Best Insurance investment right now? MFC, RE, CNA or RNR

[Myth465]

Come on  :-X That's just not fair - You got to post at least 1 idea, if you are going to keep making that statement. From what I have seen you appear to like the same type of insurance companies as the Chanticleer guys - http://www.chanticleeradvisors.com/faq.cfm

[Ballinvarosig Investors]

Come on  :-X That's just not fair - You got to post at least 1 idea, if you are going to keep making that statement. From what I have seen you appear to like the same type of insurance companies as the Chanticleer guys - http://www.chanticleeradvisors.com/faq.cfm

You're kind of contradicting yourself there. As you've stated, Harry Long has been on record regarding Fremont Michigan for quite some time.

 

Secondly, he does have a point. People here are supposed to be value investors, so it's amazing that anyone could recommend something like MFC. Maybe you have some insight that I don't, but I see a lot that scares me, balance sheet that isn't exactly transparent (who knows what sort of corporate bonds they hold), high variable annuity exposure (even sideways equity markets will hurt MFC), etc.

 

The AIG debacle should serve as a lesson to insurance investors. If you don't completely understand everything you're reading about the insurer, you're at risk of 100% capital loss

[Guest HarryLong]

Thanks for the support, Ballinv.

 

What, not fair that people should work? Someone enterprising emailed me for some pointers. Here's my answer If you don't have Bloomberg, Factset, or Capital IQ:

 

I. Start with this list.

 

http://biz.yahoo.com/p/432conameu.html

 

II. Go A-Z, getting 10-Qs and 10-Ks.

 

III. Repeat.

 

This will separate the men from the boys. For any would-be whiners out there, remember, it's mind over matter--if you don't mind, it doesn't matter. Now get to work. I would say that some of you haven't seen a real bear market before, but after 2008 that's probably not true. If you went through 2008 and still don't want to work, no one can help you.

 

Maybe if you were in the Karate Kid, you would ask Master Miyagi to train for you  ;D Or better yet, you wouldn't fight, you would ask that the match be held on X-Box. LMAO.

 

[Packer16]

What makes you think others have not done their research?  If you want to challenge their assumptions or premises do so with specifics about the stocks that they say may be good investments not generalities (as Ballinvarosig has done with MFC) as generalities add no value to what this community is about.  If they do not explain thier rationale enough ask them why as opposed to assuming they have not done their research.  Sorry for being so blunt but I want to this to be as educational as possible to all.

 

As to Fremont, it appears that they have done a good job growing book value (16% per year over the past 4 years) and the have good redundancies over the past 8 years but the price at the current time (close to book) appears higher than other insurers who have similar BV growth and redundancy characteristics.  What are your thought on Fremont versus some of the other insurers mentioned like RNR, AWH, HCC, LRE LN, AHL and MRH?

 

Packer

[Myth465]

Come on  :-X That's just not fair - You got to post at least 1 idea, if you are going to keep making that statement. From what I have seen you appear to like the same type of insurance companies as the Chanticleer guys - http://www.chanticleeradvisors.com/faq.cfm

You're kind of contradicting yourself there. As you've stated, Harry Long has been on record regarding Fremont Michigan for quite some time.

 

Secondly, he does have a point. People here are supposed to be value investors, so it's amazing that anyone could recommend something like MFC. Maybe you have some insight that I don't, but I see a lot that scares me, balance sheet that isn't exactly transparent (who knows what sort of corporate bonds they hold), high variable annuity exposure (even sideways equity markets will hurt MFC), etc.

 

The AIG debacle should serve as a lesson to insurance investors. If you don't completely understand everything you're reading about the insurer, you're at risk of 100% capital loss

 

Fair enough. With regard to MFC, people like what they like. Many see value in C and AIG. Thats what makes it a market. If Freemont is the only insurance company in the world worth owning then maybe he has a point, but I just dont agree. He himself thinks Management stinks. At least 10 other names have been named. Is Freemont superior to all of them? It just doesnt seem right in my opinion to trash everyones names and not name one idea worth buying today, Harry liked Freemont, but does he own it or recommend it today?

