P&C market pricing

[onyx1]

If you have an interest in the P&C market, you can’t find a better source of information on market dynamics & pricing trends than the quarterly conference calls of WRB (CEO is W.R Berkley).  Personally, I learn something new every call.  Here is a summary of today’s call:

 

*   There is visible momentum in higher pricing.

 

*   In aggregate, renewal prices are up 1%.    This is the first time in 17 quarters they have seen pricing improvement across the product spectrum.   Leading the pricing improvement is Workers Comp where he sees rates up 5%.  (Note:  His observation on pricing is consistent with my discussion with Zenith officials at the FFH annual meeting, and Seabright (SBX) press release today where they said they achieved “meaningful price increases”)

 

*   He expects that by the end of this calendar year, aggregate pricing will be 5%-8% higher YOY.

 

*   WRB’s assigned risk is up substantially due to standard carriers pulling back from riskier policies (he believes this a signal of a hardening market).

 

*   RMS version 11 (a CAT loss model used by many in the industry to forecast loss exposure to natural disasters) has just been released and is very conservative relative to older versions.  The result is a likely increase required reserves for those who have cat risk.  This will have a big impact on regionals with concentrated exposures.  He expects the rating agencies will adopt this model and put pressure on companies to add reserves.  Rate increases will likely follow.  

 

*   Note:  Rating agencies have already taken rating actions due to the results of the new model.

http://www.insurancejournal.com/news/national/2011/04/18/194986.htm

 

*   At the end of the last soft market many in the industry asserted that they were properly reserved and were wrong.  He believes the same will hold true today.

 

*  He reminded listeners that the transition to a hard market is a slow process.  The first sign of the last hard market 2002-2007 occurred in 1999 with long-haul trucking pricing.  We may be seeing the same with today’s WC rates.

 

[Liberty]

Thanks for this summary, Onyx!

[Myth465]

Thanks for this summary, Onyx!

[link01]

nice summary, onyx. thx.

 

here's some comments on the same wrb cc from another board:

 

<<I just finished listening to the conference call with

William Berkley at Berkley Insurance. I like the way he thinks

about markets in that he favours behavioural economics over

nobel prize winning models and openly suggests that. He said that

he saw numerous signs of the insurance market starting to harden and

that it always happens slowly. I think he quoted something like

the industry running at a combined ratio of 115% on aggregate,

running at a huge loss on aggregate, and that it cannot

continue to do this so either prices rise or many people

go bankrupt, i.e. prices rise.

 

Berkley Insurance is running with a combined ratio of about 100

which is better than the majority as they have almost a mandate,

not merely preference, of preferring to shrink over accepting losing

policies. They also use a 15% after tax return on investment measure for

just about everything they do (stock has also averaged 15% since they

started).

 

- Manlobbi >>

 

[Guest HarryLong]

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market. And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Let's do an experiment: which P&C insurers hit a combined ratio of 89 or less during the last 5-6 years? And then, which P&C insurers which passed that first test still had a combined ratio of 89 or less for the last year, the last 6 months, and the last quarter?

[onyx1]

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market. And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Because the combined ratio is only one of many factors that determine the really important metrics, growth in BV per share and ROE.  

[StubbleJumper]

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market. And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Let's do an experiment: which P&C insurers hit a combined ratio of 89 or less during the last 5-6 years? And then, which P&C insurers which passed that first test still had a combined ratio of 89 or less for the last year, the last 6 months, and the last quarter?

 

 

Er...what if you can find an insurer that will write low-to-mid-90s and currently sells at 0.6X or 0.7X BV?

 

Price is what you pay, value is what you get.  We need to pay attention to both.

 

 

SJ

[Guest HarryLong]

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market. And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Let's do an experiment: which P&C insurers hit a combined ratio of 89 or less during the last 5-6 years? And then, which P&C insurers which passed that first test still had a combined ratio of 89 or less for the last year, the last 6 months, and the last quarter?

