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

[Guest HarryLong]

 

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

 

 

Where do I begin? Pricing has softened. Therefore, it makes total sense to add weight to more recent numbers. Second, going back to metrics, one can adjust for reserve releases. No poetry there.

 

The industry has structurally improved? If we're discussing underwriting, or risk control, the facts do not support your assertion. Have you been around the last few years?

 

Insurance is one of the few industries where management is everything. An industry can be awful and well managed companies within it can do very well. If you don't recognize that, then you must really have a problem with the Peter Lynches and Buffetts of the world. A great business in an awful industry can do quite well.

 

But of course, we're just going in circles. If you want to discuss specifics, as I have with Packer, I leave the door open to you. You can step into the world I live in. Combined ratios, reserving, etc. I leave you an open invitation.

[rmitz]

But of course, we're just going in circles. If you want to discuss specifics, as I have with Packer, I leave the door open to you. You can step into the world I live in. Combined ratios, reserving, etc. I leave you an open invitation.

 

Perhaps once you stop writing in a style which is like a holier-than-thou guru, other people will be more likely to want to have a conversation.

 

(On a different note, you and SD are talking past each other; you're referring to giving more weight to the *very* latest numbers, and he is saying that you should underweight the most recent few years which have been very profitable.  Both actually lead in the same direction.)

[Uccmal]

HarryLong, I appreciate your discipline but I dont believe that reading the 10ks and 10qs of every company in an industry is a productive way to value invest.  By your argument I should read and tabulate the CR trends, reserve trends etc, for some 20 or 30 companies in the P&C industry, even though I already know that many are inflated at the moment.  Then I should do the same for P&P, Forestry, Industrials etc.  I am but one individual.

 

Often, all I need to know is that one company that I have loosely followed for years has slipped into undervalued territory.  Then I can ask all of the detailed relevant questions with that company and its immediate competitors in mind.  From that point I can determine if the company(s) in question really have some unrecognizable value.  

 

This really gets into the realm of investing philosophy and what works for each individual person.  I ascribe to the philosophy of KISS.  As OPMIs we can only know a certain amount about any organization.  We are always required to make decisions based on limited information in a world of essentially unlimited information availability.  From my perspective your level of information requirement takes away from other reading and thinking I could be doing.  

 

Your method is really just a detailed method of screening, period.  And I have yet to uncover a value play by running screens after a dozen years of investing.      

[Guest HarryLong]

But of course, we're just going in circles. If you want to discuss specifics, as I have with Packer, I leave the door open to you. You can step into the world I live in. Combined ratios, reserving, etc. I leave you an open invitation.

 

Perhaps once you stop writing in a style which is like a holier-than-thou guru, other people will be more likely to want to have a conversation.

 

(On a different note, you and SD are talking past each other; you're referring to giving more weight to the *very* latest numbers, and he is saying that you should underweight the most recent few years which have been very profitable.  Both actually lead in the same direction.)

 

I don't structure my statements to be pleasing or displeasing. I structure them to be true and accurate.

 

I will be specific. Numbers from the latest two quarters are key.

[Guest HarryLong]

HarryLong, I appreciate your discipline but I dont believe that reading the 10ks and 10qs of every company in an industry is a productive way to value invest.  By your argument I should read and tabulate the CR trends, reserve trends etc, for some 20 or 30 companies in the P&C industry, even though I already know that many are inflated at the moment.  Then I should do the same for P&P, Forestry, Industrials etc.  I am but one individual.

 

Often, all I need to know is that one company that I have loosely followed for years has slipped into undervalued territory.  Then I can ask all of the detailed relevant questions with that company and its immediate competitors in mind.  From that point I can determine if the company(s) in question really have some unrecognizable value.  

 

This really gets into the realm of investing philosophy and what works for each individual person.  I ascribe to the philosophy of KISS.  As OPMIs we can only know a certain amount about any organization.  We are always required to make decisions based on limited information in a world of essentially unlimited information availability.  From my perspective your level of information requirement takes away from other reading and thinking I could be doing.  

 

Your method is really just a detailed method of screening, period.  And I have yet to uncover a value play by running screens after a dozen years of investing.      

 

Just screening. Wow. And mental filters and just filters. And checklists are "just" checklists?

 

How can you measure whether a company is truly outstanding unless you measure it against competitors?

 

 

So far, I hear more excuses.

[Guest HarryLong]

As a gesture of good faith, I will move beyond the petty general resistance to thorough research and roll up my sleeves.

