longterminvestor

First on Ryan, then Kinsale. This is what RYAN are building (see below - taken from Ryan's S1). Actually pretty good for the thread on what the actual insurance distribution landscape looks like. Efficient in some ways, others not so much, but insurance is just hard to put in a portal and spit out a quote - case in point look at Lemonade (LMND). The chart shows how vital the retail facing insurance agent is to the distribution system. Pat Ryan owns too much of AON so he couldn't be a retail facing agent, so he just took the wholesale segment by storm. The underlined "bound" terminology is SUPER important. When you as the MGA/MGU can bind, it means the insurance company has given you the underwriting authority. In the trade, its called "the pen", meaning you can write it. This is where the MGA/MGU does all the work and really the insurance company just sits back, manages the book, collects checks and pays claims. Wholesale Brokerage is where a retailer needs help placing a portion of an account the admitted market wont write period or wont write competitively. In my region, wholesale is a huge part of the business. When ever people refer to the E&S market or Non-Admitted market, a wholesale broker is involved. Pat Ryan put it best, E&S is freedom of rate and form. Meaning carriers can charge whatever they want and throw down whatever coverage they want. Versus the admitted market where the carriers have to sit in front of the insurance commissioner, get the coverage language approved and file the rates they want to charge for approval. EVERYONE that Ryan hires is like 25 and super Type A. Young and aggressive. You can call a random number at Ryan in a region you need to place a risk and get an immediate pick up or call back in like 2 hours. Never fails, they dont know who you are but they are ready to talk about a deal. Its pretty incredible. I'm sure there are lots of folks who call back but it is seriously a culture thing at Ryan. And the older folks who are there were bought in a acquisition. I'm long RYAN and probably should have bought more. I bought some more when it tanked after earnings a like 2 Quarters ago. Pat Ryan was buying big chunks himself. Which I loved. The story of how Ryan got started is pretty awesome. For another time. KINSALE 2nd tier risk bearing insurance company who writes the stuff no one else wants to write. They will quote things no one else will. I have not looked at the business as investment, but we trade with them and they will turn things quickly. Gonna be on the tougher classes of business for sure with some language that is favorable to them, not the insured. Doesn't make them a bad market, this is just how companies grow up into bigger risk bearing companies. Gotta get your start on stuff no one else will write. There are worse insurance companies than Kinsale so they are not bad, they just are a carrier who doesn't have any polish. Markel started this way, and actually Markel and Kinsale compete on business in my market.