 

I believe the issue is he is coming in saying those ideas are .... heres a link try again. This is a discussion board / not an im the master you are the student work harder board. With Freemont - you said you see it as a net  net with growth. Many see LRE similarly. What makes your idea better, or those listed so bad. I like Freemont, but dont like the Management or drama. It could workout next week or could be dead money for years so I look elsewhere. I still think its a good idea and wouldnt really diss anyone who owned it.

 

AIG is a bad example. AIG shows that no amount of research can really protect you when it comes to insurers inmo, diversify was the lesson there. Insurers are prone to black swans, research is great but when the shit hits the fan (KRW, 911, Asbestos) we just have to wait and see who is standing. Its why I try to rely on Prudent Managers with skin in the game, who look out for risk and have been thru a few cycles.

 

These are Harry's metrics taken from another post

 

Do you know of any P&C insurer at less than $100 million in market cap with:

 

Over-reserving?

 

A good combined ratio?

 

Zero debt on the liabilities side of its balance sheet?

 

Selling at a discount to tangible book?

 

A double-A rated fixed income portfolio?

 

 

--------

 

Those seems like great metrics but will naturally exclude most insurers except for the small ones that the Chanticleer guys like. I can understand wanting to play exclusively in that market, but whats specifically wrong with the insurers listed such as LRE, FFH, or HCC?

[Guest HarryLong]

The context was smaller insurers. Forget about size. At any size, how would we rank insurers? Have you ranked every insurer in the link I pasted? If you're so sure of your conclusions, why are you asking for advice? Maybe there is something you can learn. I never said Fremont is the only insurer I would consider. I've had investments in other insurers which I've never, ever discussed publicly.

 

If you actually want an educational experience, as opposed to a list of names, why haven't you read all the 10-K's and 10-Q's for all the companies in the industry? I never said I had all the answers. I said the filings do!  ::)

 

Just because you don't want to be told to try harder, that doesn't mean that it isn't the right thing to do. What do you think I've been doing for years? I've gone through every company in the industry. I'm all about quantitative metrics. Quantitatively, I can prove to you that there are other insurers out there with fantastic metrics which you guys haven't even considered.

 

Therefore, with work, I know you can find them. Not with some esoteric method known only to me, but with diligence and good common sense. Therefore, I am giving you an invitation to pursue excellence. It's an invitation. If you don't want to take it, cry me a river, build a bridge, and get over it.

[Myth465]

I know without a shadow of doubt that somewhere out there in this large investing world there are better bargains than all of my holdings. If time and energy were limitless then perhaps I would simple work harder, but they arent.

 

I think you completely missed the point of my post regarding the purpose of the board / thread. I get your point, and we will just have to agree to disagree.

[SharperDingaan]

 

MFC is fundamentally a wealth management company in an insurance wrapper, & not a valid peer.

 

They are very good at what they do, they offset their riskier profile with higher quality risk management, & their practices are regulated by OSFI. This isn't an overleveraged/overexposed US or European insurer doing stupid things.

 

SD

[biaggio]

"... why haven't you read all the 10-K's and 10-Q's for all the companies in the industry? ..."

 

Have you really read ALL the 10Q's and 10K's on all those companies?

That is a heck of a lot of reading. Do you read word for word or do you skim thru and look at financial statements.

 

Personally,I have room for improvement regarding performance but have to ask the others on the board how much they read on each investment.

 

I usually do a quick screen on any idea I come across. Look at a summary of their income statements,current balance sheet to see if would be something I would be interested in. If I find it potentially interesting then I will read recent + past  10K + Q's, press releases,  investor presentation. Usually I try to stay within a certain industry, I don t go into the same detail on their competitors which may be a mistake. Reading ALL the 10K's +  10 Q's for all the players in an industry seems like a daunting task.

 

Can you not be "roughly right rather than exactly wrong" without reading all those 10K's + 10Q's?