 

AWH: "The combined ratio was 99.5% in the first quarter of 2010 compared to 75.0% in the first quarter of 2009."

 

I've found other companies with fantastic underwriting results that are also cheap. Why would I touch AWH, given the choice to pick something of higher quality? If you start digging, you'll have the same choice.

[Uccmal]

Excuses have nothing to do with anything.  Did I imply anywhere in my statement that I dont study the competitors or an industry as a whole?  Read the following:

 

Often, all I need to know is that one company that I have loosely followed for years has slipped into undervalued territory.  Then I can ask all of the detailed relevant questions with that company and its immediate competitors in mind.  From that point I can determine if the company(s) in question really have some unrecognizable value.  

 

For someone who focusses on detail you are missing the points of several of the posters here.  

 

They are not disagreeing with you but they are proposing alternative methods of investing and you are preaching one method.

 

I will repeat:  No one can know everything about an industry or a company in an industry.  There is a point at which the law of diminishing returns on research is reached.

 

Also, as the posters have hammered at you, you have gone from saying all the 10ks and 10 qs for 5 years or more to the last 2 Q reports.  Which is it?  

[Guest HarryLong]

I've read the general threads about MFC, CNA, HALL and RE. All look intriguing. Also, I've been a fan of RNR. All told, many are trading below book.

 

How would you rank the best insurance stock investment at this time?  Also, NOAA just released a report expecting a strong hurricane season. If this is true, which one of the above would have the least exposure to North American Hurricanes?

 

Again, I will be specific. Have you read CNA's reserving table?

[Guest HarryLong]

I've read the general threads about MFC, CNA, HALL and RE. All look intriguing. Also, I've been a fan of RNR. All told, many are trading below book.

 

How would you rank the best insurance stock investment at this time?  Also, NOAA just released a report expecting a strong hurricane season. If this is true, which one of the above would have the least exposure to North American Hurricanes?

 

Again, I will be specific. Have you read CNA's reserving table?

 

"Alternative" method. That's hilarious. Is that what you call not doing thorough research? I've been clear, read the 10-K's and 10-Q's and put special weight on the latest two quarters. I've been totally clear.

 

Maybe you view my focus on thorough research as old fashioned. That's OK. No one can force you to be excellent. What I'm pointing out is that if you do want to find excellent companies, there are plenty out there which y'all are not aware of. If you want to find them, great. If not, no problem, be happy where you are.

 

That's what separates the average from the out performers. On average, people don't want to spend the time. You're proof of that. What amazes me, is that you seem to be proud of it.

 

But again, I will move on and stick to specifics about specific companies. I welcome you to join me and do the same.

[Guest HarryLong]

It's really hilarious if it wasn't so sad.

 

Most of you idolize Buffett, who "started with the A's", but when I suggest you do the same, scoff. Total hypocrites.

[StubbleJumper]

I've read the general threads about MFC, CNA, HALL and RE. All look intriguing. Also, I've been a fan of RNR. All told, many are trading below book.

 

How would you rank the best insurance stock investment at this time?  Also, NOAA just released a report expecting a strong hurricane season. If this is true, which one of the above would have the least exposure to North American Hurricanes?

 

Again, I will be specific. Have you read CNA's reserving table?

 

 

I have read that table, and that's the big reason why I did not buy.  The triangles made me want to puke.  You don't even need to bother reading all the quarterly reports when there's more than a decade of chronic adverse development....  Will there ever be any light at the end of the tunnel?

 

SJ

[Guest HarryLong]

Thanks for the tips guys. HCC appears to be a top notch company and has a great comp structure. They also have a VIC writeup if anyone is interested.

 

I plan to review a few of the annuals over the next few weeks, but it appears to be a safer bet than CNA. With the rockiness of the markets it may be wroth it to move up the quality curve. I am looking to hold less then 20 names and already own FFH, LRE, and CNA (via Loews).

 

I really like HCC and will likely replace CNA with it keeping my exposure to them via Loews. Is Aspen really worth the look with so many insurers already? The baseline numbers look good, but they dont appear to have the investment skill of FFH or the underwriting nimbleness of LRE or HCC. I think Berkshire is in a league of their own and outside of them I have not found anyone who knocks out the park on both investing and underwriting.

 

I am comfortable that LRE nor HCC will get into trouble on the investing side, and FFH will do well enough on the underwriting side.

