niels12think
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Posts posted by niels12think
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There are both ETFs and mutual funds with inverse term bond goals:
ProShares UltraShort 20+ Year Trsy TBT 2x
Direxion Daily 20 Year Plus Trsy Bear TMV 3x
Please do remember that the leveraged funds are designed to go to zero over time :o
The daily volatility works as a drag on performance.
If anything, it might be an idea to buy a put option on a geared bull fund, like e.g. TMF.
Then the fund design will work to your advantage and the downside is limited.
Otherwise, why not just short the geared bull funds or the long treasuries directly?
Cheers!
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Sounds like a complicated accounting fiction to me, and not the runoff having better than expected development.
Runoff had pretax income of $115.2M in the third quarter, so even if we back out the GFIC gain of $85.9M, runoff still generated income of $29.3M from July to September. (page 26 in the Q3 report)
Btw, when Fairfax aquires GFIC below book, it seems only natural that the book of Fairfax should increase similarly. Here they naturally choose to put that $85.9M gain in runoff. Seems fair to me.
Another thing is the way the deal is financed, I agree it looks complicated ::)
Cheers!
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Amazing how wall street firms and many so called professional investors seems unable to put two and two together.
The current stock price must be the result of some major calculation error ;)
Wrong!
You are Wrong -niels12think!
The market is efficient!
Yes, the market is very efficient in providing opportunities ;D
Cheers!
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Amazing how wall street firms and many so called professional investors seems unable to put two and two together.
Well, funny you should mention it, majority on this board wouldn't buy Fairfax either: http://cornerofberkshireandfairfax.ca/forum/index.php?topic=2956.0;viewResults
Yes, my guess is people have been spoiled by earlier short attacks, repeatedly sending the share price to extremely low levels.
Personally, I already had all the Fairfax shares that I needed and therefore didn't vote yes in your poll...
Cheers!
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$19 - approx. 5% - increase in book value per share from July to September 8)
and the stock still trades at roughly book value despite the strong track record and strategic positioning.
Amazing how wall street firms and many so called professional investors seems unable to put two and two together.
The current stock price must be the result of some major calculation error ;)
Cheers!
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If a couple earning income x can afford a million dollar home at 5% mortgage rate, wouldn't they be only able
to afford a much lower priced home at a 10% mortgage rate? Wouldn't that reduce demand and hence, home prices?
What people can afford and what they will pay are generally different. People can afford gasoline at $8 per gallon, but this does not mean that the price then magically become $8. Part of the problem with the real estate buble is that the thinking was twisted to equate what people could afford, with the price.
As a curiosity, the price of gasoline in the country I live in, is a little below $8 - this is why I know people can afford it ;)
Cheers
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However, gold, alone amongst the physical stores of wealth such as corn, oil, acres of forestland, farmland, intellectual property et. etc. has all the qualities that makes it ideal for use as MONEY. Indeed throughout history it has been used as such.
It has intrinsic value (this seems to be the main point of contention in this thread), it is globally accepted as money because it has the following characteristics: portability (this eliminates land and such commodities as barrels of oil as candidates for money), purity (one gram of gold is as pure as any other), it is virtually indestructable and above all it cannot be inflated as can any fiat money (commodity future contracts, sovreign promises to pay, monetized debt etc.).
...
That is why gold has "outperformed" in terms of debased currencies....
Actually, silver has the same characteristics. Seems to me the performance can't be explained purely by the characteristics. How come gold has "outperformed" silver then ?
Cheers
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The total silver ever mined would fit into a cube with sides measuring 55 meter as opposed to golds's 20 meter.
Looked a little more into it. According to other sources, the cumulative amount of silver ever mined is approx. 45 billion ounces, which would fit into a cube measuring 45 meters on each side. I.e. approx. 10.5 times the amount of gold ever mined. Link: http://www.gold-eagle.com/editorials_05/zurbuchen011506.html
On top of this, it seems that the percentage of silver irrevocably lost (consumed in production etc. and not available for recycling) per year is significantly higher than for gold.