 

[Uccmal]

"... why haven't you read all the 10-K's and 10-Q's for all the companies in the industry? ..."

 

Have you really read ALL the 10Q's and 10K's on all those companies?

That is a heck of a lot of reading. Do you read word for word or do you skim thru and look at financial statements.

 

Personally,I have room for improvement regarding performance but have to ask the others on the board how much they read on each investment.

 

I usually do a quick screen on any idea I come across. Look at a summary of their income statements,current balance sheet to see if would be something I would be interested in. If I find it potentially interesting then I will read recent + past  10K + Q's, press releases,  investor presentation. Usually I try to stay within a certain industry, I don t go into the same detail on their competitors which may be a mistake. Reading ALL the 10K's +  10 Q's for all the players in an industry seems like a daunting task.

 

Can you not be "roughly right rather than exactly wrong" without reading all those 10K's + 10Q's?

 

 

Me too - And I prescreen by reading a lot of general business news and commentary as well.  > 95% of what one comes across is not worth pursuing to the level of a 10k. 

 

RE: MFC - it is a magnificent business going through a rough patch and it does have sensitivity to the equity markets, however, it has a huge and consistent fee based business, and the risk management has been stepped up. 

 

Doesn't the Black Box comment apply to all businesses when you are an Outside Passive Minority Investor.  That is why we insist on a margin of safety.   

[turar]

I think Harry's main point was that he suspects that a lot of us are not actually doing enough of our own due diligence, and instead coat tailing on "guru" picks, or ideas of others. I have caught myself on several occasions doing this, and it's kind of a scary problem for me, with the main excuses being "not enough time" & "information overload". I wonder whether I'm the only one.

 

On a side note, how are you guys reading the reports? I find reading anything longer than a couple of pages off the computer screen hard on eyes and concentration (especially with the rest of the Internet a click away). I tried printing and reading, but seems like a huge waste of paper. I tried requesting companies to send me printed materials, but it's even a worse waste. I tried using Sony Reader e-book device, but the formatting is horrible in any readable font size, especially financial tables. Just curious.

[Packer16]

You may be right but I think the appropriate approach is to ask tough questions about the thesis and see what the response is rather than assume the guy has done no research.  We need to focus on specifics not generalities as the assumption is most of us has some experience in what we are talking about and have spent the time/effort to be here posting.  If we haven't done the research it will show in the response.  I think the board provides a forum to kill an idea as Berkowitz puts it with other similar minded investors.  In addition, it provides other alternatives to examine in more detail.

 

Packer

[ExpectedValue]

 

On a side note, how are you guys reading the reports? I find reading anything longer than a couple of pages off the computer screen hard on eyes and concentration (especially with the rest of the Internet a click away). I tried printing and reading, but seems like a huge waste of paper. I tried requesting companies to send me printed materials, but it's even a worse waste. I tried using Sony Reader e-book device, but the formatting is horrible in any readable font size, especially financial tables. Just curious.

 

I download the documents in the form of PDFs and throw them into a program called Skim.

Skim lets you go through and put digital sticky notes / highlight / take notes on PDF files.

 

This does not get around the whole eye strain issue, but what it allows you to do is tear through a PDF document so that you end up with a few pages of notes that you can review.

[Rabbitisrich]

I think Harry's main point was that he suspects that a lot of us are not actually doing enough of our own due diligence, and instead coat tailing on "guru" picks, or ideas of others. I have caught myself on several occasions doing this, and it's kind of a scary problem for me, with the main excuses being "not enough time" & "information overload". I wonder whether I'm the only one.

 

On a side note, how are you guys reading the reports? I find reading anything longer than a couple of pages off the computer screen hard on eyes and concentration (especially with the rest of the Internet a click away). I tried printing and reading, but seems like a huge waste of paper. I tried requesting companies to send me printed materials, but it's even a worse waste. I tried using Sony Reader e-book device, but the formatting is horrible in any readable font size, especially financial tables. Just curious.

 

Try reducing the brightness and contrast of your screen.

[nodnub]

 

I download the documents in the form of PDFs and throw them into a program called Skim.

