Wintaai Holdings Ltd (not listed)

[MrB]

Wintaai Holdings Ltd is the holding company for what will eventually become a collection of insurance and operating companies, but to date it holds one substantial asset, Stonetrust Commercial Insurance Co. Some of the related ground has already been covered in Investmd's thread Chou Dhandho StoneTrust which includes the recent (overly glowing) Forbes article. 

We're invested in Wintaai, so I'm going to steer clear of the valuation discussion for now and prefer to have Francis and Mike speak for themselves in the attached letter to shareholders. 

Probably safe to say you can tag at least another 15% onto the BVPS for Q1 2021. 

 

Wintaai and Stonetrust Annual Letters (2020).pdf

[Cigarbutt]

Than you for this info MrB.

Apologies: negative outlook for Wintaai Holdings.

In the US for the last 5 years, WC insurance has been an unusually bright spot in commercial lines. What's in store and what does it mean for Stonetrust?

1-In the last 5 years, Stonetrust has consistently underperformed on the underwriting side when comparing to related peers in the WC space.

From AM Best and post above (2015-19), industry vs Stonetrust:

2015             95.8    109.6

2016             95.6    100.4

2017             92.5     99.6

2018             87.0     96.3

2019             88.3     89.6

avg 2015-9   91.8     99.1

2020           85-86    86.4

2-From available disclosure, it's not possible to assess the reserving profile of Stonetrust over time and it's possible (though unlikely) that higher combined ratios in 2015 to 2019 were related to more conservative reserves than average (accident year combined ratios closer to reality than peers) and 2020 may be the beginning of the realization of this aspect. However, it is estimated that net premiums written for WC declined by about 8% in 2020 (with rates not really moving) and, for Stonestrust, NPW declined by only 2.3% (retention stayed the same). Even if this may partly reflect that Stonetrust has been geographically expanding, more likely it means that Stonetrust may not be ideally  positioned counter-cyclically for reserving. AM Best suggests that the WC industry has become significantly under-reserved. This is hard to confirm prospectively but AM Best has been pretty good overall with these reserve issues in the past even if exact timing is difficult to map. For example, their asbestos reserving deficit work has proven to be quite solid, over time. Just using basic historical assumptions, it's reasonable to suggest that the high amount of reserve releases of the last 2,3 or even 4 years (for the industry as a whole) will become a correspondingly large deficiency movement in the future. Stonetrust has written business lately with an above 100% accident year combined ratio (2019's CR was subject to a non-recurrent gain on the underwriting expense side). Reversing the positive reserve development pattern at this point while growing faster than peers is a recipe for further underwriting (calendar year) losses.

3-From the investment point of view, i suggest the hypothesis that results may be relatively positive in some periods but (IMHO) it's likely that net relative results will be inferior over the long term. A differentiated investment strategy is not well looked upon by regulators when results are poor.

4-A key concern is the message that WC (and Stonetrust) should do well with the market hardening. Since the WC seems to have a life of its own , it's unlikely to follow trends seen in other commercial lines.

A positive aspect is the excess capital but what happens to this excess capital and the returns obtained may disappoint.

-----

Additional comments about 2020 and the WC's insurance market and what it may mean going forward (for Stonetrust). In 2020, results turned out much better than expected with the direct and indirect Covid-19's impact. WC claims were less frequent (and especially less costly) than most predicted and most of the costs came from lost wages secondary to temporary quarantine measures. Results varied to some degree across states for a variety of reasons including general policy and specific coverage rules but positive trends were noted across geographies. An aspect which occurred which is amazingly unprecedented is that claims came down (during the downturn) both absolutely and relatively. In a typical downturn, claim frequency tends to go down absolutely but not relatively (this is an interesting phenomenon but likely not interesting enough to discuss here). This wasn't the case in 2020 and people are puzzled. Puzzled in the same way when trying to explain the conundrum now where employers are looking for workers and there is a significant pool of potentially available workers and, still, employers have difficulty finding candidates...This is likely closely tied to the centralized mandate (which has gone up one notch in 2020) which implies to centrally and simultaneously provide both work and help to the masses. This is bound to fire back if the idea is to encourage productivity in this mature (aging) economy/population and is likely to be a negative for WC insurance long term (payrolls) but transfers backed by the printing press will help WC combined ratios for a while still.

-----

Stonetrust reports lower average medical claims per case and this may suggest (?) that this is related to better 'management' but, just eye-balling, it appears that the difference may be simply related to the states where they do (and don't do) business.

Of course, everything above could be wrong. This should be an interesting re-assessment in 5 to 10 years.

 

[MrB]

No need to apologise CB. I much rather listen to different view. 

