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

[Guest HarryLong]

I suggested ProAssurance Corporation in the RLI thread a few months back, it's making all-time highs and has had another excellent year delivering a 68% combined ratio and a 13% ROE.

 

You deserve credit, good call!

[Guest HarryLong]

I'm not sure why you wouldn't give it a huge weight. In 1999 (the earliest year on the table), the reserve, as it was re-estimated 10 years later, turned out to be too conservative to the tune of 20.8%.

 

 

Well if I knew SUR was underreserved by 21% hell yes I'd give it a huge weight!!  :o  But unfortunately, that development cannot be projected upon today's reserves (any more than one can project the required addition to 2002 reserves of 14.7% so far).  If historical reserve performance is what you are after then the best to way get it is a year-by-year % calculation of development from the prior year.  The cumulative nature of the calander year triangle makes this very straightforward and all prior years get incorporated as you move forward in time.

 

This was my favorite Onyx comment in almost my entire time on this board. The conclusion was so completely wrong. Ironically, after Onyx wrote it, in the latest quarter reported for SUR

 

Highlights included:

 

Favorable loss reserve development of $54.3 million in the fourth quarter of 2010 and $76.3 million for the year ended December 31, 2010.A combined ratio of 34.0% in the quarter, 65.3% for the year [largely due to reserve releases!].

 

[dcollon]

Harry,

 

I noticed on an old RLI thread that you mentioned TWGP.  I would appreciate your brief thoughts on TWGP if you have done work on it.

 

Thanks in advance.

[Guest HarryLong]

Harry,

 

I noticed on an old RLI thread that you mentioned TWGP.  I would appreciate your brief thoughts on TWGP if you have done work on it.

 

Thanks in advance.

 

Strong record, but recently weakening combined ratio.

[Guest HarryLong]

And expense ratio with a clear pattern of creeping up...

[dcollon]

Thanks Harry.  I guess I will have to keep watching to see if those trends change.

 

Take care

[onyx1]

I'm not sure why you wouldn't give it a huge weight. In 1999 (the earliest year on the table), the reserve, as it was re-estimated 10 years later, turned out to be too conservative to the tune of 20.8%.

 

 

Well if I knew SUR was underreserved by 21% hell yes I'd give it a huge weight!!  :o  But unfortunately, that development cannot be projected upon today's reserves (any more than one can project the required addition to 2002 reserves of 14.7% so far).  If historical reserve performance is what you are after then the best to way get it is a year-by-year % calculation of development from the prior year.  The cumulative nature of the calander year triangle makes this very straightforward and all prior years get incorporated as you move forward in time.

 

This was my favorite Onyx comment in almost my entire time on this board. The conclusion was so completely wrong. Ironically, after Onyx wrote it, in the latest quarter reported for SUR

 

Highlights included:

 

Favorable loss reserve development of $54.3 million in the fourth quarter of 2010 and $76.3 million for the year ended December 31, 2010.A combined ratio of 34.0% in the quarter, 65.3% for the year [largely due to reserve releases!].

 

 

I’ll say it again.

 

That the 1999 reserve level turned out to be 21% conservative 10 years later, does not mean that all of today’s reserves 21% conservative too.  That is just nonsense.  The fact that SUR released reserves last year does not validate your methodology. 

 

The 2000 reserve level is now 10 years old and it is re-estimated at 12% conservative.  Based on your stated methodology all reserves today are 12% conservative.  Laughable!

 

It’s kind of weird to me that you would try to claim such a ‘victory’ over this.  I guess an intense need for attention will do that. 

 

[Guest HarryLong]

I'm not sure why you wouldn't give it a huge weight. In 1999 (the earliest year on the table), the reserve, as it was re-estimated 10 years later, turned out to be too conservative to the tune of 20.8%.