Cheers!
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To me it seems that gold is in a bubble. My thinking is that silver has the same characteristics as gold (plus some additional). Silver have been used since the beginning of time as a currency, and even in so called gold based currencies, it would mostly be silver coins that were actually used as a means of normal payment. The total silver ever mined would fit into a cube with sides measuring 55 meter as opposed to golds's 20 meter. So both historically and naturally there is a relation between gold and silver. For thousands of years the ratio was in the range 10-20. Now the ratio is 65. This indicates to me that gold is in a bubble even when measured "on it's own terms" so to speak.
Btw, Even the US dollar started out in 1792 to be defined as 27grams of silver, with an eagle (10 dollar) defined as 17 grams of gold pegging the ratio of gold and silver as approx 17. http://en.wikipedia.org/wiki/United_States_dollar
Allthough I'm convinced that gold is in a bubble, i'm equally convinced that the bubble might get bigger :'(
Cheers
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I should have just asked a simple question: would Mr. Market's input on Fairfax's reserving bring more transparency to investors?
In another sense, there actually is mark-to-market also for insurers reserving - at least for public companies: The share price is set by the market and contain the markets opinion on the reserving.
Regarding mark to market of loans on the books of the banks. Shouldn't a logical extension of this be, to allow borrowers bidding for (part of) their own loans? After all the borrower might have a lot of knowledge about the underlying value and might be the onewith the highest bid in a free market. This way the borrowers could buy back (part of) their loan at a discount if they deemed it a good value.
Cheers
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We have the gulf coast full of oil slick, its warming up the sea (raising hurricane severity), we're coming into the hurricane season...
Maybe we will get to see a real life test of the old thesis: "Oil on troubled waters may stop hurricanes" ???
http://www.newscientist.com/article/dn7726-oil-on-troubled-waters-may-stop-hurricanes.html
http://www.wunderground.com/blog/JeffMasters/comment.html?entrynum=1476
http://www.pnas.org/content/102/32/11148.full.pdf+html?sid=a18e764b-6527-4da3-8c8b-4085e647d998
Cheers
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I generally wouldn't buy FFh ahead of the hurricane season. It could get cheaper FWIW. Not advice, just what I would do.
Loss reserves are set aside prior to the hurricane season (or indeed, prior to any claim). If you believe that the reserving is conservative, then on average it shouldn't matter or actually be slightly better to buy before hurricane season (claims)?
Trying to out-guess the market price of the issue could in my view be considered purely speculative and anecdotal on par with "sell in May ..." - not to say it might not actually be best.
Couldn't it be likened with a wager, where you have the following options:
- to get $60 now (conservative loss reserve) and have a 50% risk of paying out $100 in some time from now and 50% probability of paying out $0.
- to pass on the event and get nothing.
And if one passes, then one also passes on the other everyday earnings in the period.
Cheers
Please explain what you mean by saying that reserves are set aside before hurricane season. The Bermuda Re companies I'm familiar with don't do this to the best of my knowledge, although the better ones are quick to set aside IBNR reserves.
In my experience it goes much like this
1. When the premium is earned, the insurer sets aside on a gross level, the net present value of estimated the ultimate claims that should be covered by the policies earning the premium.
Because the claims are not yet reported or may indeed not even be incurred yet, this reserving is on a gross and not on a case by-case level. Nevertheless this is part of the reserving process.
2. As the claims are afterwards reported, then reserves are set aside for the actual claims and the IBNR reserves are lowered according to the estimates. Reserves set aside for actual claims might be average reserves, or for larger claims it might be an actual estimate.
3. As the payments out on claims happen, the reserves are lowered by those payments.
4. When a claim is closed (all payments have been made), the remaining reserve is set to zero.
The reserves are evaluated regularly (for instance each year) and might be changed based on management or actuarial opinion/choices.
