Buffett ups Munich Re stake above 10 pct, eyes more

[dcollon]

UPDATE 1-Buffett ups Munich Re stake above 10 pct, eyes more

 

 

4:06 AM Eastern Daylight Time Oct 19, 2010

* Buffett held 10.24 pct stake in Munich Re as of Oct 12

 

* Buffett plans to raise stake further in next 12 months

 

* Munich Re - Buffett says stake financial, not strategic

 

* No plans to influence Munich Re policy, strategy, dividend

 

* Share rises 1 percent, insurance index <.SXIP> up 0.6 pct

 

 

(Adds detail, background, Munich Re comment)

 

FRANKFURT, Oct 19 (Reuters) - U.S. investor Warren Buffett raised his stake in reinsurer Munich Re <MUVGn.DE> to above 10 percent and plans to further expand the holding, Munich Re said on Tuesday.

 

The world's biggest reinsurer said in a statement that Buffett's Berkshire Hathaway Inc <BRKa.N> <BRKb.N> had repeated its assurances in a letter, dated Oct. 15, that the investment was financial, rather than strategic.

 

Berkshire also did not aim to influence Munich Re's management, its direction or the company's supervisory bodies, Munich Re said.

 

"It is not intended to significantly change the capital structure of (Munich Re) ...in particular not with regard to the equity/debt-ratio or the dividend policy," Munich Re said in a summary of Buffett's letter.

 

Berkshire intends to acquire further voting rights within the next 12 months, Munich Re added.

 

Reinsurer Berkshire has been steadily raising is holding in its Munich-based rival since crossing the 3 percent threshold in January.

 

Munich Re welcomed the continued investment.

 

"We rejoice at every investor," a Munich Re spokeswoman said.

 

(Reporting by Jonathan Gould)

 

 

[twacowfca]

When WEB takes a 10%+ position in the common stock of a company, the results going forward are awesome.  Our biggest gain in total was tagging along after he bought USG.  WE have taken most of our discretionary cash and recently bought MUV, MRH and more LRE.  :)

 

 

 

 

[Myth465]

Why not AHL twa.

 

I plan to buy hold FFH, AHL (via options), and LRE in my insurance basket. A small bit of AHL via June options due to a lack of a premium, then a slightly bigger portion of FFH, then a bigger slug of LRE which is at full size now. I pushed the pinks to $9.15

[bablu]

Thanks for the LRE tip twacowfca..

 

it has been good ride so far .. too bad i sold 1/3rd of the position few weeks ago..

[twacowfca]

Why not AHL twa.

 

I plan to buy hold FFH, AHL (via options), and LRE in my insurance basket. A small bit of AHL via June options due to a lack of a premium, then a slightly bigger portion of FFH, then a bigger slug of LRE which is at full size now. I pushed the pinks to $9.15

 

 

AHL is a great company and a great buy.  They've moved up a little more recently towards BV than MRH.  They are not as much cat exposed as MRH and LRE.  We are past the hurricane season now : advantage MRH and LRE.  :)

[twacowfca]

Thanks for the LRE tip twacowfca..

 

it has been good ride so far .. too bad i sold 1/3rd of the position few weeks ago..

 

 

LRE is a company to buy and hold and for reinvesting the dividends they pay that are frequently large.  The stock, including reinvested dividends is up more than 130% from when we first bought it in the summer of 2006.  Yet they are still selling for less than 10% above their estimated October, 2010 FDBV.  These remarkable returns merely equal their CEO's long term ROE record at Lloyds of London before he became LRE's CEO.  Therefore, there is a high probability that Brindle and the proficient team he has built at LRE will continue to produce exceptional returns in the future.  :)

[sdev]

Large expectations leads to disappointment. I am a holder of Lancashire but the way board members regard it as such a sure thing scares me  :o

[twacowfca]

Large expectations leads to disappointment. I am a holder of Lancashire but the way board members regard it as such a sure thing scares me  :o

 

That's a very good point, sdev.  We do have a tendency to seek confirmatory evidence for our enthusiasms.  Thanks for the reminder to do a reality check.