 

 

Er...what if you can find an insurer that will write low-to-mid-90s and currently sells at 0.6X or 0.7X BV?

 

Price is what you pay, value is what you get.  We need to pay attention to both.

 

 

SJ

 

Fremont got taken over, CNA Surety got taken over, and now you lecture me about price and value. Wow. Since when have I suggested paying exhorbitant prices?

[Guest HarryLong]

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market. And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Because the combined ratio is only one of many factors that determine the really important metrics, growth in BV per share and ROE.  

 

Here we go again....the combined ratio is the most important factor, along with the portion of the ROA coming from underwriting. Anyone can lever the premium to surplus ratio and look like they're acheiving a nice ROE.

[onyx1]

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market. And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Because the combined ratio is only one of many factors that determine the really important metrics, growth in BV per share and ROE.  

 

Here we go again....the combined ratio is the most important factor, along with the portion of the ROA coming from underwriting. Anyone can lever the premium to surplus ratio and look like they're acheiving a nice ROE.

 

It works both ways.  Anyone can be overly selective, writing only the most profitable policies, boast of a great CR, but because of underleverage show little in terms of an ROE.

 

 

[onyx1]

Here we go again....

 

Count me out.  I am not interested in getting into another one of these circular arguments.

[Guest HarryLong]

Here we go again....

 

Count me out.  I am not interested in getting into another one of these circular arguments.

 

I tried teaching you about reserving with SUR in the "Best Insurance" thread. You clearly don't like being contradicted when it comes to your insurance "wisdom."

[Guest HarryLong]

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market. And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Because the combined ratio is only one of many factors that determine the really important metrics, growth in BV per share and ROE.  

 

Here we go again....the combined ratio is the most important factor, along with the portion of the ROA coming from underwriting. Anyone can lever the premium to surplus ratio and look like they're acheiving a nice ROE.

 

It works both ways.  Anyone can be overly selective, writing only the most profitable policies, boast of a great CR, but because of underleverage show little in terms of an ROE.

 

 

 

Here we go again with the unsubstantiated claims. Let's engage in some evidence based reasoning, Onyx.....if "anyone"....can "boast of a great CR" by being "overly selective" how many companies have averaged a combined ratio in the 80's over the past 6 years and have written in the 80s in the past year and past quarter?

 

Cherry-picking great risks is an underwriter's job! Unfortunately, few can do so in practice. You are naive and do yourself and other a disservice to think otherwise.

[Guest HarryLong]

Again, the main point stands. If we're doing our jobs as insurance analyst/portfolio managers, we need to find companies that can perform, even in brutal pricing environments.

 

The dynamics are very, very simple. Most insurers are roach motels. Capital goes in, but can almost never come out. They may report profits in any given year, but some mega-cat can wipe out years of gains. What you really want is a specialty lines insurer which is diversified and not tied to the cat cycle.

 

That means off-beat books of business with great undewriters who specialize in highly specific areas and know them inside and out.

 

SUR was a great play, not because of any brilliant investment decisions at SUR, but because there is a huge trend in the industry for the big conglomerates, investors, etc to go after strong underwriters, which are extremely rare.

 

 

A strong underwriter will always be coveted.

 

In addition, when it comes to valuation, as I have said many, many times before, the true book value is often under-stated due to reserving, whereas weak underwriters often under-reserve. Ironically, the poor underwriter, or middling underwriter appears cheaper on a P/B basis, but often it is the company which appears more expensive on a P/B basis which is actually cheaper after making adjustments for over-reserving.

[StubbleJumper]

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market. And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Let's do an experiment: which P&C insurers hit a combined ratio of 89 or less during the last 5-6 years? And then, which P&C insurers which passed that first test still had a combined ratio of 89 or less for the last year, the last 6 months, and the last quarter?

 

 

 

 

Er...what if you can find an insurer that will write low-to-mid-90s and currently sells at 0.6X or 0.7X BV?

 

Price is what you pay, value is what you get.  We need to pay attention to both.