 

 

Well if I knew SUR was underreserved by 21% hell yes I'd give it a huge weight!!  :o  But unfortunately, that development cannot be projected upon today's reserves (any more than one can project the required addition to 2002 reserves of 14.7% so far).  If historical reserve performance is what you are after then the best to way get it is a year-by-year % calculation of development from the prior year.  The cumulative nature of the calander year triangle makes this very straightforward and all prior years get incorporated as you move forward in time.

 

This was my favorite Onyx comment in almost my entire time on this board. The conclusion was so completely wrong. Ironically, after Onyx wrote it, in the latest quarter reported for SUR

 

Highlights included:

 

Favorable loss reserve development of $54.3 million in the fourth quarter of 2010 and $76.3 million for the year ended December 31, 2010.A combined ratio of 34.0% in the quarter, 65.3% for the year [largely due to reserve releases!].

 

 

I’ll say it again.

 

That the 1999 reserve level turned out to be 21% conservative 10 years later, does not mean that all of today’s reserves 21% conservative too.  That is just nonsense.  The fact that SUR released reserves last year does not validate your methodology.  

 

The 2000 reserve level is now 10 years old and it is re-estimated at 12% conservative.  Based on your stated methodology all reserves today are 12% conservative.   Laughable!

 

It’s kind of weird to me that you would try to claim such a ‘victory’ over this.  I guess an intense need for attention will do that.  

 

 

I can only respond that an intense need for denial could allow you to ignore a $76 million dollar reserve release after you claimed up and down the thread that they weren't over-reserved  ;D

 

Unless you start erasing your posts, it's all there for the world to see. You were hilariously wrong. Now you see why I tried to help you. You missed out on making a lot of money on SUR, because of your pride.

 

You would rather be "right" than to make money. Ed Seykota was right. Everyone gets what they need out of markets. You are exercising your need to make incorrect statements about reserving. I am exercising my need to make money. In this case, we have both gotten what we want out of markets.  ;D

 

This is confirmation bias rearing its ugly head again. No amount of evidence will sway you, so for you, this is clearly an emotional/religious issue. I am so sorry that it can't be about evidence based reasoning for you.

[Guest HarryLong]

I'm not sure why you wouldn't give it a huge weight. In 1999 (the earliest year on the table), the reserve, as it was re-estimated 10 years later, turned out to be too conservative to the tune of 20.8%.

 

 

Well if I knew SUR was underreserved by 21% hell yes I'd give it a huge weight!!  :o  But unfortunately, that development cannot be projected upon today's reserves (any more than one can project the required addition to 2002 reserves of 14.7% so far).  If historical reserve performance is what you are after then the best to way get it is a year-by-year % calculation of development from the prior year.  The cumulative nature of the calander year triangle makes this very straightforward and all prior years get incorporated as you move forward in time.

 

This was my favorite Onyx comment in almost my entire time on this board. The conclusion was so completely wrong. Ironically, after Onyx wrote it, in the latest quarter reported for SUR

 

Highlights included:

 

Favorable loss reserve development of $54.3 million in the fourth quarter of 2010 and $76.3 million for the year ended December 31, 2010.A combined ratio of 34.0% in the quarter, 65.3% for the year [largely due to reserve releases!].

 

 

I’ll say it again.

 

That the 1999 reserve level turned out to be 21% conservative 10 years later, does not mean that all of today’s reserves 21% conservative too.  That is just nonsense.  The fact that SUR released reserves last year does not validate your methodology. 

 

The 2000 reserve level is now 10 years old and it is re-estimated at 12% conservative.  Based on your stated methodology all reserves today are 12% conservative.   Laughable!

 

It’s kind of weird to me that you would try to claim such a ‘victory’ over this.  I guess an intense need for attention will do that. 

 

 

You clearly have a serious issue with denial/facts/reality when it comes to SUR's reserving, so here is what I propose:

 

It is clearly difficult for you to hear from me that you are wrong, so why not start a new poll where you ask if you were correct or incorrect about SUR's reserving and board members can respond/vote?

 

I think that might be helpful to you, to get some feedback from the group, maybe an intervention of sorts. And then it can be a teachable moment for you.

