Looks Like A Tough Hurricane Season

[Parsad]

We'll find out how good or bad this season is going to be, but not a great start:

 

https://www.cnn.com/2024/06/30/weather/hurricane-beryl-barbados-caribbean-sunday/index.html

 

Cheers!

[Santayana]

I know this is the earliest, but there have been other years where early storms have gotten people concerned about a bad season that never manifested.  But just the worry of a bad season could lead to some better buying opportunities for Fairfax.

Edited July 1 by Santayana

[UK]

https://www.barrons.com/articles/hurricane-season-reinsurance-stocks-9b71ac29

 

From a year ago, but I like this way of thinking:)))

 

Edited July 1 by UK

[Intelligent_Investor]

On 7/1/2024 at 7:45 AM, Santayana said:

I know this is the earliest, but there have been other years where early storms have gotten people concerned about a bad season that never manifested.  But just the worry of a bad season could lead to some better buying opportunities for Fairfax.

All seasonal forecasts this year are calling for a season on par with '05, there is also a strong correlation with early season major hurricanes and the overall activity of the basin during peak season.

[Thrifty3000]

Now I’m feeling better about FFH’s decision to pump the brakes on premium growth in recent quarters.

[Santayana]

Meanwhile Fairfax is at a new high. Will we see the usual Q3 pullback as the season really gets underway?

[Saluki]

In founder run companies like FFH and BRK, where the insiders have most of their net worth, there is a definitely a comforting approach to risk management instead of trying to scoop up every last nickel from the poker table. 

[hardcorevalue]

You kind of need a bad season every once in a while or you get a ton of new entrants. 

[Mystery Guest]

Over time we have added good chunks of Shares during Hurricane season, probably ones best buying opportunity next to a short attack...  

Neither scenario is pretty, but not all opportunities are. 

Buy on sale, hold as close to forever as circumstances allow. 

 

I will now return to lurking, and awaiting Vikings Next Brilliant Post. 

 

 

[Parsad]

So much for the expected rough hurricane season:

 

https://www.cnn.com/2024/09/06/weather/hurricane-season-atlantic-storms-climate/index.html

 

Cheers!

[SafetyinNumbers]

2 hours ago, Parsad said:

So much for the expected rough hurricane season:

 

https://www.cnn.com/2024/09/06/weather/hurricane-season-atlantic-storms-climate/index.html

 

Cheers!

If we are lucky and this continues, is it fair to assume Fairfax will have a lot of reserves released in Q3?

[Gamecock-YT]

Well with the typhoon that just hit Northern Vietnam today, BIC probably isn't going to have a good year.

[SafetyinNumbers]

44 minutes ago, Gamecock-YT said:

Well with the typhoon that just hit Northern Vietnam today, BIC probably isn't going to have a good year.

Is there any way that could be material? 

[Gamecock-YT]

3 minutes ago, SafetyinNumbers said:

Is there any way that could be material? 

 

Well the Hanoi airport is currently reporting gusts of 55 mph and it's well inland. I'll leave it up to you to imagine the quality of buildings in Vietnam. 

 

If you feel like following along. But funny/ironic to me an article comes out that the Atlantic has been quiet whereas the Pacific has had 2 typhoons make landfall (China & Vietnam, Japan) in the past 2 weeks. 

https://e.vnexpress.net/evolution/environment/typhoon-yagi-triggers-violent-winds-to-uproot-trees-blow-away-roofs-in-northern-vietnam-4790074.html

[Cigarbutt]

1 hour ago, SafetyinNumbers said:

If we are lucky and this continues, is it fair to assume Fairfax will have a lot of reserves released in Q3?

If...not really as catastrophe reserves' annual reassessments which typically happens in Q3 and Q4 are based on multiple years and cat risk has a stochastic (random) component which requires more prudence in reinterpreting trends. If anything and if recurrent, what happens in Q3 2024 may have some effect at the margin of the deficiency/redundancy spectrum.

