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Ask an Insurance Investor


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I'm going to be interviewing a value investor that focuses on insurance companies for my blog. He runs managed accounts and also has 18 years experience in the P/C insurance business.

 

I know that a lot of people here are interested in the insurance business and thought that if you guys wanted, you could submit questions and I would try to use them in the interview.

 

The only thing is - I really prefer to ask stuff that's more process related than specific stock ideas. I think in the long run you will get more value out of learning how to fish.

 

So feel free to post your questions in this thread or shoot me an e-mail at TariqTX@gmail.com

 

Thanks!

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Thanks Tariq!

 

I'd be interested to know what his impression of the "moat" is in specialty insurance. Fairfax is buying a few of these businesses and Markel has certainly done well over the years. As specialty lines typically have much lower combined ratios than more competitive insurance lines, I was wondering:

 

What exactly is the "moat" that allows low combined ratios like this to be maintained? I would think that if MKL had 80% combined ratios in yacht insurance year in and year out that someone would come in, copy their pricing, but undercut by 5%.

 

Is pricing and market position maintained through client relationships (i.e. its a small expense overall for the yacht owner and they like/trust their broker)?  Is it through branding and market position (i.e. "everyone know that MKL is the place to go for yacht insurance")?, or is there some actuarial knowledge (other participants aren't sure they know how to price the business properly so they stay away).

 

I would imagine it is some combination of the three, but I am curious because the combined ratios for some specialty lines are some low that I would think competitors would immediataly jump in with both feet. If MKL has an average combined ratio of 85%, why not call all their customer, renew at a 10% discount, and have a combined ratio of 95%?

 

I hope this is clear and thanks in advance

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What are his top metrics?

 

What does he do in a soft market, with low yield - When insurers are trading below book? Is it undersexed man on craiglist time or time for cautious?

 

What are his thoughts on prior reserve releases, when will it end?

 

What does he think of LRE, are we missing something?

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Here are a few:

 

When you value an P/C casuality company, how do you establish that the reserves are accurate?

 

Do you know how P/C and Life insurers would fare a long term low bond yield? (Japan example would be good)

 

How long do you foresee the tail before the insurers adjust their rates for the low yields?

 

How do you determine if an insurer is over-concentrated?

 

What are the main "colibri in the mine" points every investor should look for in an insurer?

 

Thanks

BeerBaron

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BeerBaron, what do you mean by "colibri in the mine"?

 

Tariq, do you mind sharing the link for your blog? Thanks much.

 

I think the more commonly used expression that he's referring to is the "canary in the coal mine." Basically, what are some warning signs of bad things to come?

 

(Miners used to bring the birds down into measure dangerous gas buildups-- if the canary died, they knew gases like CO2 were getting up to dangerous levels and it was time for extreme caution, thus the expression.)

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Hi Tariq maybe this is a little off beat but are insurers pricing insurance risks for 5-10 years off contracts taking climate change and global warming into account??

What are the models they use,what is the pricing impact they think etc,what types of insurance are likely to be impacted most severely???

Thanks

 

Awesome blog by the way :-)

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