According the Lloyd's Chief of Markets, Patrick Tiernan - 50% of the business written at Lloyds is US Based, 10% Canada, and 40% is the rest of the world. Decent stat but tough to really use because of the regional nature of insurance and the risk bearing companies being localized. Tough to say what foreign markets are growth markets. If trying to handicap where growth markets will come, my hunch is where ever there is a growing debt market for real estate/business in general - insurance will follow. Where ever there is a contractual obligation, insurance will follow. No debt, no contracts - no insurance. That's true in the US at least. Client might purchase super cheap insurance but not like what a bank or a contract will require. Its gonna come from where you think it comes from, maturing economies, growing GPD's. Other item is the non-competes - just don't know how well they stick internationally (never did the work on it). They have to be decent or guys like Brown wouldn't be playing. The non-compete is one of the most important parts of the brokerage business in the US. (Forgive me if I already said this), When a retail facing agency, the one who gets the paper work signed and collects the money from the insured/the buyer, signs an agreement with a carrier/wholesaler/MGA/MGU (we will make up some more acronyms soon enough), the agreement says the AGENCY owns the expirations of the book of business with the carrier/wholesaler/MGA/MGU. The AGENCY is the one who owns the relationship, individual producers will not have agreements with carriers, the agencies do. Now, the actual broker/producer may have ownership in their book, the actual accounts - could be a split where if the producer leaves, they can buy it at a price from the agency - usually pre-determined in the producer agreement with the agency, or like in the case of the big publicly traded brokers - the producers don't own a darn thing, zero, zilch. That's the asset. The book is the asset. Important to note contractually, the carriers do not own anything, theoretically the carriers/wholesalers/MGA/MGU's serve the retail facing brokers, if the broker wants to move it (tells the insured hey lets move from this carrier to that carrier) they move it. I'm sure the set up is similar internationally but just never seen one. Theoretical because it is supposed to be a symbiotic relationship. But sometimes it is not so sympatico, brokers threaten carriers all the time "if you dont do this for me, im gonna move my book" bla bla. I've never done business that way but people totally do. Or the inverse, there is only 1 carrier who will quote, so that carrier owns that particular market/line of business in that class of exposure. Had a call just today where we were trying to negotiate some language on an endorsement and the wholesale counterpart said "We are one of MunichRe's largest money makers, they will do what we say". I was like, ok, thats fine with me. I have placed accounts internationally and its usually a paper work/clerical nightmare as a US based Broker. For example, the Bahamas really makes it tough to write business there if you are a US Broker (Bahamas Insurance Commissioner wants the money to stay in the Bahamas). Probably similar in other countries as well. Again, the regionality of insurance is important - each region of the world has their own set of unique things and when a broker shows up in that market, they are probably gonna get smoked because they dont know the players. I tried to place a deal in Hong Kong once, made 1 phone call to a friend, referred me to the Asia team, and immediately got told they had seen this account 3 times in the past 3 years. They did quote for me but was impressed how easy it was to get someone who could help me. Placed a deal in Mexico and just found a broker in Mexico who specializes is placing Mexican risks for US Brokers, we just split the commission. Other item I have heard a ton about, specifically in South America, is the stamping of policies - specifically in Reinsurance. Important because when there is a stamp, the premium is noted and the taxes/fees are collected by the regulating insurance body. In South America, and other international countries, where the stamping is not really regulated, the carrier might quote $100,000 for a risk, and the broker tells the client its $120,000. So in addition to the commission, broker pockets an extra $20K when they collect the money from client. Again, much easier in re-insurance but I am sure it happens a decent amount. Would have to assume (famous last words) with big public brokers this doesn't happen but.... Hope this is helpful, glad I can share something where I have some background. Everyone on site is always nice and helpful. Been selling insurance for 16 years and family been doing it since early 1930's. I'll end with a quote a I heard, just thought it was 1000% accurate. "Insurance Brokerage business is A+ money for C+ players". The public brokers are not C+ but there are some folks who work there that are definitely C+ at best and pull down some serious cash. 2nd Best business in the world, Software I guess has to be better. Said that to someone once, and they said Churches are the best business in the world. No taxes. Cheers!