 

 

SJ

 

Fremont got taken over, CNA Surety got taken over, and now you lecture me about price and value. Wow. Since when have I suggested paying exhorbitant prices?

 

 

Uh, Harry, nobody was lecturing you....just as a reminder, this is specifically what you stated:

 

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market.And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Your statement excluded any reference to the market price of the security.  I kinda think it's an important factor.  So my answer to your rhetorical question of "Why be invested in the P&C insurer rather than the alternatives" is that the P&C insurer can be bought at 0.6X or 0.7X BV, which can even turn a poor underwriter into an ok investment.

 

If you read the thread in detail, I think you will see other posters also reminding you that a singular focus on underwriting misses out on investing prowess and price.

 

Regards,

 

SJ

[Guest HarryLong]

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market. And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Let's do an experiment: which P&C insurers hit a combined ratio of 89 or less during the last 5-6 years? And then, which P&C insurers which passed that first test still had a combined ratio of 89 or less for the last year, the last 6 months, and the last quarter?

 

 

 

 

Er...what if you can find an insurer that will write low-to-mid-90s and currently sells at 0.6X or 0.7X BV?

 

Price is what you pay, value is what you get.  We need to pay attention to both.

 

 

SJ

 

Fremont got taken over, CNA Surety got taken over, and now you lecture me about price and value. Wow. Since when have I suggested paying exhorbitant prices?

 

 

Uh, Harry, nobody was lecturing you....just as a reminder, this is specifically what you stated:

 

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market.And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Your statement excluded any reference to the market price of the security.  I kinda think it's an important factor.  So my answer to your rhetorical question of "Why be invested in the P&C insurer rather than the alternatives" is that the P&C insurer can be bought at 0.6X or 0.7X BV, which can even turn a poor underwriter into an ok investment.

 

If you read the thread in detail, I think you will see other posters also reminding you that a singular focus on underwriting misses out on investing prowess and price.

 

Regards,

 

SJ

 

It is quite the opposite. Focusing on price is the amateur's mistake when analyzing financial companies. First you focus on quality, then you wait for your entry/a shrewd price.

 

And earlier this year, one didn't need to make any quality/price trade-off. SUR was selling below tangible. If you focus, Stubble, maybe you will gather that I am not so subtly hinting to you that there are currently bargains to be had with fine underwriting.

 

But you're right, maybe I shouldn't think at all and just repeat platitudes like, price is what you pay, value is what you get.

 

How many P&C insurers have you brought to the board's attention which got acquired this year? Do you really think that I am blind to value? Do you really believe that in your heart/mind?

[StubbleJumper]

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market. And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Let's do an experiment: which P&C insurers hit a combined ratio of 89 or less during the last 5-6 years? And then, which P&C insurers which passed that first test still had a combined ratio of 89 or less for the last year, the last 6 months, and the last quarter?

 

 

 

 

Er...what if you can find an insurer that will write low-to-mid-90s and currently sells at 0.6X or 0.7X BV?

 

Price is what you pay, value is what you get.  We need to pay attention to both.

 

 

SJ

 

Fremont got taken over, CNA Surety got taken over, and now you lecture me about price and value. Wow. Since when have I suggested paying exhorbitant prices?

 

 

Uh, Harry, nobody was lecturing you....just as a reminder, this is specifically what you stated:

 

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market.And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Your statement excluded any reference to the market price of the security.  I kinda think it's an important factor.  So my answer to your rhetorical question of "Why be invested in the P&C insurer rather than the alternatives" is that the P&C insurer can be bought at 0.6X or 0.7X BV, which can even turn a poor underwriter into an ok investment.

 

If you read the thread in detail, I think you will see other posters also reminding you that a singular focus on underwriting misses out on investing prowess and price.

 

Regards,

 

SJ

 

It is quite the opposite. Focusing on price is the amateur's mistake when analyzing financial companies. First you focus on quality, then you wait for your entry/a shrewd price.