This means that for step one, the insurer underwrites at a false profit if it sets aside a too low estimate of ultimate claims in 1 and would run a greater risk of reporting a low, but false CR. On the other hand, the insurer which sets aside a conservative reserve for the ultimate claims will report a high CR initially, but will also have a higher likelihood of eventual actual payments on claims being lower than the reserve set aside originally as the premium was earned.
Similarly in step 2, in setting aside reserves for actual claims and reducing the IBNR reserve accordingly, there can be a profit (loss) if the reserves for actual claims was lower (higher) than what was originally set aside to cover the claims. If the insurer sets aside a conservative reserve for actual claims then this will show up as an apparent loss (or lower profit) than the insurer which sets aside optimistically reserves for the actual claims.
2B, Also and very importantly, the actual claims are random, and for instance for hurricanes, it might appear that if there are more expensive hurricanes than what was estimated originally that there will be a loss exceeding the original estimate of the ultimate claims. On the other hand, if there are less costly hurricanes than what was originally estimated, then there will be a gain as the actual reserves to be set aside are lower than what was originally estimated. However, one might argue that the loss (or gain) in one year from such events should be seen with respect to the many other outcomes that might have been.
In step 3-4, the reality kicks in. As the claims are paid out, the actual payments might be lower than the reserve set aside - this will typically happen when the reserves set aside are conservative.
Or, the actual payments might be higher than the reserve set aside for those claims - this will typically happen for more optimistic reserves.
It is only in step 3-4 that the profit or loss is real. In steps 1 and 2, the profit or loss and the combined ratio is only based upon management and actuarial opinion and strategy/policies for estimating reserves.
But even in step 3-4, the 2B effect is very real and should also be considered.
This is why you will need to view claims on an underwriting year (not accident year) basis throughout many years. Consider for instance a single underwriting year, say 2004. If you have the reserves and payments split by underwriting year, then you can see the original reserve set aside on risk underwritten in 2004. This is step one from above. Then for each year following this, there would be some changes to the reserve set aside. This is caused by step two above (and possibly also changes to the way that the insurer chooses to estimate the IBNR reserves) and step 3 as the actual paymens are made. Eventually, after many years - possibly even 50 or 100 years down the road - as the last payment is made, it is possible to compare the actual accumulated net payments from the underwriting year with the original reserve set aside in 2004 and the actual premiums earned.
You might think that you would then - in year 2054 or something - be able to see if the original underwriting in 2004 was made at a loss or profit (CR for the underwriting year when all is said and done), but the 2B issue should in reality also be considered:
It might be that a lot of insured risk just never materialized (plain old luck, for instance that there were no severe hurricanes). In this case the underwriting might actually have been bad even though there was an eventual profit. The underwriting should really be measured on the many different outcomes that might have been, and not just the one eventual outcome which actually occured.
There are many estimates and models and opinions and choices involved in the reserving process at insurance companies, and it can be extremely difficult to see if it is the company reporting a CR of 85 or the company reporting a CR of 100 which is actually the profitable insurance enterprise :'(
And then we haven't even considered the investment side of the business nor the reinsurance ... ::)
Cheers
PS: here are some links:
Claims reserving now means, that the insurance company puts sufficient provisions from the premium payments aside, so that it is able to settle all the claims that are caused by these insurance contracts
The insurer will conduct a reserving exercise with a view to assessing what this ultimate cost will be.
...
This balancing item between the incurred claims and the ultimate claims is commonly referred to as the IBNR or the IBNR reserve. In pure terms, it only allows for those claims that have occurred before the valuation date but have not yet been reported to the insurer either directly or through the broker, hence the name. This pure usage is not used in practice. The more common usage includes reserves for items such as reopened claims, future claims on exposures to be written within the projection period, salvage and subrogation.
- to get $60 now (conservative loss reserve) and have a 50% risk of paying out $100 in some time from now and 50% probability of paying out $0.
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Although a minor part of the fair value, I'm amazed at the number and par value size of e.g. MBS - many of which are valued at a rate of 0.0000.