 

I fear on some level that by engaging with you that I have inadvertantly provided a forum for you to continue to practice a strong form of denial which will be destructive to you in the future.

[onyx1]

I can only respond that an intense need for denial could allow you to ignore a $76 million dollar reserve release after you claimed up and down the thread that they weren't over-reserved  ;D

 

Look all you want but you won't find me ever saying they weren't over-reserved.  What I said was that your evidence was weak.

[Guest HarryLong]

I can only respond that an intense need for denial could allow you to ignore a $76 million dollar reserve release after you claimed up and down the thread that they weren't over-reserved  ;D

 

Look all you want but you won't find me ever saying they weren't over-reserved.  What I said was that your evidence was weak.

 

Ahh, progress! So I was totally right, but now you disagree with the reason why  ;D

 

You said in the thread: "It is a dangerous leap of faith to assume because the management team in place in 1999 under reserved by 20%, that the current management has systematically done the same thing in 2009 and therefore current reserves are also 20% too high.  Anyone making this assumption is fooling themselves."

 

Not a leap of faith.

 

You even made your infamous "rain dance" argument:

 

 

You said: "I did a rain dance yesterday, and today it rained.  Does that prove my ability to cause rain?    This quarter’s reserve release doesn’t advance your stated method of predicting reserve releases either.  Back up for a second.  The reasoning for the assertion of ‘drastically over-reserving’ was that at one moment in 1999 reserves were set,  and because 10 years later they turned out to be conservative to the tune of 21%, you assert that SUR systematically maintains reserves above actuarial estimates and is worth more than reported book value.  To base an investment decision today primarily on the quality of a single reserve judgment that prior management made 10 years ago is full of potential for nasty surprises.  This method isn’t predictive, and I hope no one here follows the advice of those who espouse it."

 

 

 

 

And I replied: "Onyx1, you are a truly interesting fellow. It is rather fascinating to observe your mind in action. In your mind, it appears that you are confusing irrelevant variables (dancing) with variables which go into reserve estimates (management policies and behaviors).

 

At any insurance company, make no mistake, there are very clear policies for the creation of reserves. They are perhaps some of the most well thought out, scrutinized, and systematically analyzed policies at any well run insurer. This notion you have that those policies are not directly correlated to results, and that therefore, great results are not predictive of great policies, is utterly bewildering.

 

Excellent process leads to excellent results. Consistently excellent results which continue (and even improve!) is evidence of excellent process. Your notion that at an insurance company, which is all about statistical analysis as its core competency, that somehow results and process are wholly unrelated, going so far as to compare predictions based thereon as akin to a "rain dance," is utterly fatuous.

 

To answer your ridiculous question, if you've consistently over-reserved for years, does it prove your ability to over-reserve and the likelihood of you doing so in the future--yes it does.

 

Even your choice of focus smacks of confirmation bias. It wasn't just a reserve release for the quarter--the company did a reserve release for the quarter and for the year. Moreover, if you follow the whole thread, you will see that the reason why reserve judgements made many years ago have greater weight in determining the quality of reserving than reserve judgements made recently, is that there have been more years for actual loss development to be compared against the reserves in the initial year (lawsuits take years to settle, for instance). You even go so far as to misquote me and misrepresent my views, saying that I believe SUR "maintains reserves above actuarial estimates". Not true at all. I am saying that their estimates lead to over-reserving. Remember, that is actually what good accounting and financial control should do! Remember, the prime principle of accounting is that when something could be interpreted in two ways, that it must always be interpreted in the way which leads to lower earnings. Therefore, by definition, since reserving is about interpretation, any insurance company actually practicing that principle successfully, such as SUR, should be over-reserving! You've got to go back to the basics, Onyx!

 

I wish you well, and like my interactions with Stove and T-bone, I see that no amount of evidence will sway you, but in good faith I have tried to help you become a better insurance analyst (a subject which I know a tiny bit about).