 

 

Your take on Aspen is accurate.  They are an above average reinsurer.  Their big plusses are:

 

Bermuda domicile = no Corp taxes on the majority of their business that is offshore.

 

Relatively low hurricane and earthquake exposure, compared to the most exposed Bermuda Re cos.

 

A huge balance sheet bargain: Current BV ~ $34+/sh  Price $24/sh.

 

110.3 combined ratio in the latest quarter.

[Guest HarryLong]

I've read the general threads about MFC, CNA, HALL and RE. All look intriguing. Also, I've been a fan of RNR. All told, many are trading below book.

 

How would you rank the best insurance stock investment at this time?  Also, NOAA just released a report expecting a strong hurricane season. If this is true, which one of the above would have the least exposure to North American Hurricanes?

 

Again, I will be specific. Have you read CNA's reserving table?

 

Stubble, thank you! Finally someone who has done their research! Stubble, I respect you. You know insurance.

 

I have read that table, and that's the big reason why I did not buy.  The triangles made me want to puke.  You don't even need to bother reading all the quarterly reports when there's more than a decade of chronic adverse development....  Will there ever be any light at the end of the tunnel?

 

SJ

[Guest HarryLong]

I don't know if my latest comment posted. I was saying that Stubble has clearly done his research, knows what he's talking about, and I respect him. He clearly knows insurance.

[Uccmal]

Now you have issued the challenge HarryLong.  What are your 5 year results?

[Uccmal]

HarryLong, your insults are meritless.  What are your 5 year results. 

[Guest HarryLong]

Now you have issued the challenge HarryLong.  What are your 5 year results?

 

Who knew suggesting that someone do their research would be so provocative?!

 

Lots of people from this board have my contact info and/or have found me on the web. If you'd like to get in touch, it would be an honor to have you critique my performance.

[UhuruPeak]

It's really hilarious if it wasn't so sad.

 

Most of you idolize Buffett, who "started with the A's", but when I suggest you do the same, scoff. Total hypocrites.

 

I guess the proof's in the pudding - what results are you getting?  I'm sure Uccmal has done very very well for himself; I follow pretty much the same 'strategy' as he, and my own results aren't too shabby either.  While too lazy to calculate precisely, I have done well over 200% in less than 4 years in the one non-taxable account where I have neither added nor removed any funds over the period.  Eyeballing the performance in the other accounts is too much work for me, thank you very much  ;D

Could I do better by working more? Sure, I'd hope so - eventually I hope to make this my job; for the time being however, my time is better spent earning a paycheck or being w/ my family.  I do read a ton of stuff because I like to (just like Uccmal and most here I'm sure) but don't trade more than a few times a year max - if only because I'm at work during trading hours.  I will never have Cardboard's, Wabuffo's or Ericopoly's returns but that's ok too.

 

So, is there just one way to go at it? No; if there were, the big boys would have a monopoly on the returns.  Many ways to skin the cats, many ways to lose it all... but thankfully a few ways to do just fine too.  To each his own.

[Guest HarryLong]

It's really hilarious if it wasn't so sad.

 

Most of you idolize Buffett, who "started with the A's", but when I suggest you do the same, scoff. Total hypocrites.

 

I guess the proof's in the pudding - what results are you getting?  I'm sure Uccmal has done very very well for himself; I follow pretty much the same 'strategy' as he, and my own results aren't too shabby either.  While too lazy to calculate precisely, I have done well over 200% in less than 4 years in the one non-taxable account where I have neither added nor removed any funds over the period.  Eyeballing the performance in the other accounts is too much work for me, thank you very much  ;D

Could I do better by working more? Sure, I'd hope so - eventually I hope to make this my job; for the time being however, my time is better spent earning a paycheck or being w/ my family.  I do read a ton of stuff because I like to (just like Uccmal and most here I'm sure) but don't trade more than a few times a year max - if only because I'm at work during trading hours.  I will never have Cardboard's, Wabuffo's or Ericopoly's returns but that's ok too.

 

So, is there just one way to go at it? No; if there were, the big boys would have a monopoly on the returns.  Many ways to skin the cats, many ways to lose it all... but thankfully a few ways to do just fine too.  To each his own.

 

I've made specific points about specific companies. Uccmal may or may not like my results compared to his own (I haven't gotten a call from him yet).

 

Regardless, the answers are in the facts about the companies.

 

I have yet to get a response back about Aspen, CNA, etc.....