 

And earlier this year, one didn't need to make any quality/price trade-off. SUR was selling below tangible. If you focus, Stubble, maybe you will gather that I am not so subtly hinting to you that there are currently bargains to be had with fine underwriting.

 

But you're right, maybe I shouldn't think at all and just repeat platitudes like, price is what you pay, value is what you get.

 

How many P&C insurers have you brought to the board's attention which got acquired this year? Do you really think that I am blind to value? Do you really believe that in your heart/mind?

 

 

Ok, so now you do acknowledge that price matters.  That's good.

 

You're a bright guy, Harry, but a little modesty would go a long way.  You seem to have a stock, knee-jerk reaction to any view point that fails to concur completely with yours, and have a tendency to lash out at those who don't happen to agree with you.  Sometimes you'll be right, and sometimes you'll be wrong in your judgements but at all times you could choose to conduct yourself with dignity.

 

 

SJ

[Guest HarryLong]

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market. And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Let's do an experiment: which P&C insurers hit a combined ratio of 89 or less during the last 5-6 years? And then, which P&C insurers which passed that first test still had a combined ratio of 89 or less for the last year, the last 6 months, and the last quarter?

 

 

 

 

Er...what if you can find an insurer that will write low-to-mid-90s and currently sells at 0.6X or 0.7X BV?

 

Price is what you pay, value is what you get.  We need to pay attention to both.

 

 

SJ

 

Fremont got taken over, CNA Surety got taken over, and now you lecture me about price and value. Wow. Since when have I suggested paying exhorbitant prices?

 

 

Uh, Harry, nobody was lecturing you....just as a reminder, this is specifically what you stated:

 

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market.And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Your statement excluded any reference to the market price of the security.  I kinda think it's an important factor.  So my answer to your rhetorical question of "Why be invested in the P&C insurer rather than the alternatives" is that the P&C insurer can be bought at 0.6X or 0.7X BV, which can even turn a poor underwriter into an ok investment.

 

If you read the thread in detail, I think you will see other posters also reminding you that a singular focus on underwriting misses out on investing prowess and price.

 

Regards,

 

SJ

 

It is quite the opposite. Focusing on price is the amateur's mistake when analyzing financial companies. First you focus on quality, then you wait for your entry/a shrewd price.

 

And earlier this year, one didn't need to make any quality/price trade-off. SUR was selling below tangible. If you focus, Stubble, maybe you will gather that I am not so subtly hinting to you that there are currently bargains to be had with fine underwriting.

 

But you're right, maybe I shouldn't think at all and just repeat platitudes like, price is what you pay, value is what you get.

 

How many P&C insurers have you brought to the board's attention which got acquired this year? Do you really think that I am blind to value? Do you really believe that in your heart/mind?

 

 

Ok, so now you do acknowledge that price matters.  That's good.

 

You're a bright guy, Harry, but a little modesty would go a long way.  You seem to have a stock, knee-jerk reaction to any view point that fails to concur completely with yours, and have a tendency to lash out at those who don't happen to agree with you.  Sometimes you'll be right, and sometimes you'll be wrong in your judgements but at all times you could choose to conduct yourself with dignity.

 

 

SJ

 

There is nothing more dignified than helping people to improve incorrect thoughts. I shape my comments to be correct, not to elicit your agreement, thanks, or approval. I am saying what you need to hear. Not what you want to hear.

[Guest HarryLong]

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market. And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Let's do an experiment: which P&C insurers hit a combined ratio of 89 or less during the last 5-6 years? And then, which P&C insurers which passed that first test still had a combined ratio of 89 or less for the last year, the last 6 months, and the last quarter?

 

 

 

 

Er...what if you can find an insurer that will write low-to-mid-90s and currently sells at 0.6X or 0.7X BV?

 

Price is what you pay, value is what you get.  We need to pay attention to both.

 

 

SJ

 

Fremont got taken over, CNA Surety got taken over, and now you lecture me about price and value. Wow. Since when have I suggested paying exhorbitant prices?