 

Nothing is certain in investing, except for some amount of loss eventually on all types of securities, given enough time.

 

 Lancashire is not merely likely but certain to experience a big loss sometime in the future.  Brindle has a 20 year record, including his time at Lloyds, without a losing year, but he recognizes that there is an element of good luck in that record.  Lancashire state that they expect that one year in eight or ten will show a loss.  Their current risk profile is better than this IMO because their projected maximum 100 year loss has come down from @ 24% to 26% of equity in the first two years after their IPO to 16% recently.  But there is no question that they will eventually have a bad year.

 

A big cat could put a big hole in their balance sheet tomorrow.  Any investor with a short term horizon who would be distressed by a big loss should run not walk to the nearest exit.  But for those with some tolerance for risk, please be aware that the best predictor of extraordinary future returns is exceptional, long term, past returns that have been consistently high under the same management.  :)

[sdev]

twacowfca,

 

Yeah that's the only point I was trying to make. In my own opinion it is a good company. The way the company trades (price action) though, I think it's easy for a value investor or any investor for that matter to not get a little confirmation bias. In addition, I don't know how board members know exactly that it is priced at book or below right now except for linear interpolation. The company said on the last conference call they would repurchase at worst a bit over book...and they stopped buying in September at 5.52 (8.62 in dollars). It does no harm to practice some patience before proclaiming victory.

[Myth465]

I would say its near book based on 9/30 or underbook based on 12/31 numbers (provided no cats). Basically without large cats they will have massive reserve releases for Q4. My theory is that they reserved adequately for what many thought was going to be a very active hurricane season and the season was very mild. They also raised prices significantly on offshore energy. Without cats all of this money will fall to the bottom line.

 

You could wait until you have then numbers but the prices will simple move up once its all confirmed. I dont think they will trade above 1.2 BV given the soft market, but also feel that this is going to be a moving target. It will start again next year. They will do a Div, then trade down, then trade slightly above BV, then move back down heading into the season. Then we take a hit or not and it starts all over again. There may be other cats related to property as well but hurricane season seems to be what you want to watch (in terms of BV blow ups).

 

I think we all feel like its a sure thing, unless you have large cats. Lol. I also hope everyone knows that one day they will come. I feel comfortable holding LRE and FFH through the season and also holding both above BV. Maybe 1.2 - 1.5 times. Most other insurers will be trades (from below BV to 1.0 - 1.1 BV).

[twacowfca]

I would say its near book based on 9/30 or underbook based on 12/31 numbers (provided no cats). Basically without large cats they will have massive reserve releases for Q4. My theory is that they reserved adequately for what many thought was going to be a very active hurricane season and the season was very mild. They also raised prices significantly on offshore energy. Without cats all of this money will fall to the bottom line.

 

You could wait until you have then numbers but the prices will simple move up once its all confirmed. I dont think they will trade above 1.2 BV given the soft market, but also feel that this is going to be a moving target. It will start again next year. They will do a Div, then trade down, then trade slightly above BV, then move back down heading into the season. Then we take a hit or not and it starts all over again. There may be other cats related to property as well but hurricane season seems to be what you want to watch (in terms of BV blow ups).

 

I think we all feel like its a sure thing, unless you have large cats. Lol. I also hope everyone knows that one day they will come. I feel comfortable holding LRE and FFH through the season and also holding both above BV. Maybe 1.2 - 1.5 times. Most other insurers will be trades (from below BV to 1.0 - 1.1 BV).

 

I don't think that property insurers like LRE reserve in advance for losses that have not been incurred.  However, they're very conservatively reserved for past losses, and there should continue to be significant reserve releases in the future.  Nevertheless, underwriting earnings have been the big driver of their profits.  :)