The bigger you as an individual producer get, the less you want to leave because you are making enough money to stay and don't really want to "start over". You would leave to a competitor if they promised to foot the legal bill. And it may get ugly with clients who are on the margin - long time clients don't care about lawsuits but newish clients will be confused when the producer they work with is getting sued. Reason to leave is if a broker is entrepreneurial and wants their own freedom. But at a point, the money doesn't motivate people. I know a guy who has an $10M revenue book and makes 20% commission on that book. One hurdle leaving would be a couple of the markets he works with will not honor an "agent of record letter" so the business is stuck at the shop hes with. That Producer could make double anywhere else but he is just gonna stay. He is showered with stock so I guess it evens out. Still tough to argue why a smart intelligent broker with actual clients would work for a big shop. But if the producer doesnt want to run payroll, manage employees, deal with office BS and just sell - then a big shop is where they would be best suited. Difference between the big publicly traded brokers is how the teams are set up. Some producers hunt alone and some need teams to support their books. Some shops are very financially analytical about the set up running individual book P&L's and others just run with pooled support teams/resources. Insurance Office of America (IOA) has a model where the producer gets the lionshare of the revenue with a centralized service team offsite. You are buying a book of business with a 95% renewal retention. The acquisitions are the "extra growth". Hard to mess up an insurance agency. An idiot could run an insurance agency with 20% to the bottom line. With some financial reporting and diligence, that idiot could get it to 35% but would have to cut Producer comp and that usually causes issues with producers. Other item is account minimums. Some of the bigger shops wont touch an account unless it can hit $25,000 revenue ($200,000 - $250,000 premium rough number). That culling of the book usually gets distributed to the better local/independent shops who can write smaller accounts profitably. Great example of why I work at my own shop, phone rang Wednesday with a new deal, spent 3 hours Wednesday teeing up some applications, making the submission look tight, spent Thursday working the phones, and Friday quotes came in, bound coverage 6pm for $100,000 premium. Will make $12,000 for 2 days worth of work. and it will renew next year because the contract requires the coverage. Almost impossible to shop what we did based on the class of business. So yeah, growth can come from anywhere - you never know what is gonna happen when the phone rings. As a client, all the brokers go to the same markets and there is some favoritism (usually with a certain underwriter/producer, not on a company level) with certain brokers but overall everyone gets "the same price". Clients who bank with a local bank with typically have an insurance broker who is "local" rather than a big name insurance broker. Lockton (privately held) gets a good look because of their private nature from some key accounts. Best way I have thought about it is if you sell insurance and your fraternity brother became the CEO of a huge company, you could write the account but might get a little out of sorts quickly if you dont have the claims support/service team ready to keep up with clients needs. But again, there is no limit to what a small shop could do if the relationship with the client is there verses the big shops. The client is the boss. The key for any producer is equity in the book, if they have that, and the shop sells, they will get a payout. Most people/clients, generally, are conditioned to think bigger is better. But we write some nice accounts the big shops would love to have however clients will never go to the big shop because they know pricing will be the same and the client is happy with what they already have. Clients get that there are only a few markets in their space that can write their account. If the producer is serving up their account annually, and gives a market summary, that is all the protection you need as a producer. However, if you just send the account but never really work it and a competing shop sends the account and gets better execution, thats the risk. I dont feel it has anything to do with size or being public, I believe its how the account is sold to the market, how the risk is sold to insurance underwriters. So in that case, one could be made to look pretty stupid if a market quotes an account for another agent, and never quoted it for the incumbent agent. Overseas is where new growth is - economies are maturing and insurance is being purchased with more frequency and size. US is one of the biggest markets, not because businesses want to de-risk by purchasing insurance, its because it is mandated. Bank lends you money to buy an asset, bank will require insurance, have a fleet of trucks with a loan, need to insure the trucks, and the state regulatory body will want a copy of insurance as well. Leasing a new office space? Landlord requires insurance. This is not the case globally but is starting to become more prevalent.

WSJ featured 2 articles on rising auto insurance cost as well. https://www.wsj.com/articles/auto-insurers-rising-rates-are-no-accident-11674589118 https://www.wsj.com/articles/car-insurance-rates-are-soaring-with-little-relief-in-sight-66138e2a

MarshBerry puts out a study on agencies. Last one I saw showed count for agencies is roughly 36,000. The majority of these businesses are just what you see in your town/city - a retail walk up office in a stripe center where the owner has a couple employees and runs all expense through the business. 60% (21,000) are under $500K in revenue so they are small and not acquirable. Next cohort is $500K-$2.5M which is about 11,000. So 88% of the market is sub $2.5M revenue. Owner is the largest producer, owner writes the checks, its kinda funny to see some of these antique businesses - a testament to the staying power of insurance brokerage for sure. These are still not "businesses", they are just little sleepy offices where people buy insurance with maybe a handful of "large accounts". Its the next tiers where things start to get organized - proper Controller/CFO where you might have a small management team running the business. There are roughly 2500 $2.5M - $10M revenue shops. And then the air thins at the top, $10M - $100M like 680, and $100M+ is like 45. With the bigger shops, you have multiple owners - producers who are producing buying into the agency. Teams of producers or large single producer will leave big shops and starting up their own deal (thats what we did). Couple of smaller shops band together to get above the $2.5M - $3.5M mark and then sell due to the big lift in multiples. Specifically with BRO, they are smart, intelligent managers who understand price paid and will not chase a deal. They really were the pioneer in the buying of smaller agencies in the early 2000's and built a machine. Multiples have probably peaked and with interest rates inching up, values have already started to come down. Risk for BRO is producers leaving, they have to keep them happy with no reason to leave. This is an elevator asset business. Even if they leave, some young good looking producer will be sent out and save the day on a majority of the deals. People inherently don't like change, its pretty incredible actually how people complain about insurance but do little to shop around overall - an account that is a shopper will always shop but most just want decent service and phone/emails answered. It's really hard to poke holes in business model. And BRO is better than most on how the business is managed. Florida will always loom tough for insurance in 4 distinct areas - Least Diverse (Risk bearers like diversification), Least Predictable (wind blows or it doesn't no one knows when and how much), Capital of Litigation, and Capital of Fraud. This is a tough place to do business as an insurance company. HOWEVER, state needs insurance and people will use agents. Unknown how marketplace shakes out but the brokers are not disintermediated with state funds selling direct (my opinion). Florida is still one of the fastest growing states and obviously needs insurance to support debt on homes/businesses and employees/cars. BRO is definitely aware of the need for growth. Prediction is more growth comes internationally rather than domestically.

saw this and will give you some thoughts later.