 

 

Uh, Harry, nobody was lecturing you....just as a reminder, this is specifically what you stated:

 

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market.And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Your statement excluded any reference to the market price of the security.  I kinda think it's an important factor.  So my answer to your rhetorical question of "Why be invested in the P&C insurer rather than the alternatives" is that the P&C insurer can be bought at 0.6X or 0.7X BV, which can even turn a poor underwriter into an ok investment.

 

If you read the thread in detail, I think you will see other posters also reminding you that a singular focus on underwriting misses out on investing prowess and price.

 

Regards,

 

SJ

 

No, no and no! Just because the insurer can be bought below book does not turn a poor underwriter into an ok investment! That is precisely the myth that will make you lose money in this business. Those value traps are often the most dangerous to your wallet!

 

Have you ever looked at CNA? It's been selling below book for years! Have you ever done a backtest to actually have evidence for you assertion? Of course not, or you would know how totally wrong it is.

 

Try to engage in evidence based reasoning.

 

I am trying to help you and all you can focus on is that I am not gentle while trying to keep you from losing money.

 

I've been diplomatic with friends before, and they went backrupt. I promised myself I would never be diplomatic again when it comes to helping people. Being diplomatic is not about courtesy towards other's feelings, it's about a selfish urge to be liked. I would rather save you money than have you like me.

 

In retrospect, I was too diplomatic in the Netflix thread with those suicidal shorts. Think of how much money they've lost because other people on the board were trying to be polite. I don't have an ego need to be liked. I have a need to help people.

[mountboney]

Harry, your record on financials is top notch.  What is your favorite right now?

[Guest HarryLong]

Harry, your record on financials is top notch.  What is your favorite right now?

 

Thank you for your kind words.  ;D

 

Could you send me an email? I would be happy to discuss offline.

[StubbleJumper]

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market. And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Let's do an experiment: which P&C insurers hit a combined ratio of 89 or less during the last 5-6 years? And then, which P&C insurers which passed that first test still had a combined ratio of 89 or less for the last year, the last 6 months, and the last quarter?

 

 

 

 

Er...what if you can find an insurer that will write low-to-mid-90s and currently sells at 0.6X or 0.7X BV?

 

Price is what you pay, value is what you get.  We need to pay attention to both.

 

 

SJ

 

Fremont got taken over, CNA Surety got taken over, and now you lecture me about price and value. Wow. Since when have I suggested paying exhorbitant prices?

 

 

Uh, Harry, nobody was lecturing you....just as a reminder, this is specifically what you stated:

 

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market.And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Your statement excluded any reference to the market price of the security.  I kinda think it's an important factor.  So my answer to your rhetorical question of "Why be invested in the P&C insurer rather than the alternatives" is that the P&C insurer can be bought at 0.6X or 0.7X BV, which can even turn a poor underwriter into an ok investment.

 

If you read the thread in detail, I think you will see other posters also reminding you that a singular focus on underwriting misses out on investing prowess and price.

 

Regards,

 

SJ

 

No, no and no! Just because the insurer can be bought below book does not turn a poor underwriter into an ok investment! That is precisely the myth that will make you lose money in this business. Those value traps are often the most dangerous to your wallet!

 

Have you ever looked at CNA? It's been selling below book for years! Have you ever done a backtest to actually have evidence for you assertion? Of course not, or you would know how totally wrong it is.

 

Try to engage in evidence based reasoning.

 

I am trying to help you and all you can focus on is that I am not gentle while trying to keep you from losing money.

 

I've been diplomatic with friends before, and they went backrupt. I promised myself I would never be diplomatic again when it comes to helping people. Being diplomatic is not about courtesy towards other's feelings, it's about a selfish urge to be liked. I would rather save you money than have you like me.

 

In retrospect, I was too diplomatic in the Netflix thread with those suicidal shorts. Think of how much money they've lost because other people on the board were trying to be polite. I don't have an ego need to be liked. I have a need to help people.

