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Was the Zenith Purchase a turning point?


KFRCanuk
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Ok Polish Re might have also fallen in the same boat. Also Northbridge and Odessy Re were re-purchases not new acquisitions.

 

Previously, CRUM and TIG were attempts to turn around businesses that ended up take a lot of capital and energy out of FFH(run off).

 

To me, it looks like the first LARGE high quality acquisition that they have done.

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You can also see that in their equity portfolio.

 

They've been able to buy quality assets at a discounted price. Because of the price, we have the margin of safety. Because of the quality, we have time on our side. Quality see the time as it's friend. Mediocrity see the time as it's enemy.

 

Cheers!

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I am not sure a turning point would be an apt description.  I am of the opinion that the very best thing that ever happened to FFH and Prem, from a business sense, were the purchases of TIG and C&F.  Had they not had those Learning experiences at the time their risk taking nature and growing hubris would have taken them out completely in 2008.  It pushed a new conservatism onto the balance sheet, and among management.  

 

It also taught them that buying insurers you dont understand below book value is the gift that keeps on giving, in the sense of genital herpes, rather than compound interest.  A quick look at Kingsway shows what becomes of serial acquirers who dont really know what they are doing.

 

I would prefer that they expand existing worldwide opportunites and just do bolt on acquisitions rather than look for big giant opportunities, excepting Zenith which is a one off.  An insurer such as Zenith that you have owned in a prior life is a hell of a catch.  I expect had PRem not needed the cash a few years ago they never would have sold Zenith.    

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I am not sure a turning point would be an apt description.  I am of the opinion that the very best thing that ever happened to FFH and Prem, from a business sense, were the purchases of TIG and C&F.  Had they not had those Learning experiences at the time their risk taking nature and growing hubris would have taken them out completely in 2008.  It pushed a new conservatism onto the balance sheet, and among management.  

 

It also taught them that buying insurers you dont understand below book value is the gift that keeps on giving, in the sense of genital herpes, rather than compound interest.  A quick look at Kingsway shows what becomes of serial acquirers who dont really know what they are doing.

 

I would prefer that they expand existing worldwide opportunites and just do bolt on acquisitions rather than look for big giant opportunities, excepting Zenith which is a one off.  An insurer such as Zenith that you have owned in a prior life is a hell of a catch.  I expect had PRem not needed the cash a few years ago they never would have sold Zenith.    

 

A good point, Al.  Failure can be a powerful factor leading to sustained success.  Henry Ford went bankrupt twice before he finally got it right. 

 

Prem got out of Zenith at the perfect time because he understood their cycle, IMO.  He bought the whole co close to the bottom of their cycle, again with profound understanding.  :)

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I also hope the Zenith purchase is a turning point in their evolution. I would much rather they pay 1.3xBV for a company like Zenith than pay 1xBV for an average insurance company.

 

My guess is we will find out in the next 12 to 18 months; if WRB is correct and US P&C companies are underreserved then many will be available for cheap. One of the reasons I like WRB is most of their grow is through internal growth and small aquisitions... quite controlled.

 

Looking out, I wonder what will become of AIG. As they continue to shed units and lose their best people it makes sense to me the units they have left will shrink in size and also become less profitable. The wild card is given Uncle Sam owns 80% who cares? I wonder if this dynamic will extend the soft market for US P&C insurers beyond what we might normally see. Longer term, I think there is a reasonable chance AIG will actually disappear (step one will be continued shrinking and step two will be an eventual take out by someone of what is left) and this will really benefit the remaining well run, profitable players. 

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Well,

AIG just sold a crown jewel (Life Insurer) to Prudential.  We have no idea what pressures they are under to generate cash to repay the US government.  There is certainly a lot of moral persuasion going on.  Ultimately, if they are writing bad policies the entire enterprise will have to be put to death. 

 

I sure wouldn't want to buy a P&C (especially the C portion) unit from AIG if they have been selling policies on the cheap.  Competitors are more likely to pick and choose the pieces they want like Prudential.  A couple of years of lowballing policies will have AIGs Casualty lines in runoff for a generation.  I expect that is what Uncle Sam will be left with.  Ultimately they will have to tax other insurers to cover the runoff.  Aint life grand. 

 

I am also thinking that the government is pressuring AIG to clean up its derivatives books so they no longer pose a systemic threat.

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