Note was written with a hint of tone that is atypical to the Berkshire news releases. Second time I have noticed tone difference coming out of news from Berkshire, first time was also in relation to the Japanese investments. Above quote is just odd. Not odd that Mr. Able/Mr. Buffett want to own more, just odd that there is a quote saying same.

Interview with Kara Raiguel - CEO of GenRe

Good report. Thought it was interesting how PB commented on PL/D&O market with lots of capacity due to market pull back on property – risk bearers needed to deploy capacity and they are now competing on PL/D&O. he goes “I am not saying that, but some would say that”. Just thought that was funny. Can confirm we are seeing that, we just doubled the limit on a D&O placement for publicly traded company for the same price last year – 2X limit for same premium. Regarding Florida/Citizens Insurance question. I was in a meeting once at Brown – this is 10+ yrs ago and the word was “Where Florida goes, so does the rest of the company”. PB downplayed Florida yesterday on the call – my gut/my opinion, Florida insurance plays into BRO revenue/earnings – materially. I think I know why management is attempting to dissuade street from thinking BRO is buoyed to Florida. Here is some data: As per 10K’s, revenue in Florida as a percentage of revenue: 2022 - 19% of total revenue comes from 55 offices in Florida 2021 – 18% of total revenue comes from 55 offices in Florida 2020 – 19% of total revenue comes from 55 offices in Florida 2019 – no breakout – mentions 52 offices and headquarters in Florida 2018 – no breakout – mentions 46 offices and headquarters in Florida 2017 – no breakout – mentions 41 offices and headquarters in Florida 2016 – no breakout – mentions 41 offices and headquarters in Florida 2015 – no breakout - mentions 41 offices and headquarters in Florida 2014 – no breakout - mentions 41 offices and headquarters in Florida % numbers above from 2020-2022 are deceiving because Atlanta wholesale office’s produce huge amounts of Florida borne business and yet the “office”, as you know, is in Georgia – not Florida. There could be other wholesale offices outside Florida that have relationships with Florida agents and place deals in Florida – would be tough to get a “to the penny” number on % of revenue deriving from Florida based on the way reporting goes so Brown reporting by office geographic location is logical. CITIZENS REVENUE BREAKOUT FROM K’s YEARS AGO: 2014 - $3.8M 2013 - $5.7M 2012 - $6.4M 2011 - $7.8M 2010 - $8.3M PB’s comment on Citizens commission was 100% accurate. Premiums are higher today than they were when Citizens played into the market in 2006-07 – 2015ish. Risk is legislature reduces commission at some point if premiums continue to rise however for the work we are putting in as agents, gonna be tough to justify. But that politics, not insurance (I guess they go hand in hand). Also – did a quick search in AON, Willis, Marsh 10K’s – no mention of Florida at all and revenue aggregation in Florida. WTW disclosed 21% of revenue generated from UK Aon disclosed 55% of consolidated revenue is non-US Marsh is a little different – 51% of company revenue is insurance, 10% reinsurance, and 39% consulting. Marsh does disclose 51% of total revenue was from outside US

Found this on Treasury Direct. Pretty nicely presented. i-bond-rate-chart.pdf

Here is some more chatter on what Berkshire is doing in Florida marketplace. Berkshire - Florida Citizens program.pdf

Confirmed you lose 3 months of interest if you redeem inside 5yrs of purchase. That is playing into my math. Just not something I look at often and was curious if others had done similar calc.

For those who bought IBonds in 2021-2022, the fixed portion of the coupon was 0.00%. IBonds are now being issued with a 0.90% fixed component to the rate. Curious if it makes sense to redeem the ones I have with and buy new with fixed component. Return on these has been satisfactory.