 

 

Really Harry, why is it so hard to simply acknowledge the points that other posters have made in this thread?  There were really just two of them, which were simply that underwriting ability matters, but don't forget investment prowess or market price when evaluating a P&C insurer.  Why such a visceral reaction to a couple of very indisputable points?

 

In CNA you found one example of a real dog with chronic adverse development that sells for well below book.  If you would tone down the testosterone level for 5 minutes, you might recall me saying to you in a previous thread that I would not touch it at its current price because of the adverse development and the mediocre investment history with CNA.  However, the fact that CNA is a value trap does not mean that all insurance companies that sell for less than book will also be value traps.  In fact, there's a pretty bright chap on these boards who has identified a mixed life and P&C outfit out of Canada that sells for about .6 or .7 of book, and it writes in the mid-to-high 90s and has done so reliably for years.

 

The other observation that I would make is that you never really know how long it might take for an investment to work out.  You try to get $1 for $0.50, but it can take quite some time for everyone else to agree that it's actually worth $1.  You have made some very astute calls, some of which culminated in a takeover....but a takeover is far from assured and you could still be sitting on a security that's worth $1 but happens to still sell for $0.50.  Congratulations on a favourable outcome, but a least have the humility to recognize that the timing was fabulous.

 

WRT Netflix, you were NOT far too diplomatic.  You made your point.  People understood your point.  Some of them just happened to disagree with you, which is their prerogative.  They are adults and they made their decisions.  It would not have helped anybody if you had elected to be more obnoxious in making your point.

 

 

SJ  

[Guest HarryLong]

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market. And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Let's do an experiment: which P&C insurers hit a combined ratio of 89 or less during the last 5-6 years? And then, which P&C insurers which passed that first test still had a combined ratio of 89 or less for the last year, the last 6 months, and the last quarter?

 

 

 

 

Er...what if you can find an insurer that will write low-to-mid-90s and currently sells at 0.6X or 0.7X BV?

 

Price is what you pay, value is what you get.  We need to pay attention to both.

 

 

SJ

 

Fremont got taken over, CNA Surety got taken over, and now you lecture me about price and value. Wow. Since when have I suggested paying exhorbitant prices?

 

 

Uh, Harry, nobody was lecturing you....just as a reminder, this is specifically what you stated:

 

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market.And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Your statement excluded any reference to the market price of the security.  I kinda think it's an important factor.  So my answer to your rhetorical question of "Why be invested in the P&C insurer rather than the alternatives" is that the P&C insurer can be bought at 0.6X or 0.7X BV, which can even turn a poor underwriter into an ok investment.

 

If you read the thread in detail, I think you will see other posters also reminding you that a singular focus on underwriting misses out on investing prowess and price.

 

Regards,

 

SJ

 

No, no and no! Just because the insurer can be bought below book does not turn a poor underwriter into an ok investment! That is precisely the myth that will make you lose money in this business. Those value traps are often the most dangerous to your wallet!

 

Have you ever looked at CNA? It's been selling below book for years! Have you ever done a backtest to actually have evidence for you assertion? Of course not, or you would know how totally wrong it is.

 

Try to engage in evidence based reasoning.

 

I am trying to help you and all you can focus on is that I am not gentle while trying to keep you from losing money.

 

I've been diplomatic with friends before, and they went backrupt. I promised myself I would never be diplomatic again when it comes to helping people. Being diplomatic is not about courtesy towards other's feelings, it's about a selfish urge to be liked. I would rather save you money than have you like me.

 

In retrospect, I was too diplomatic in the Netflix thread with those suicidal shorts. Think of how much money they've lost because other people on the board were trying to be polite. I don't have an ego need to be liked. I have a need to help people.

 

 

Really Harry, why is it so hard to simply acknowledge the points that other posters have made in this thread?  There were really just two of them, which were simply that underwriting ability matters, but don't forget investment prowess or market price when evaluating a P&C insurer.  Why such a visceral reaction to a couple of very indisputable points?