For Odyssey alone, at year end 2009 a par value of $617M carried at $61M and having an actual cost of $76M.
Suppose some of this trash turns out to be less junk than what the market thinks now - there are maybe 30 years to go..
Btw, maybe this is common, but for me it's a fist to see an effective rate of more than 100,000,000% on a long duration security in an otherwise low interest rate environment. Wonder if the formulas are even valid to calculate such things...
Cheers
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I generally wouldn't buy FFh ahead of the hurricane season. It could get cheaper FWIW. Not advice, just what I would do.
Loss reserves are set aside prior to the hurricane season (or indeed, prior to any claim). If you believe that the reserving is conservative, then on average it shouldn't matter or actually be slightly better to buy before hurricane season (claims)?
Trying to out-guess the market price of the issue could in my view be considered purely speculative and anecdotal on par with "sell in May ..." - not to say it might not actually be best.
Couldn't it be likened with a wager, where you have the following options:
- to get $60 now (conservative loss reserve) and have a 50% risk of paying out $100 in some time from now and 50% probability of paying out $0.
- to pass on the event and get nothing.
And if one passes, then one also passes on the other everyday earnings in the period.
Cheers
- to get $60 now (conservative loss reserve) and have a 50% risk of paying out $100 in some time from now and 50% probability of paying out $0.
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Cardboard,
If they are competing head to head with Chubb then the issue at hand is not one of underwriting discipline -- it would be either reputational or for some reason Chubb' clients have special loyalty.
Or maybe the price of the insurances at Chubb and Crum are in reality equivalent, but Crum just chooses to set aside higher reserves, leading to an apparently higher CR?
Cheers!
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Have you guys considered the possibility that FFH just sets aside 10-15 combined ratio points each year, in order to make the reserves more and more conservatively stated?
So if they have been so conservative for so many years, why aren't they showing up today to offset this headwind of conservative reserving?
Doesn't the conservative reserving show up in the provision for claims? For 2009, the provision is approx. $3.6B higher than in 2004, although the actual claim payments and the level of new business is approx. the same. I know this is very simplified and relies on a lot of assumptions, but would nevertheless seem to explain the different numbers and statements by the company?
I get a FFH CR of approx 87 if the reserves should have been on the same level as in 2004 (like premiums and actual payments on claims).
Cheers!
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Have you guys considered the possibility that FFH just sets aside 10-15 combined ratio points each year, in order to make the reserves more and more conservatively stated?
The first thing that comes to mind is that... is it illegal to deliberately inflate reserves for the purpose of reducing taxes? I can understand that being a little bit conservative is perfectly okay, but there must be a threshold where this gets abusive in the eyes of the law.
Second thing that comes to mind is that... now that volumes are dropping this should be showing up as a tailwind to their CR, not a headwind. See my example above about the company that, over a span of 4 years soft market, winds up writing $50m business instead of their past $100m. If they were overreserving by 5% in every year, then they would be getting a tailwind of $5m worth of reserve releases to offset $2.5m of reserve additions. The net result is an improvement to the CR. Now, with Fairfax we know that they are writing less business -- so the reserve releases from past conservatism ought to be more than offsetting the present year loss reserving... or at least we should be getting to the point where they nearly cancel one another out. My point is that you can't just keep hiding your taxable income in a reserve -- at some point it comes out and gets taxed. So if they have been so conservative for so many years, why aren't they showing up today to offset this headwind of conservative reserving?
First, I don't think they deliberately inflate reserves to reduce taxes; this is merely a side-effect of conservative reserving.
Second, the net premiums earned have been of the same order of magnitude for some years now - they haven't really fallen. Also, due to the long tail nature of the business, it will take more than 4 years with this conservative reserving policy in force before we reach break even. If true, we still have a head wind and the tail wind is in the future, but not priced into the issue.
Cheers
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Have you guys considered the possibility that FFH just sets aside 10-15 combined ratio points each year, in order to make the reserves more and more conservatively stated?