[Dinar]

6 minutes ago, Cigarbutt said:

If...not really as catastrophe reserves' annual reassessments which typically happens in Q3 and Q4 are based on multiple years and cat risk has a stochastic (random) component which requires more prudence in reinterpreting trends. If anything and if recurrent, what happens in Q3 2024 may have some effect at the margin of the deficiency/redundancy spectrum.

Could you please explain this?  I assumed that cat policies were for one year, not for multiple years.  Thank you.

[SafetyinNumbers]

3 hours ago, Gamecock-YT said:

 

Well the Hanoi airport is currently reporting gusts of 55 mph and it's well inland. I'll leave it up to you to imagine the quality of buildings in Vietnam. 

 

If you feel like following along. But funny/ironic to me an article comes out that the Atlantic has been quiet whereas the Pacific has had 2 typhoons make landfall (China & Vietnam, Japan) in the past 2 weeks. 

https://e.vnexpress.net/evolution/environment/typhoon-yagi-triggers-violent-winds-to-uproot-trees-blow-away-roofs-in-northern-vietnam-4790074.html

Insured values are probably relatively small. I think FFH only owns 35% of it too so presumably losses will hit next quarter if it’s material or not.

[Cigarbutt]

6 hours ago, Dinar said:

Could you please explain this?  I assumed that cat policies were for one year, not for multiple years.  Thank you.

Ok, here are the key aspects which i think are relevant.

But first, one would need to know what @SafetyinNumbers really meant by "reserves released in Q3".

Of course, if @SafetyinNumbers meant higher underwriting profit in Q3 due to lower hurricane activity in Q3, then i agree but it's a different topic.

Reserve release means anything that will reduce the insurance reserve liability.

The first cause would be in the normal course of business when money (from float asset) is paid to pay claims. Then the decrease in assets matches the decrease in liabilities and there is no profit from the reserve release. Then, in Q3, with lower hurricane activity, one would expect lower reserve release.

The second cause would be in the realization that reserves held for the current year and, especially, previous years (catastrophe insurance is very long tail and has a significant "yet to be reported" component) were in fact too high and reserve development over many years confirm a significant enough net trend to result in a reserve redundancy that is significant enough to be reversed (decreased liability, without an effect on float assets, so then a profit from the reserve release). Also, many policies are multi-year and the risk is spread in layers and it may take a while to figure out which (re)insurer is paying what to whom. On top of that, regulators (and most actuaries) would be reluctant to consider an unusually favorable development over one quarter for such uncertain lines of business as a sufficient reason to significantly lower overall catastrophe reserves for all other previous relevant quarters.

[Daphne]

No mention here of fires in North America and Europe 

[SafetyinNumbers]

24 minutes ago, Daphne said:

No mention here of fires in North America and Europe 

The fires and floods will definitely have an impact on Q3. Fairfax might benefit from not having as much exposure to Canada vs a company like Intact Financial. It’s also pretty clear, FFH shareholders care a lot more about cat losses than IFC shareholders. IFC is expected to lose ~4%+ more of its book value than expected in cat losses in Q3 based on their pre announcement and the stock is flat. I thought there would have been some expectation of a secondary but nothing yet. 

[glider3834]

3 hours ago, Cigarbutt said:

Ok, here are the key aspects which i think are relevant.

But first, one would need to know what @SafetyinNumbers really meant by "reserves released in Q3".

Of course, if @SafetyinNumbers meant higher underwriting profit in Q3 due to lower hurricane activity in Q3, then i agree but it's a different topic.

Reserve release means anything that will reduce the insurance reserve liability.

The first cause would be in the normal course of business when money (from float asset) is paid to pay claims. Then the decrease in assets matches the decrease in liabilities and there is no profit from the reserve release. Then, in Q3, with lower hurricane activity, one would expect lower reserve release.

