dwy000

I worked with people who know both of them. Two of the biggest egos in Silicon Valley. Count how many times you see them in the same room or standing near each other.

Not to mention that the 2 people despise each other and will seek to undermine each other at every step.

Exactly. His point that Apple was so successful an investment that it threw off everything else is very accurate. So lightening up on it gets headlines as well as creates a cash pile that draws more headlines. Not sure we should read more into it than he's reaping gains from one of his most successful investments ever.

Have things gotten so bad in North Korea they're now selling soldiers?

Profitability is definitely regional and in Florida it isn't even just weather risk (fraud and litigation risk is one of the bigger causes). But regardless of regional differences or reasons why, multiple companies have pulled out of the market because they cant make money. The provider of last resort is losing money. If prices are going up 30% in a business where it takes about 10 minutes to get a competing quote then it's less price gouging than that's the competitive price. To get prices down you need more supply and nobody seems to be willing to offer it. The recent storms are unlikely to make companies want to jump into the fray unless they can get massive price hikes.

It's tough to argue that companies are fleecing their customers because other companies are leaving a market where they can't make money.

While there's definitely an increased hype cycle, the number of insurers who have quit Florida (and parts of California), as well as the losses and overwhelming demand at Citizens (insurer of last resort in Florida) would suggest there's underlying truth to the hype. Insurance is one of the easiest products to shop around so if a couple of companies were trying to gouge prices off the hype they'd lose the business in a heartbeat to others who think they can make money at the lower price.

Not invested in anything here so I'm probably just talking shit but I would have thought the impact on many of these companies from both Helene and Milton would be less direct and more peripheral. The back-to-back nature of them and the impact will undoubtedly affect insurance costs across the entire state (panhandle was spared but so was Tampa for 100 years) and it's hard to argue that it won't make many people considering the area start to think twice. That being said, if it leads to redevelopment with hurricane resistant structures and better flooding management it could have a positive longer term impact as it shows survivability - but obviously increases upfront costs.

At first i assumed it was being ironic. Guess not!

I think you'll do just fine with this portfolio and a lot of your tailwind rationale holds. Just keep in mind that a lot of these MA companies are deeply intertwined with other businesses that can be a drag even if your thesis on MA proves correct. The press and government seem determined to villify PBM's which could impact both CVS and UNH

It always amazes me how people confuse luck with skill - and then get angry when their luck runs out

On its headline, Marsh seems to be getting quite a deal at less than 6x revenues. Plus there's a $500m deferred tax asset included. If Stonepoint bought Truist 6 months ago it's likely your assumption of refinancing high cost debt is playing a role here.

I tend to agree with the transparency argument. While complexity and customization is definitely a factor, in other industries most outsized broker or agency rates have come down due to transparency (as well as the internet taking away information advantage). When you buy or sell a house, you know exactly how much you're getting for the house and how much the broker is getting. When you buy a stock, bond or option, you know exactly how much the stock costs and how much the commission is (often free now!). But when you buy insurance, all you see is the premium(s). You have no idea how much of that is true underwriting risk, how much is administration and how much is commission. If they were forced to break out those numbers in your premium it would be too easy to go to another broker and say "beat this price" and they could do it with the exact same underwriter. I can't see a circumstance where anyone (other than the customer) wants to have that level of transparency and kill the golden goose. So maybe the anomaly continues for the indefinite future.

Great response. This is what makes the brokers such a great business - extraordinarily high ROC, increasingly the only channel to customers, etc. Which does make me wonder how this continues to be such a market anomaly and what will hurt it in the long run. I can't think of many broker models that haven't ultimately been reduced to market returns over the past 10-20 years with the recent real estate broker changes tipping over this summer. As Munger said (paraphrasing here) if you have the resources, buying insurance is a dumb financial decision. And that's true if you think that even with combined ratios of 90-100 the actual insurance payouts are in the 70-80's. So why is there not more pressure on the fairly high commission expenses for underwriters? As you point out, taking a phone call, doing some paperwork and cashing a $1000 or $10000 check for it feels like something that should be squeezed hard. Again, as you mention, capital will jump in to grab the quick dollars by underpricing risk so why wouldn't they push as hard to price risk properly and squeeze the "easier money" out of the model. Is it just that insurance is seen as so complicated that buyers are willing to way overpay because they don't understand the true cost? Surely as pricing softens the commission will get squeezed - especially as brokers chase growth and steal business? @longterminvestor - I guess what I'm asking is...given the trends from every other broker industry over time, what kills the golden goose here? Is there something that makes insurance immune to those pressures?

While there's obviously a lot of value not captured in the industry market cap due to mutuals and Lloyds type companies, there has to be a similar, or even higher, percentage of value not captured in the brokers number, of which a large proportion are still smaller non-public entities. Which leads to the obvious question of why the brokers are worth so much of the industry vs the companies actually providing the underlying product. Not to take anything away from the sales channel but boy there's a lot of premium value that's not being seen by the customer. The margins for brokers are pretty high - and those are probably earned for the initial placement, but is there really a 6-10% value for the purchaser in a renewal? Now that a lot of the insurers have moved the sales channel off their own books, is there a point at which they start pushing back hard on the commissions, especially if underlying pricing is starting to soften?

+2. Not a book to make you a better investor but highly, highly entertaining.

It's the societal equivalent of lottery tickets but with a more gradual take rate. And less community reinvestment.

It looks like 200 pages of "nerdy billionaire awkwardly flirts with women". I will read most things about Bill Gates but pretty sure I'll pass on this.

@longterminvestor are you seeing any real tightening of pricing anywhere these days? I look at the results of both the insurers, reinsurers and brokers and there seems to be a lot of profitability sloshing around right now. After years of hardening and price increases way above inflation and now great underwriting results across the board I would have guessed we would be in for a round of softening. Haven't seen it yet but surely this can't keep up much longer without a ton of new capital coming into the market.

In order to have the same FCF the asset heavy business has to have much higher gross margins than the asset lite business. That makes it much more susceptible to competition and it usually comes down to which competitor has the lowest cost of capital (or is willing to accept a lower ROI).

Are you out? These things rarely recover quickly.

The Basel stuff and subdivision trades wouldn't do a lot to improve capital ratios. There are a couple of things to keep in mind on that concept. The most important is that on virtually all derivative transactions today the transactions are done under an ISDA and net collateralized, generally with cash or tbills. This is especially true with hedge funds and financial counterparties. Your exposure therefor becomes the movement in the underlying only for the time it takes to call for a collateral top up. The reality is that most banks no longer are at risk of failure from a couple of counterpaties defaulting, the real risk is liquidity (they lose funding) usually from overexposure to market movements (like SVB and others two years ago). In fact, most banks will hedge out most of the large counterparty risk with CDS. What I really worry the overreach of Basel does is encourage them to move all of the riskiest exposures off of the banks' balance sheets and into unregulated shadow banking market (for example thru CDS). It would make the financial system more risky and volatile not less because there's no transparency and no limitations.

Citizens Insurance in Florida is seeking another mid teens increase in rates. That sucks for Florida property owners but bodes well for the brokers, especially those concentrated down there.

Welcome back!

Always great to hear the somewhat inside thoughts. And hope your wife's foot gets better soon (I'm sure $100 bottles of wine helps a lot). I'd love for any of these to trade down to a "reasonable" level. I know they never do and I'm just going to miss the next leg up by waiting but there's just too much of the "stars all aligning" for the industry for this to last at current levels. Any sort of correction would be a great buying g opportunity