 

In CNA you found one example of a real dog with chronic adverse development that sells for well below book.  If you would tone down the testosterone level for 5 minutes, you might recall me saying to you in a previous thread that I would not touch it at its current price because of the adverse development and the mediocre investment history with CNA.  However, the fact that CNA is a value trap does not mean that all insurance companies that sell for less than book will also be value traps.  In fact, there's a pretty bright chap on these boards who has identified a mixed life and P&C outfit out of Canada that sells for about .6 or .7 of book, and it writes in the mid-to-high 90s and has done so reliably for years.

 

The other observation that I would make is that you never really know how long it might take for an investment to work out.  You try to get $1 for $0.50, but it can take quite some time for everyone else to agree that it's actually worth $1.  You have made some very astute calls, some of which culminated in a takeover....but a takeover is far from assured and you could still be sitting on a security that's worth $1 but happens to still sell for $0.50.  Congratulations on a favourable outcome, but a least have the humility to recognize that the timing was fabulous.

 

WRT Netflix, you were NOT far too diplomatic.  You made your point.  People understood your point.  Some of them just happened to disagree with you, which is their prerogative.  They are adults and they made their decisions.  It would not have helped anybody if you had elected to be more obnoxious in making your point.

 

 

SJ  

 

Where do I begin?

 

I. You are not processing correctly. Your low price argument is not an "indisputable point." It is highly disputable, since it's totally wrong. There is no evidence for it when it comes to insurance.

 

II. Now you're setting up a straw man that you strike down. Writing in the mid to high 90's makes an insurer an average underwriter, not a poor underwriter as I discussed. Ironically, you know the example of CNA, but you ignore it anyway. OK.  ;D

 

III. My timing was fabulous? Thank you. Do you know the history of my investment in FMMH? Then you must know how right you are...I just sat around and magically got great timing  ;)   Every hear of buildfremont.com? Ever hear of "systematic methods" for entry and exit?

 

IV. Netflix. People didn't understand my point at all. They thought it was about prediction. It turned out to be about risk control. Go through the thread. There was even some fool on the Netflix thread who called my points about risk control "incoherent ramblings." They didn't get the point at all, and I was far too diplomatic in not pressing it. They're adults? How lucky they are that I persisted in my points despite their insults. I had nothing to gain. It was totally altruistic.

 

Let's be honest. You have a hard time hearing that you're wrong. Rather than focusing on correcting you mistakes, you would rather focus on the lack of diplomacy in the person helping you. In my business, that's called avoidance.

[StubbleJumper]

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market. And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Let's do an experiment: which P&C insurers hit a combined ratio of 89 or less during the last 5-6 years? And then, which P&C insurers which passed that first test still had a combined ratio of 89 or less for the last year, the last 6 months, and the last quarter?

 

 

 

 

Er...what if you can find an insurer that will write low-to-mid-90s and currently sells at 0.6X or 0.7X BV?

 

Price is what you pay, value is what you get.  We need to pay attention to both.

 

 

SJ

 

Fremont got taken over, CNA Surety got taken over, and now you lecture me about price and value. Wow. Since when have I suggested paying exhorbitant prices?

 

 

Uh, Harry, nobody was lecturing you....just as a reminder, this is specifically what you stated:

 

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market.And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Your statement excluded any reference to the market price of the security.  I kinda think it's an important factor.  So my answer to your rhetorical question of "Why be invested in the P&C insurer rather than the alternatives" is that the P&C insurer can be bought at 0.6X or 0.7X BV, which can even turn a poor underwriter into an ok investment.

 

If you read the thread in detail, I think you will see other posters also reminding you that a singular focus on underwriting misses out on investing prowess and price.

 

Regards,

 

SJ

 

No, no and no! Just because the insurer can be bought below book does not turn a poor underwriter into an ok investment! That is precisely the myth that will make you lose money in this business. Those value traps are often the most dangerous to your wallet!

 

Have you ever looked at CNA? It's been selling below book for years! Have you ever done a backtest to actually have evidence for you assertion? Of course not, or you would know how totally wrong it is.