I cringe as well at my younger self and I am only 40. A quote that rings true here, didn't hit me when I first heard it, took me a while to actually understand it: "Youth is wasted on the young".

@ParsadThe word clarity struck me in your comments. The tandem of Mr. Buffett rattling off statistics from say a 1954 annual report and Mr. Munger chiming in with customary crusty curmudgeon comment - concise, accurate, and wise 1000%. Both of them playing off each other will be what I miss. The best 1-2 punch in the business I am aware of for sure! I think its the wisdom, I could listen to Mr. Buffett describe the mechanics of a toilet paper manufacturing business for days. Call me crazy, or just call me a Berkshire shareholder - fine with either. I am reminded of the summer camp I attended as a child. Family run, founded by larger than life father who had 2 sons. The founder was legendary and ran the camp with great gusto. The sons took it over both with their distinct roles. One was front facing campers with great oration/leadership and the other was back of the house and lead from behind. Each had their own sons later who came into the camp and now run. I had pleasure of seeing the later 2 regimes run the camp. And the transition was uneasy at first however overtime it just felt like home again. The camp, very much like Berkshire, has a culture where everyone just knew where to go, what to do, the standards never changed. Amazing actually to think back that all the counselors were top tier athletes/scholars and thus campers all aspired to greatness because we were around greatness (average of your best 5 friends theory). Berkshire is like that, it will live on, and in the future we will yearn for the way things were or wonder what Mr. Buffett/Mr. Munger would do, how would they handle this/that situation - totally natural. I'm with you though, it does make me sad to think of the future without them. I am forever grateful for the time we all have had and what a ride it has been. People were worried about this 20 years ago and look at them, 20 years later. It really is an amazing achievement, the painting of Berkshire as Mr. Buffett refers. @ParsadTHANK YOU for your gift of COBF. it is a great community of like minded folks and will endure. Speaking of that, how old are you? Have you picked out your Gregg and Ajit? hehe. Cheers!

Didn't want to start a new thread, so I just stuck this in here. Podcast from Nebraska Furniture Mart Podcast series called "I AM HOME" with Todd Combs. https://pca.st/aar0wkxj?utm_source=substack&utm_medium=email

The whole point of this exercise is Progressive is the first one to price using real time driver feedback data that is fed into a super computer so my opinion, Progressive is getting the best data to make pricing decision. Is it possible that they are underpricing, I guess. I would tend to agree with you if this was some new kid on the block however Progressive is a proven stable VERY intelligent underwriter who has pioneered an entire new way to underwrite and price risk. I dont have much else on this topic.

No, I am not saying GEICO is mis-pricing product. I am saying GEICO has to increase the price of their product due to the type of drivers they are now getting due to Progressive getting/retaining better Drivers. And GEICO has always won business on price alone, no other value proposition they offer - they are the low cost provider. Where as Progressive allows independent agents to package the Progressive Auto with other lines of business. Progressive policy count/premium volume is growing and GEICO is shrinking as previously evidenced with financials and slides.

Match rate to risk. I believe GEICO is getting the more risky drivers and has to price for that risk. If Progressive is attracting more good insureds defined as people who are generally safer and ultimately file less claims, their individual premium charged will actually go down over time (Progressive calls this their "Discount Loyalty Program" or something like that) but more policies in force means Progressive is growing top line. Conversely, GEICO is taking on clients who potentially could file more claims (the ones Progressive doesn't want), their rate charged needs to be higher. GEICO is not "raising rate/premium for raising sake". The premium is up for the individual policy because they are taking on an insured that is less predictable and the margin of safety needs to be included in the rate making formula - this is pure Buffett. However top line is shrinking because they are losing long time customers. GEICO's entire premise is price, auto insurance is a commodity - policies are basically the same at personal auto level and loyalty comes with with getting best price - compete on price. And very clearly, they are losing on price, and they are losing the better risks on price. This is my point. GEICO barely puts out anything public as granular as you are asking for. Here are the Numbers the way I see them: GEICO premium 2020- $34,928B, 2021 - $38,395B, and 2022 - $39,107B - thats a 12% growth rate from 2020-2022 Progressive personal lines premium 2020- $32,620B, 2021 - $35,373B, and 2022 - $37,880B - thats a 16% growth rate from 2020-2022 Comping off 2020 with COVID skews numbers but its what I had infront of me - if you have more questions I can dig some more. This is just the way I see it, I hope I am wrong for Berkshire, I hope they are figuring this out. Just concerning how poorly Progressive is LAPPING GEICO. And Progressives number for Q1 YOY are at a 22% growth rate. GEICO has not published Q1. BUT premium written for GIECO in Q4 2022 YOY was actually down, less than last year, premium is shrinking, another way to call that is negative growth. see slide deck from Progressive regarding attracting/retaining better drivers, this is public information: see slide deck regarding Progressive premium growth: been busy with my day job, sorry for the late reply. Insurance in Florida is going nutty.

