prevalou

good idea!!! just kidding

two questions about the surety industry and SUR: 1) are not their insurance risks correlated : it is mainly a construction industry insurance (65%) ? 2) the premiums are very low in proportion with the amount insured. So it is supposed to be a no loss industry (like munis). Fine when the context is benign like in recent years. What happens if suddenly losses escalate. Are there then enough reserves? See year 2001 for instance: suddenly cumulative deficiency reserves /2000 strong cumulative redundancy reserves.

I can't give you figures on competitors because they are mainly multiline insurers . It would be comparing apples to carrots. Bill Miller, if I remember well had a very strong track record (13 ou 14 years of consecutive market over-performance), before his fund had big under-performance. So probability has to be put into context. The question is business stability. Can for instance a black swan happen in this industry ? Concerning systematic over-reserving I am not sure it is a good thing. You have to reserve well, not too much or to little. Is this to pay less taxes ?

real economic profits are included in BVPS except if you assume they are now over-reserved. (It is not a foregone conclusion even if they were over-reserved these 14 last years)

I don't understand your point about compounded BVPS. Actually if they were over-reserved at the beginning of the calculating period, their real book value was bigger then and the compounded growth in BVPS is lower (except if you assume they are now over-reserved which is not a fact but a wish). The equity to assets is not enough to conclude they are consevative. MBIA had a very good ratio before the financial crisis.

-it seems main competitors are multiline insurers. Can you spot their combined ratio on the surety business? - Is there a relationship between size of the surplus/premiums and risk ? Municipal bonds insurers for instance have big surplus compared to premiums, outstanding combined ratios but big risks. -book value per share: 11% annually since 1997, (S&P 500 3%, BRKA 9%, WTM 12%, MKL 12%, WRB 14%) not bad but not outstanding.

W R Berkley: 150% of shareowners equity in munis!

I noticed 43% of W R Berkley portfolio are municipals.Hopefully Buffett is not right on the municipal bond market.

SUR: -with more than 60% ownership by CNA, it is a bet on CNA management anyway. The CEO has only stock options. -prices ara quite rational for everybody in this industry now (2009 shareholders letter) but for how long ? Has SUR a competitive advantage ? For an insurer, rationality seems to be a great quality, but if everybody is rational, you can buy a basket of companies in the industry...

good reason to change one's mind at low cost...

General Category / Archives / Re: SNS needs to address this, and fast! I think we agree now about this guy

1) Golub managed IDS (financial plans) before becoming Amex CEO and his track was already impressive. At Amex, his track was 30% per year.2) Metlife record during Benmosche tenure was very good (16% annually since IPO versus negative for the S&P 500+ work before the IPO) 3) AIG is more than a PC company (70 B PC net float and about 400 B life/retirement). Underreserving was not in AIG culture even if years 2000, etc. were underreserved. That being said I recognize WRB track as outstanding!

1) if AIG revenue declines, maybe it is a sign they don't underprice anymore. Anyway competitors have an incentive to criticize the fragile incumbent to get back some business. It is clever but i am not required to believe it. 2) I am not sure Golub and Benmosche fit the definition of ineffective public servants (see their track records and background) 3) both of them have little background in pc insurance but a lot in life insurance and retirement. 4) It seems overly pessimistic to tell AIG earning power is at best 2 B$ when before the crisis the ROA on life insurance was 2% and better on PC insurance (about 500 b$ insurance assets now).

If I understand well, Eisman told that AIG earning power was 2 billions pretax. But in the first quarter alone pretax profit from insurance subs was 2,2 billions (excluding AIA and AICO).

How do you know it is discounting premiums? Because a competitor said so or is there another source?

as buffett said concerning the Abacus deal, it doesn't matter who is at the other end of the deal. What is important is the intrinsec value of the deal!

yes I comment on this book. There are a lot of references to Buffett. Keynes was more macroeconomic in his investment style even in the second part of his life and used a lot of leverage. He didn't see the crash coming in 1937 and lost a lot of money he didn't recoup (far from it) until his death in 1946 (after world war 2) I don't mean he is not a genious but I found this comparison to Buffett superficial.

this book is just another book on Buffett and paradoxally not on Keynes!

considering the purchase of the 38% of Wachovia financial advisors in cash for 4.5 B$, this issue is very logical.

yes, I remember Reichardt tenets when making a commercial real estate loan: it is all about people, credit, real estate (old annuals reports from 1991). Loans have to be secured by a cash flow producing asset, with a margin of safety above the interest rate. It is the reason why Wells Fargo don't like very much construction loans.

...and in 1990 CRE represented about 30% of their loans (during a very severe contraction in californian real estate)

For Wells Fargo, CRE represents 17% of their loans, not 9%

the failure rate is 100%, ok. The problem is time it takes to fail. And long term we are all dead as Keynes said!

extract from the most recent Wells Fargo (big player in the ARM market through Wachovia) 10Q on ARMS recasts: "Due to the terms of the Pick-a-Pay option payments loans, we believe there is little recast risk over the next three years. Based on assumptions of a flat rate environment, if all eligible customers elect the minimum payment option 100% of the time and no balance prepay, we would expect the following balance of loans to recast based on reaching the principal cap: $1million in the remaining quarter of 2009, $3 million in 2010 and $6 million in 2012." Much ado about nothing!

two remarks/questions: 1) if the price to rent ratio is about 1 (see shiller index), how can i have to pay 1000$ per month to rent and 2800$ per month to buy a home? 2) A lot of ARM and pick a pay mortgages changed hands during the crisis. For instance Wells Fargo bought a portfolio of more than 100 billions$. Thes portfolios were bought with big discounts (like 35%), and now loan terms can be converted. What I mean is losses already were taken on a lot of ARMs. So I don't expect a blow up from these.