That would help explain that net provision for claims have increased from $7,822 in 2004 to $11,438 in 2009 while both annual actual payments on claims and net premiums earned have been relatively unchanged (slight drop actually).
From the face of it, it might be that the reason for 100 CR is not bad underwriting, but simply that FFH sets aside more provision for claims each year than what other insurers might have chosen to set aside. This would seem to agree with statements made by the company.
Aside from lowering the annual tax bill - and possibly ease attracting customers - this would also seem to reduce the risk from the insurance business.
In no way however, could this be considered bad underwriting. And the effect of getting investment results of a larger float with less tax and less risk would trickle into shareholders equity in the form of superior results over the long haul.
Maybe the market is just pricing the two issues (FFH and MKL) wrongly?
Cheers
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https://www.prac.com/about-us/common-stock-appraisals.asp
Based on their own numbers Fairvalue: $3265 considering 20% discount for lack of liquidity" $2610
but on page 14 in the 2009 AR, https://www.prac.com/about-us/annual-reports/2009AnnualReport.pdf :
"Common stockholders’ equity per share $1,816.43"
Wouldn't the use of a "fair value" appraisal be similar to e.g. Fairfax getting an appraiser to vouch for a fair value per share of $700 and then concluding that the stock traded at almost 50% discount?
Cheers
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Viking thats a bout the only thing I find consistently cheap. Every insurer is cheap, but you can buy world class insurers under book value.
I find mind-boggling differences in valuation of insurers. Some local - local to me that is - insurers trade at 2-2½ times book ???
Cheers
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and CET has discounted Plymoth Rock in it's valuation, so a double discount
Isn't it the other way around?
CET had 70,000 shares of Plymouth Rock which they valued at $154M corresponding to $2,200 per share on 31/12.
But the book value per share was reported by Plymouth Rock to be $1,816.43 per share on 31/12.
And it seems to me that the NAV of CET excludes the tax penalty incurred by the investor when CET eventually realize gains?
Cheers
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In the case of Markel and Fairfax, I believe that their CR's are comparable. Earned premium, as stated by Markel, is net of premiums assumed and ceded. I haven't seen too much flexibility in the earned premium denominator, but some insurance companies calculate the expense ratio differently.
OK - thanks !
Just wondered what the difference was as e.g. Markel state their combined ratio is U.S. GAAP, while fairfax' combined ratio is non-U.S.GAAP.
And also if the difference was significant.
Cheers
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- The combined ratio of the company's insurance and reinsurance operations was 99.8% on a consolidated basis.
Anyone has an insight into the nitty-gritty of how the Fairfax combined ratio is different from other insurers?
"The combined ratio – which may be calculated differently by different companies and is calculated by
the company as the sum of the loss ratio (claims losses and loss adjustment expenses expressed as a
percentage of net premiums earned) and the expense ratio (commissions, premium acquisition costs
and other underwriting expenses as a percentage of net premiums earned) – is the traditional measure
of underwriting results of property and casualty companies, but is regarded as a non-GAAP measure."
When I look into some other companies, it seems some state they use earned premium instead of net earned premium as the denominator?
Am I mistaken ???
Example:
The U.S. GAAP combined ratio measures the relationship of incurred losses, loss adjustment expenses and underwriting, acquisition andinsurance expenses to earned premiums.
and
The percentage of assumed earned premiums to net earned premiums for the years ended
December 31, 2008, 2007 and 2006 was approximately 10%, 9%and 8%, respectively.
Cheers
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Am I the only one trying to find my options somewhere?
Hi,
The option chain for Fairfax is for instance here:
Cheers
Q4 2010 results out
in Fairfax Financial
Posted
I'd wish Prem at the CC or in the letter to shareholders would somehow try to quantify the "conservatively" stated reserves as compared to similar non-conservatively stated reserves. As a small shareholder - and thereby small business partner - I would much appreciate such information.
Thanks