Skim lets you go through and put digital sticky notes / highlight / take notes on PDF files.

 

This does not get around the whole eye strain issue, but what it allows you to do is tear through a PDF document so that you end up with a few pages of notes that you can review.

 

Tariq, 

this sounds great but only seems to run on Mac OS X.  Are you aware of any similar software for use on MS-Windows? 

[nodnub]

ah, I found this, this free foxit reader appears to have the ability to annotate and save notes on PDF files.

 

http://www.foxitsoftware.com/pdf/reader/reader3.php

[onyx1]

On a side note, how are you guys reading the reports? I find reading anything longer than a couple of pages off the computer screen hard on eyes and concentration (especially with the rest of the Internet a click away). I tried printing and reading, but seems like a huge waste of paper. I tried requesting companies to send me printed materials, but it's even a worse waste. I tried using Sony Reader e-book device, but the formatting is horrible in any readable font size, especially financial tables. Just curious.

 

I've had some success at Kinko's.  Upload a .pdf file, choose the cheapest white paper and binder (comb), and use double-sided b&w printing.  It's ready in 1-3 hours for pickup at my local franchise.  Quality is very good.  Downside is cost.  For example, MRH's 172 page 10-k is $18.47.  For overall convienence this is the best solution I have found.  Someone smarter than me could probably find a way to cut the cost (change fonts, or printing only parts of the 10-k).

 

https://printonline.fedex.com/StartNewJob.do?printProductId=custom&lid=choose_polindex_custom

[Guest HarryLong]

Another nice aspect of HCC is they have a 5% cost advantage (expense ratio in the 25% range) versus the competitors.  This is one indication of a sustainable advantage.

 

Packer

 

25%? Not even close.

[Guest HarryLong]

Another good firm to look at is AWH.  The only reason I could see (beyond Mr. Market), Aspen and Allied World are trading at a 30% disc to book is they both have about $1 b in Non-agency RMBS, CMBS and ABS (about 30% of their BV) but so does HCC.  Go figure?

 

Packer

 

Fine, I will lead you to water if you think I'm not being specific enough. Can you please post AWH's combined ratio for the last 10 years? Then you'll see what I mean.

[Guest HarryLong]

I may have left out the upfront filter I have applied to all these insurers, namely, CR<100 over the cycle (in most cases by large amounts), growing book value by greater than 15%/yr over the past 5 years, historical reserves redundancies over the past 10 years (assures historical underwriting is rationale), a 10-year track record, investments in reasonably conservative investments and a good amount of insider holdings.  Given these parameters what else can an outsider look at?

 

Packer

 

Why don't you write out on the board, for everyone to see, 10 year summaries of the combined ratio. For some of your picks, they will reveal some problems.

[Guest HarryLong]

What makes you think others have not done their research?  If you want to challenge their assumptions or premises do so with specifics about the stocks that they say may be good investments not generalities (as Ballinvarosig has done with MFC) as generalities add no value to what this community is about.  If they do not explain thier rationale enough ask them why as opposed to assuming they have not done their research.   Sorry for being so blunt but I want to this to be as educational as possible to all.

 

As to Fremont, it appears that they have done a good job growing book value (16% per year over the past 4 years) and the have good redundancies over the past 8 years but the price at the current time (close to book) appears higher than other insurers who have similar BV growth and redundancy characteristics.  What are your thought on Fremont versus some of the other insurers mentioned like RNR, AWH, HCC, LRE LN, AHL and MRH?

 

Packer

 

OK, let's start with the basics, latest quarter reported combined ratio. Then let's move on to 10 year summaries of the combined. Remember, numbers have to be viewed in context. The last five years were, historically, some of the best years for combined ratios in industry history. As pricing has softened, it will and has revealed who merely enjoyed a rising tide. If you have done your work, you should have these numbers at your fingertips.

[Guest HarryLong]

"... why haven't you read all the 10-K's and 10-Q's for all the companies in the industry? ..."