 

So far, SUR and FMMH, two insurers which I have repeatedly recommended, have received buyout offers, but what do I know? I've just spent the better part of my adult life analyzing insurers and spending time with insurance executives, learning about their thought process. You could benefit from my knowledge, but because it embarrasses you to be wrong, you would rather bury your head in the sand like an ostrich rather than study the data. But ostriches never avoid risk--they just get sand in their eyes."

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Guest HarryLong]

I can only respond that an intense need for denial could allow you to ignore a $76 million dollar reserve release after you claimed up and down the thread that they weren't over-reserved  ;D

 

Look all you want but you won't find me ever saying they weren't over-reserved.  What I said was that your evidence was weak.

 

The short answer is that reserving is a highly thought out, systematic process. A process creates systematic over-reserving. Therefore, the results are the output of the system of reserving--not some random operation.

 

If you understand that, you understand a good deal about the management of an insurer. That's the point I have been trying to get across to you.

[Ballinvarosig Investors]

I can only respond that an intense need for denial could allow you to ignore a $76 million dollar reserve release after you claimed up and down the thread that they weren't over-reserved  ;D

 

Look all you want but you won't find me ever saying they weren't over-reserved.  What I said was that your evidence was weak.

Oh come on, the information certainly isn't hard to find, see page 9 of the recent 10k here. If that's evidence of weak reserving, I would like to see what you would consider as being strong.

[Ballinvarosig Investors]

By the way Harry, when are we going to see your latest idea that you've promised? I know I am looking forward to it. :D

[Guest HarryLong]

By the way Harry, when are we going to see your latest idea that you've promised? I know I am looking forward to it. :D

 

In good time, my friend, in good time  ;D

 

 

[Guest HarryLong]

I love everyone on this board... it's just very, very depressing to be one of the only people who posts money-making ideas (thanks to our systems) then have people who almost never contribute money-making ideas (some of my debate partners) constantly berate me for helping them to improve their process, then they make money off of my ideas.

 

And I don't mean Ballin, or Myth, or Twacow, you guys are awesome, very supportive and great contributors, I mean certain other people who make great money off my ideas while constantly complaining about the manner in which I provide them.

 

It's as if they have some magic notion that processes are disassociated from results. My results come from a process, that's why I try to help people improve their process. But many people on this board don't want to improve their process. They want to engage in confirmation bias, denial, etc.

 

What they really want to do is criticize my process while making money from the results of my process  ;D

 

Maybe I should start an email list where I just send my ideas to people that actually appreciate them.

 

A friend of mine on the board called me and asked me why I bothered trying to help people, especially since certain people on the board are so ungrateful, but i told him that "a" I like to help people and "b" I always have lots of ideas since systems constantly fetch them for me. I have 100 good ideas a year brought to me by systems. It's not like some qualitative guy who after 9 months of digging finds 1 or 2 if he's lucky and has to hoard them. I have excess. My cup runeth over :)

 

So I try to be generous. I remember what it was like being young and hungry and wanting to learn from pros who didn't have time to teach me (and the one or two that did gave me the medicine straight, not sugared down. I wouldn't have it any other way, so neither should you. I didn't ask people to be diplomatic when they were teaching me lessons that saved my ass). I've been there, so I try to give back. This is a deadly serious business. Unlike the military, you may not die, but you can get wiped out. I've seen it happen to people. That's why some folks need a drill instructor, especially when they do their darnedest not to learn.

 

You want me to be more like Grandpa Buffett? Buffett isn't here mixing it up with you on the message board. He's playing bridge online, not posting on the thread and saving you from yourself and your own bad ideas. I am posting :)  I may be a poor substitute, but it's not for lack of effort  in trying to help  ;)

[Ballinvarosig Investors]

By the way, the only thing that stinks about SUR is that their parent are trying to steal the bloody thing. A $26.50 offer for an absolute gem of an insurer with a book value of $24 is a complete joke. We've watched current management doing their utmost to put FMMH into a ditch, yet they can still get a bid of 1.3 times book value for a company that trades on the Pink Sheets and has a drastically deteriorating operating position. If CNA want SUR, they should be paying $36, even at that price, I wouldn't have an objection to owning SUR.

