losses that have already occurred.
"Data doesn't get us anything; we need to analyze it. And
Verisk is good at building the software to analyze data," said
UBS analyst Jennifer Huang. "Once they have built the software
they sell it multiple times to different customers."
The majority of Verisk's revenue is subscription based.
Verisk is the leading supplier by far of risk assessment and
analytics to the commercial property and casualty industry. It's
the go-to source for more than 90% of property and casualty
The industry's five-year down cycle has been turning up lately
and should generate more revenue for Verisk over the next few
years, analysts say.
But Verisk still grew during the soft cycle because of its
diversified offerings, such as helping insurers project losses
Verisk also sells mortgage products to large underwriters,
such asJPMorgan Chase (
), leveraging its huge database on commercial properties.
But that business hasn't been growing much. Management expects
to see longer-term opportunities as the real estate market
In more recent years, Verisk has been growing its presence in
a faster growing area: health care data and analytics, largely by
way of acquisitions.
Last year's included Bloodhound Technologies, which helps
health care payers combat fraud through real-time
pre-adjudication claims editing, and Health Risk Partners,
focused on Medicare Advantage and Medicaid plans.
On March 30, Verisk paid $348 million for MediConnect Global,
which sells systems and services to facilitate the aggregation
and analysis of medical records. That buy will start showing up
in results in the second quarter.
"Verisk fits into the center of two important trends in
technology," said analyst James Friedman of Susquehanna
Financial. "One is analytics and the other is outsourcing."
He figures Verisk's total addressable market adds up to $8
billion with health-care analytics the biggest at $5 billion.
Health care is still a relatively small portion of Verisk's
business, but first-quarter revenue in that area nearly doubled
from last year to $30.4 million. Customers include health
insurers, such asHumana (HUM), among others.
Verisk's overall revenue in the quarter totaled $346.5
million, up 10.7% from last year. Profit grew 18% to 47 cents a
In health care, Verisk is a small but growing fish in a big
pond, competing with larger players, such as the data and
analytics unit of health insurerUnitedHealth Group (UNH) and the
tech solutions division ofMcKesson (MCK).
Another rival is Truven Health Analytics, the renamed former
data and analytics unit of Thomson Reuters, which private equity
firm Veritas Capital recently bought for $1.25 billion.
Despite its four-decade history, Verisk didn't break into the
spotlight until 2009, when it went public in an initial offering
that at the time was the largest domestic debut sinceVisa's (V)a
It raised $1.9 billion after pricing 10% above its midpoint
range, and closed the first day up nearly 24%, to 27.22. Shares
were last trading around 47.
"The stock has been one of the best performing stocks in the
information service sector," said Huang. "Investors like it
because the business model is subscription based, the revenue
stream is very predictable and they respect the management
Coyne has led the team since 1999, when he arrived to help
transition Verisk to a for-profit firm.
One large shareholder, Warren Buffett'sBerkshire Hathaway
(BRKA), still owns 5.2 million shares, or 3.2% of the company's
total even after taking some profits in recent months.
The firm's flagship operating unit is known as ISO, which
refers to the company's former name, Insurance Services Office.
ISO has many databases, including a vast commercial property
"The insurance companies have come out of a soft cycle, so
that's a tail wind for Verisk for two reasons," Huang said. "As
they become more profitable, they tend to spend more on decision
analytics. And in risk assessment, Verisk charges fees based on
insurance premiums. So when pricing on insurance policies goes
up, it means Verisk's revenues go up."
In the first quarter, commercial insurance prices rose nearly
5% over the earlier year, according to Towers Watson, the
professional services consulting firm.
But Verisk won't see the benefits of higher premiums on its
subscription business until next year because it prices services
based on the industry's prior year premiums.
Verisk's fee-based part of its analytics business, however, is
already seeing gains as customers ramp up projects as profits
Verisk's decision analytics business, which includes
subscription and fee-based projects, accounted for 58% of
first-quarter revenue. It grew 17% over the prior year.
The remaining risk assessment business, all insurance related,
rose 3%. "It's low growth but it's steady and high margin," Huang
Analysts expect full-year earnings to grow 12% to 15% annually
through at least 2014, according to Thomson Reuters. They see
total revenue rising 13% this year to $1.5 billion.