The second cause would be in the realization that reserves held for the current year and, especially, previous years (catastrophe insurance is very long tail and has a significant "yet to be reported" component) were in fact too high and reserve development over many years confirm a significant enough net trend to result in a reserve redundancy that is significant enough to be reversed (decreased liability, without an effect on float assets, so then a profit from the reserve release). Also, many policies are multi-year and the risk is spread in layers and it may take a while to figure out which (re)insurer is paying what to whom. On top of that, regulators (and most actuaries) would be reluctant to consider an unusually favorable development over one quarter for such uncertain lines of business as a sufficient reason to significantly lower overall catastrophe reserves for all other previous relevant quarters.

just on reserving topic - I thought what Brit have said below  from 1H24 report was interesting - they build in a net risk adjustment amount that sits above their best estimate. Ultimately they have to decide what percentile  they want to set their reserves at ie what margin of safety they want to build in to their reserving.

 

 

 

 

 

Edited September 7 by glider3834

[UK]

17 hours ago, Parsad said:

So much for the expected rough hurricane season:

 

https://www.cnn.com/2024/09/06/weather/hurricane-season-atlantic-storms-climate/index.html

 

Cheers!

 

 

Unbelievable, but perhaps still some time to go.

[Cigarbutt]

14 hours ago, glider3834 said:

just on reserving topic - I thought what Brit have said below  from 1H24 report was interesting - they build in a net risk adjustment amount that sits above their best estimate. Ultimately they have to decide what percentile  they want to set their reserves at ie what margin of safety they want to build in to their reserving.

 

 

 

 

 

Yes and Allied World seems to have a similar approach, using another word for the margin of safety: "equalization reserve"

Apologies for the small print, original can be found at: pages 22-23 (pdf document), annual report 2023

https://alliedworldinsurance.com/wp-content/uploads/sites/2/2024/04/AWAC_AG_SFCR_for_year-ended_31_December_2023_incl-Appendix.pdf

FFH do seem to have a decentralized approach for conservative reserving across the subs but there seems to be a consistent and effective message somehow from head office.

These examples help to understand how (culture) insurance subs recognize reserves on their balance sheets and how they "release" them. FFH, overall, has been consistent on this front for a while and, although difficult to be precise because it's hard to compare different apples, appears to have been able to differentiate themselves positively from relevant peers. Their reserving has been conservative for at least ten years and it is as if they have built some kind of cookie jar. The cookie jar term is not used pejoratively here (ie not  to manage earnings) but simply to express that if you build a margin of safety cookie jar and remain consistent, your numbers will tend to consistently look better in retrospect, a feature which tends to be associated with resilience in the insurance world.

-----

Of course, in relation to this thread, conservative reserving is super important for 'catastrophes, hurricanes, storms etc but (absolute and relative) market exposure at reasonable prices and a long term view are essential given the larger variability (good and bad) in results.

[gfp]

https://www.theinsurer.com/reinsurancemonth/reinsurers-may-give-up-rate-for-retentions-in-cat-but-buyers-face-casualty-challenges/?utm_source=listrak&utm_medium=email&utm_term=Reinsurers+may+give+up+rate+for+retentions+in+cat+but+buyers+face+casualty+challenges&utm_campaign=Remonth-General-Alert

 

Lots of commentary and articles coming out around the annual industry conference / rendezvous in Monte Carlo.  

[UK]

27 minutes ago, gfp said:

https://www.theinsurer.com/reinsurancemonth/reinsurers-may-give-up-rate-for-retentions-in-cat-but-buyers-face-casualty-challenges/?utm_source=listrak&utm_medium=email&utm_term=Reinsurers+may+give+up+rate+for+retentions+in+cat+but+buyers+face+casualty+challenges&utm_campaign=Remonth-General-Alert

 

Lots of commentary and articles coming out around the annual industry conference / rendezvous in Monte Carlo.  

 

Some of the lines sound like almost a disapointment that this season may be major event free:)