 

Have you really read ALL the 10Q's and 10K's on all those companies?

That is a heck of a lot of reading. Do you read word for word or do you skim thru and look at financial statements.

 

Personally,I have room for improvement regarding performance but have to ask the others on the board how much they read on each investment.

 

I usually do a quick screen on any idea I come across. Look at a summary of their income statements,current balance sheet to see if would be something I would be interested in. If I find it potentially interesting then I will read recent + past  10K + Q's, press releases,  investor presentation. Usually I try to stay within a certain industry, I don t go into the same detail on their competitors which may be a mistake. Reading ALL the 10K's +  10 Q's for all the players in an industry seems like a daunting task.

 

Can you not be "roughly right rather than exactly wrong" without reading all those 10K's + 10Q's?

 

 

There are no shortcuts. Period.

[SharperDingaan]

 

There is nothing wrong with ‘skimming’ a universe to ascertain its present state, but an investor cannot substitute it for ‘research’.  Jumping straight to metrics, then basing decisions on nothing but metrics, simply proves that the investor knows the methodology - but is clueless as to application.

 

Books & reading teach methodology; experience, an open mind, & open discussion teach application – provided the investor has the common sense/investment maturity to recognize it. The discussion is greatly facilitated when referenced to published facts (10Q’s, AR’s, etc).

 

Most folks are quite willing to share insights, related experience, technical expertise, etc – but don’t expect them to do the work for you. It is one thing to suggest an approach, methodology, etc - but if you’re looking for an adviser you’re in the wrong place. 

 

Examples:  The real value of NPV is realizing that the precise number is un-important, the true lesson is the timing & magnitude of the cash-flows; but to truly realize that, you have to thrash it out. Similarly - the actual P/E paid is un-important;  the real variables are the growth rate & the length of your expected holding period.

 

SD   

 

[Guest HarryLong]

 

There is nothing wrong with ‘skimming’ a universe to ascertain its present state, but an investor cannot substitute it for ‘research’.  Jumping straight to metrics, then basing decisions on nothing but metrics, simply proves that the investor knows the methodology - but is clueless as to application.

 

Books & reading teach methodology; experience, an open mind, & open discussion teach application – provided the investor has the common sense/investment maturity to recognize it. The discussion is greatly facilitated when referenced to published facts (10Q’s, AR’s, etc).

 

Most folks are quite willing to share insights, related experience, technical expertise, etc – but don’t expect them to do the work for you. It is one thing to suggest an approach, methodology, etc - but if you’re looking for an adviser you’re in the wrong place.   

 

Examples:  The real value of NPV is realizing that the precise number is un-important, the true lesson is the timing & magnitude of the cash-flows; but to truly realize that, you have to thrash it out. Similarly - the actual P/E paid is un-important;  the real variables are the growth rate & the length of your expected holding period.

 

SD   

 

 

This is insurance, not poetry. It's based on metrics. Period. Once the metrics are taken care of, then you can move to more qualitative factors.

 

Context for the metrics is important, as I've said. What's the context for the industry? The best five years ever. Therefore, the most recent numbers being reported have to be given even more weight, as pricing softens and the strong underwriters are separate from the weak. But first, you hit metrics. That's the discipline.

[SharperDingaan]

 

You might want to rethink:

 

Agreed, by the metrics, the industry's last 5 years have been great; but we also know those metrics have been favourably inflated because of systematic reserve releases. The industry has structurally improved, but nowhere near as much as the metrics imply. Blindly adding weight simply for 'recency', could well be exactly the wrong thing to do.

 

Every investor should be in insurance right now because, by the metrics, its currently 'cheap'. Many would suggest its actually not yet cheap enough, & that post hurricane season is actually the time to invest. There will be less capacity, higher prices, & the industry's structural improvements will still be in place - but the losses will have lowered the entry point & left the upside undiminished. 'Poetry' producing a return well above the blind following of metrics.

 

First you hit the qualitative, then you hit the metrics. If the industry is sh1t, holding the best player within it is to still hold sh1t.

 

SD