[Guest HarryLong]

By the way, the only thing that stinks about SUR is that their parent are trying to steal the bloody thing. A $26.50 offer for an absolute gem of an insurer with a book value of $24 is a complete joke. We've watched current management doing their utmost to put FMMH into a ditch, yet they can still get a bid of 1.3 times book value for a company that trades on the Pink Sheets and has a drastically deteriorating operating position. If CNA want SUR, they should be paying $36, even at that price, I wouldn't have an objection to owning SUR.

 

Ballin is wise  ;D

 

The Force is strong in you, young Jedi!

[Guest Bronco]

Ballin - it doesn't stink if you are a Loews shareholder. 

 

Steal away baby.  Steal away.

 

 

I almost feel at this point if Harry recommends another insurance company the question will be when, not if, it gets bought out.

 

Harry - sign me up on the email list.

 

BTW - whatever did happen to Watsa Radian Hero?  Did he switch to Seeking Alpha.  As far as I know, you can contribute to both. 

 

 

 

 

 

 

[Hawk4value]

So I try to be generous. I remember what it was like being young and hungry and wanting to learn from pros who didn't have time to teach me (and the one or two that did gave me the medicine straight, not sugared down. I wouldn't have it any other way, so neither should you. I didn't ask people to be diplomatic when they were teaching me lessons that saved my ass). I've been there, so I try to give back.

 

Harry, for my part I want you to know that I consider your insights invaluable. I have not copied your investments thus far but I have studied them and have learned much about your process. I have a peculiar affinity for insurance companies because of the attraction of investing and earning a return on Float (OPM), money that is not your own. But your statement about the real possibility of getting wiped out with insurance investments is sooooooooooo true. You have confirmed my initial thoughts that insurance management and the process they use is the key. I am extremely fearful of management and am still not quite confident in distingushing excellent from bad management. But with your assistance I am learning.

 

I appreciate your continuing desire to pass along your valuable experience. I hope one day soon to reciprocate and offer some worthwhile ideas.

[Guest HarryLong]

So I try to be generous. I remember what it was like being young and hungry and wanting to learn from pros who didn't have time to teach me (and the one or two that did gave me the medicine straight, not sugared down. I wouldn't have it any other way, so neither should you. I didn't ask people to be diplomatic when they were teaching me lessons that saved my ass). I've been there, so I try to give back.

 

Harry, for my part I want you to know that I consider your insights invaluable. I have not copied your investments thus far but I have studied them and have learned much about your process. I have a peculiar affinity for insurance companies because of the attraction of investing and earning a return on Float (OPM), money that is not your own. But your statement about the real possibility of getting wiped out with insurance investments is sooooooooooo true. You have confirmed my initial thoughts that insurance management and the process they use is the key. I am extremely fearful of management and am still not quite confident in distingushing excellent from bad management. But with your assistance I am learning.

 

I appreciate your continuing desire to pass along your valuable experience. I hope one day soon to reciprocate and offer some worthwhile ideas.

 

That really means a lot to me, thank you.  :)

[Packer16]

Harry,

 

Have enjoyed your picks.  Given your systems-based approach, what types of returns have you been able to achieve over the past lets say 5 or 10 years or as long as you go back.  I am curious because most "quant" based mutual funds have had a hard time beating the indicies.  TIA.

 

Packer

[Liberty]

As a relatively new investor, I'm constantly trying to learn, and I do appreciate it when you talk about your processes and criterias, Harry. Thanks for that.

[Guest HarryLong]

Thank you, Packer and Liberty. It's nice to know I'm not alone out here.

[Guest HarryLong]

It will be particularly interesting to see how the Penn Millers situation pans out (PMIC). Even if they can find a buyer, I far prefer, as most long term poster here know, a great insurer such as CNA Surety (SUR) selling for a discount to book than a firm such as PMIC.