[MrB]

Discussion on Stonetrust

Edited June 1, 2021 by MrB

[MrB]

2021 Q1 results are out. Healthy increase in BV and AM Best A rating in sight. 

Wintaai Financial Highlight (Mar 2021).pdf

[Parsad]

Wintaai's Annual Letter - Francis continues to kill it at Wintaai and Stonetrust!  Cheers!

 

 

Wintaai Holdings Ltd. Annual Letter (2021).pdf

[Cigarbutt]

^Thanks for sharing.

The reported results are indeed very strong. Higher AM Best ratings may come but they are mono-line and their float portfolio is positioned in a way to cause rating agencies to move (too?) cautiously.

i've followed (and been involved with) workers comp for more than 20 years and current conditions are quite unusual. If interested:

COVID-19 rebound lifts workers' comp funds to highest premium growth in years | S&P Global Market Intelligence (spglobal.com)

"Private market carriers appear poised to post a workers' comp combined ratio of less than 100% for an eighth straight calendar year. Their calendar-year combined ratios exceeded 100% 17 times in an 18-year stretch from 1996 through 2013."

In pseudoscientific circles, there's a biorhythm concept of three concurrent cycles: physical, emotional and intellectual. There are certain periods where all cycles coincide (peak or nadir). Wintaai is doing great but if one believes in the possibility of concurrent cycles, it's hard to (retrospectively) imagine a more favorable confluence of circumstances for present conditions.

[cm2]

How does one invest in Wintaai please?

[Parsad]

8 hours ago, cm2 said:

How does one invest in Wintaai please?

 

You cannot invest in Wintaai.  Francis invited a few close friends and family to join him in the beginning, but at present he has no plans on raising more money or opening it up.  Although he may consider it one day.  For the most part, it is a Chou family vehicle...and one hell of a vehicle at that!  Cheers!

[klipbaai]

You can get some exposure to Wintaai by investing in Tim McElvaine's Fund, McElvaine Value Fund.

[jfan]

2021 Workers Compensation Financial Results Update (ncci.com)

 

The data is slighly dated but it gives a idea of the longer term WC market. As per @Cigarbutt post above, it seems that WC has significantly turned around since 2013 and continues to have <100% CR, premium growth, and 20% operating margins. There is a slight uptick in CR, and drop in premium growth and operating margins, so maybe some slight short term headwinds, but it is my first-level thinking, that with WC suffering 20+ years poor profitability, and now has 8 years of profitability, that there might be some long-term tailwinds for Stonetrust here.

 

Also for those interested, using 3-year rolling geometric means for Chou Associates returns since inception, it seems that he outperforms the market ~ 65% of the time. His worst 3-year rolling average return was -8%. He is ~ 10% return investor wrt to his long-term track record. I did the same with another Canadian deep value investor, for contrast, although this investor had a 3-yr average of 11%, the dispersion was quite a bit more significant, where he outperforms ~44% of the time, with gains up to 80%+ but losses -20% over time. Chou's style married to a conservative insurance business seems to a good match.

 

<0	21%
1 to 7	15%
8 to 10	15%
11 to 15	26%
>16	24%

Edited February 16, 2023 by jfan

[Parsad]

Wintaai's Annual Letter

 

Stonetrust is now A- rated by AM Best...I'd certainly like to see Fairfax take a page from Chou and work on getting investment upgrades.  LRIE should be very interesting! 

 

Cheers!

Wintaai Letter 2022.pdf

[Parsad]

We talk a lot about Berkshire and Fairfax, but Wintaai is just killing it!  I spoke to Francis today, and all I can say is that Wintaai investors are going to be happy over the next couple of years!  

 

Many years ago before the two T's, Buffett & Munger said the type of investment manager they would like to hire was someone like Peter Cundill...a Canadian/British legend.  In my opinion, Francis is very much like Peter Cundill.

 

It won't be long before Francis joins the 9 commas club!  Couldn't happen to a nicer person!

 

Cheers!

[gfp]

56 minutes ago, Parsad said:

It won't be long before Francis joins the 9 commas club! 

 

I'm sure he's going to do great but 9 commas is a bit different than 9 zeroes or whatever you were trying to say.  What is 9 commas?  An Octillian?   A Nonillion?  Might as well be a bazillion.

[Parsad]

6 hours ago, gfp said:

 

I'm sure he's going to do great but 9 commas is a bit different than 9 zeroes or whatever you were trying to say.  What is 9 commas?  An Octillian?   A Nonillion?  Might as well be a bazillion.

 

Yeah, sorry!  Should have said "9 zero" club or "3 comma" club.  Cheers!

[jfan]

Wintaai/related parties own/will own securities associated with Loggerhead Reciprocal Interinsurance Exchange.

 

A couple of articles discussing Loggerhead assuming renews from Progressive Florida customers.