[Packer16]

Harry,

 

As to the 25% expense ratio for HCC look at pg 16 of the 2009 10-K.  You can also look at Value Line for a longer term history.  For the comparison to industry if you look at Value Line composite data less the autos insurers (who are selling to individuals) you can see the advantage HCC has (see pages 589 to 610 of current Value Line).

 

Packer

 

 

[ExpectedValue]

I think some people on this board look at CNA and think it must be good because the Tisch family is involved... but that is really not the case and its a bit of lazy analysis.

[Myth465]

I think some people on this board look at CNA and think it must be good because the Tisch family is involved... but that is really not the case and its a bit of lazy analysis.

 

I don't think that's being fair. I have written about CNA, and preference every statement with they have sucked for 10 years and are basically a turn around play, due to the new CEO from Chubb. Many have even questioned why its worth pursuing and most short it out of their Loews holding creating a stub. They have never really made money on insurance, and the float has basically followed the market. They got killed in 2008 due to the huge MBS and Corporate bond holdings, and had a nice rebound in 2009 because of it. They will probably have a hard time getting above book value due to this long record, of basically losing money / breaking even despite $40 billion of float.

 

With that said, I don't really think its worth shorting out. Even in this thread, I said in terms of quality CNA is dodgy. Similar things were said in the Loews thread. Perhaps there are some who like it because of the Tisch family, they play a part in how I think / look at it. They have moved some of their personal money to CNA and so has the new CEO. I think its one thing not to like an idea, many have issues with several of the ideas discussed such as ATSG, SFK Pulp, SSW, but its quite another to assume that people just flat out have no idea why they are buying something.

 

Also because 1 insurer is better than another based on a set of metrics doesnt mean that the investor in the first insurer wont do well. If AWH returns 20% annually over the next 5 years, and Harrylong's pulls 23%, is the first investor a failure?

[Uccmal]

I dont think so Harry.  You publicly insulted the research habits of several board members here.  You can damn well defend yourself publicly as well.  

 

Stripping out my best year: 24.2% over 5 years - Leaving it in - much higher - After taxes

 

I do mountains of research as I sure many on this board do.  I must be selective.  Notice I have not commented on the companies in the P&C sector on this board.  I was commenting on your aggressive assumption that others do not do their research and that there is only one method.  

 

So what is it Harry, and no lies....

 

 

[Guest HarryLong]

I dont think so Harry.  You publicly insulted the research habits of several board members here.  You can damn well defend yourself publicly as well.  

 

Stripping out my best year: 24.2% over 5 years - Leaving it in - much higher - After taxes

 

I do mountains of research as I sure many on this board do.  I must be selective.  Notice I have not commented on the companies in the P&C sector on this board.  I was commenting on your aggressive assumption that others do not do their research and that there is only one method.  

 

So what is it Harry, and no lies....

 

 

 

This isn't about you or me. This is about finding the best investments. Hats off to you for your record. I admire it.

 

Again, I invite you to step into the room with me, roll up your sleeves, and respond to specific issues I have raised about specific companies.

[StubbleJumper]

I don't know if my latest comment posted. I was saying that Stubble has clearly done his research, knows what he's talking about, and I respect him. He clearly knows insurance.

 

Nope.  I'm lazy too.  

 

I flip through annual reports in a half-assed way, and try to get some notion of the big picture.  The half-assed approach for an insurance company is to take a quick look at the last five years of net written premiums to get some idea of their top-line growth, the CRs for the last five years, investment portfolio composition, the famous loss triangles, BV per share and debt level.  This is a 5-10 minute read of the P&L and balance sheet, plus 5 more minutes to look in the notes to find the triangles.  For most companies, I toss them on either the garbage pile or the "too hard pile" after a cursory, half-assed review.  I make a great many errors of omission by taking this approach, but it only costs me about 15-30 minutes.

 

My rough memory of CNA was that they have mediocre returns on their investment portfolio, they have chronic adverse development, they have a capital structure that is heavily dependent on funds from L, and at the time they traded at P/BV of about 0.70.  Frankly, given their long track record of mediocre results, that P/BV seemed roughly right.

 

I might also be making a mistake with Lancashire, by tossing it on the too hard pile simply because they do not have a lengthy loss triangle.  But even after 30-45 minutes, I could not get comfortable with it.

 

No damned way am I going to read the quarterly reports or a bunch of annual reports for those two.  I'm just too lazy.

 

SJ