who is the broker you are placing the order?

I have found positioning sizing to be harder than finding ideas I like/understand.

Bloomstran would love it. Secretly (not-so-secretly) been eyeing (lobbying) the job for years.

Ackman?

Bad Risk is relative. Its not a bad risk if its priced correctly. The consumer is complaining, "my premium went up" but its probably insurance company matching the risk with the rate. Many moons ago it was a crap shoot on rates but the risk was super small - no possibility for $500,000 claim either from a Jury/settlement or just the limits on the policy were just smaller. Now, the max payout is larger. I mean, think about it like this - the auto insurance value is pretty great/amazing. Look at what you are getting. Lets say average rate in $100/month for Comp/Collision on a Audi Q5 (middle of the road decent/nice car) and $250K/$500K limit (forgetting PIP/UM). That's $1200/yr for a max payout out of $550,000 PER ACCIDENT. Meaning one could have multiple accidents in 1 year - each time $550,000 is at risk. Every time the vehicle is on the road there is a risk of $550,000. The risk is reduced when the car is parked to $50,000 (comprehensive/collison risk only). A few years ago Progressive saw the max payouts rising and needed a way to attract "their kind of driver" and they built it from scratch. GEICO just spent more money on caveman ads. All is not lost for GEICO. Brand and loyalty mean a lot - and Progressive may make a mistake. Its a bad risk when you mispriced the rate charged on the exposure. Mr. Buffett and Mr. Jain have repeatedly told us, solid underwriting is matching rate with risk.

I can take a stab at this. Early in my career, a Senior Underwriter gave me a similar lesson. His point was (paraphrasing) Don't look at policy count/premium retention needing to stay at 100% - if it is, it's actually a bad outcome. The underwriter explained 100% retention as "we left money on the table". Deepening the lesson a tad to Progressive vs GEICO, and GEICO's lacking investment in Analytics, Progressive has been gaining market share using a tool that allows them to price risk at renewal based on usage. When insured comes with no history, similar formula to GEICO (tons of data goes into this first stage) and then what analytics does at renewal (more specifically having real time feed back on breaking, speeds, miles driven, ect) it allows Progressive to price out the customers they do not want faster and price in the customers they do want during the upcoming renewals. GEICO did not invest in that technology, Progressive invested heavily. And frankly, it shows in the numbers. And what I see happening, even worse for Berkshire/GEICO, is Progressive is keeping the "good risks" and GEICO is picking up those "bad risk" - I see GEICO as pricing for the "scraps". The above is underwriting driver behavior - there are many more factors that load in (referenced above as macro) - geography (wind load in FL vs quake load in CA vs Flood load in MS vs no load for CAT in Iowa), similar is big city/small town so that's zip code, theft/crime rates, regulatory environments with insurance commissioners (and lobbyist with who insurance companies work with) to set the actual rates, new law perhaps - we call this regulatory arbitrage - changes like liability for DUI in Arkansas is different in FL - the bar who served can be held liable in Arkansas.....and the law could change in future which could change the rating loads with new liability in court room (Nuclear Verdicts), and more specifically to the risk (micro) youthful drivers in household, family members in household of driving age, getting married/divorced. All of this factors into pricing, as the life of the insured changes, as the economics of auto/driving habits change, pricing will change. It can get very technical, to those who continue to wonder about price - the answer is simple to me. If you want "best price" today, with ALL the data available on you/family readily accessible with a credit pull and a LexusNexus ping, then you gotta shop every 6 months - period. Full Stop. And shopping around takes work - unload that to a broker or do-it-yourself direct with no representation. Your option.