 

Progressive looking to move homeowners' policies to new insurer (wptv.com)

 

Progressive rebalances homeowners’ book, diversifies away from Florida (insidepandc.com)

Progressive rebalances homeowners’ book, diversifies away from Florida

Farhin Lilywala - September 29, 2023

 

Progressive is rebalancing its homeowners’ book by non-renewing roughly 47,000 DP-3 and 53,000 high-risk homeowners’ policies in Florida, this publication has learned.

 

The carrier’s strategy is to diversify away from its exposure in Florida.

 

Progressive is exiting its non-owner-occupied book and discontinuing writing DP-3 policies in the Sunshine State. The carrier is also terminating a handful of agent appointments for its home product, accounting for 15,000 policies.

 

The first non-renewals are scheduled for May 2024 and will continue for 12 months after. Progressive will have 200,000 property policies in force remaining in the state.

 

Start-up reciprocal Loggerhead will offer renewals subject to its underwriting and financial standards. Agents will have to opt-in to allow renewal to Loggerhead.

 

Last year, Loggerhead was launched as a reciprocal exchange in Florida by Todd Dixon and Jim Santo, two former Auto Club Group executives. In December, the company acquired Bankers’ Florida homeowners’ book of business.

 

In a statement to the publication, the company said: “Florida property remains an important part of our Progressive Home business, and we have no plans to leave the state. However, we have been working collaboratively with state officials and the Florida Office of Insurance Regulation to implement changes that allow us to rebalance our exposure while continuing to serve Florida homeowners.

 

While we know these changes are not welcome news for those that are directly affected, we’re encouraged by and grateful for the work of Florida state officials who recently helped enact needed legislative reforms that are stabilizing the insurance business environment and encouraging new carriers to enter the market.

 

We’ve been able to identify a current property carrier, Loggerhead Reciprocal Interinsurance Exchange, in which we have entered into an agreement with to offer replacement policies to affected policyholders of our rebalancing decision subject to their underwriting and financial standards. The actions we’re taking are necessary to ensure that we can continue to write business in Florida in a meaningful way—and we expect these actions will better position us to build a stronger, more stable, and more competitive Progressive Home business for consumers and independent agents in the long run.”

 

The announcement follows news this week of Nationwide sending out non-renewal notices impacting 10,525 North Carolina personal lines policies up for renewal from December 2023 to July 2024.

 

Of that number, 5,781 of the policies will be non-renewed based on their risk profile according to the carrier’s hurricane hazard assessment tool.

 

The remaining 4,744 policies will be referred to the North Carolina Insurance Underwriting Association, also called the Beach Plan, the state’s last-resort insurer for those who can’t obtain coverage through the open market.

 

[Parsad]

Wintaai 2023 Annual Letter discusses the Loggerhead deal. 

 

May be one of the best insurance/investment deals I've ever seen!  Amazing! 

 

Cheers!

Wintaai Holdings Ltd. Annual Letter (2023).pdf

[Parsad]

On 1/19/2023 at 10:42 PM, Parsad said:

 

You cannot invest in Wintaai.  Francis invited a few close friends and family to join him in the beginning, but at present he has no plans on raising more money or opening it up.  Although he may consider it one day.  For the most part, it is a Chou family vehicle...and one hell of a vehicle at that!  Cheers!

 

Clarification on investing in Wintaai:

 

Wintaai is set up under Ontario’s “Private Issuer Exemption.” This means that it can have up to 50 shareholders.

 

Roughly 30 of the shareholders (including lurkers) are members of COBF. If they don't exceed the 50 shareholders' limit, they can sell their shares to Wintaai shareholders or outside investors at any price.  Currently, they have 45 shareholders.

 

Cheers!

[Whensthepaintdry?]

Navient is an interesting holding. 

[gfp]

2 minutes ago, Whensthepaintdry? said:

Navient is an interesting holding. 

 

Word on the street is that they have been retiring some stock

 

[Whensthepaintdry?]

I think I read that they are starting to outsource their loan servicing which I know that got a bad reputation for. 

[dr.malone]

Hi. Are there any current shareholders who are interested in selling? I reached out to Francis and he said the only way to buy shares is from an existing shareholder. 

 

If anyone looking to sell, please send me a DM.

 

Thank you!

[whatstheofficerproblem]

My very elaborate plan to become a Wintaai shareholder wasn't a complete failure.

 

[Dinar]

6 hours ago, whatstheofficerproblem said:

My very elaborate plan to become a Wintaai shareholder wasn't a complete failure.

 

I would make sure that this is not a PFIC for US tax purposes, if it is, you will probably bitterly regret getting involved.   

[whatstheofficerproblem]

1 minute ago, Dinar said:

I would make sure that this is not a PFIC for US tax purposes, if it is, you will probably bitterly regret getting involved.

 

I asked Francis if there were openings at the firms. What better way to become a shareholder than becoming an employee? This has nothing to do with me offering to buy a stake haha.