 

Try to engage in evidence based reasoning.

 

I am trying to help you and all you can focus on is that I am not gentle while trying to keep you from losing money.

 

I've been diplomatic with friends before, and they went backrupt. I promised myself I would never be diplomatic again when it comes to helping people. Being diplomatic is not about courtesy towards other's feelings, it's about a selfish urge to be liked. I would rather save you money than have you like me.

 

In retrospect, I was too diplomatic in the Netflix thread with those suicidal shorts. Think of how much money they've lost because other people on the board were trying to be polite. I don't have an ego need to be liked. I have a need to help people.

 

 

Really Harry, why is it so hard to simply acknowledge the points that other posters have made in this thread?  There were really just two of them, which were simply that underwriting ability matters, but don't forget investment prowess or market price when evaluating a P&C insurer.  Why such a visceral reaction to a couple of very indisputable points?

 

In CNA you found one example of a real dog with chronic adverse development that sells for well below book.  If you would tone down the testosterone level for 5 minutes, you might recall me saying to you in a previous thread that I would not touch it at its current price because of the adverse development and the mediocre investment history with CNA.  However, the fact that CNA is a value trap does not mean that all insurance companies that sell for less than book will also be value traps.  In fact, there's a pretty bright chap on these boards who has identified a mixed life and P&C outfit out of Canada that sells for about .6 or .7 of book, and it writes in the mid-to-high 90s and has done so reliably for years.

 

The other observation that I would make is that you never really know how long it might take for an investment to work out.  You try to get $1 for $0.50, but it can take quite some time for everyone else to agree that it's actually worth $1.  You have made some very astute calls, some of which culminated in a takeover....but a takeover is far from assured and you could still be sitting on a security that's worth $1 but happens to still sell for $0.50.  Congratulations on a favourable outcome, but a least have the humility to recognize that the timing was fabulous.

 

WRT Netflix, you were NOT far too diplomatic.  You made your point.  People understood your point.  Some of them just happened to disagree with you, which is their prerogative.  They are adults and they made their decisions.  It would not have helped anybody if you had elected to be more obnoxious in making your point.

 

 

SJ  

 

Where do I begin?

 

I. You are not processing correctly. Your low price argument is not an "indisputable point." It is highly disputable, since it's totally wrong. There is no evidence for it when it comes to insurance.

 

II. Now you're setting up a straw man that you strike down. Writing in the mid to high 90's makes an insurer an average underwriter, not a poor underwriter as I discussed. Ironically, you know the example of CNA, but you ignore it anyway. OK. 

 

III. My timing was fabulous? Thank you. Do you know the history of my investment in FMMH? Then you must know how right you are...I just sat around and magically got great timing    Every hear of buildfremont.com? Ever hear of "systematic methods" for entry and exit?

 

IV. Netflix. People didn't understand my point at all. They thought it was about prediction. It turned out to be about risk control. Go through the thread. There was even some fool on the Netflix thread who called my points about risk control "incoherent ramblings." They didn't get the point at all, and I was far too diplomatic in not pressing it. They're adults? How lucky they are that I persisted in my points despite their insults. I had nothing to gain. It was totally altruistic.

 

Let's be honest. You have a hard time hearing that you're wrong. Rather than focusing on correcting you mistakes, you would rather focus on the lack of diplomacy in the person helping you. In my business, that's called avoidance.

 

 

Well, Harry, I would suggest that you could have begun by calmly reading the thread before constructing a reply.  This is my last post on this increasingly vapid thread.  A few observations:

 

 

I. You are not processing correctly. Your low price argument is not an "indisputable point." It is highly disputable, since it's totally wrong. There is no evidence for it when it comes to insurance.

 

Ok, sheesh, now we're back to denying that the market price at which you buy a security has an impact on the ultimate return that you will realise?  Come on, Harry!

 

II. Now you're setting up a straw man that you strike down. Writing in the mid to high 90's makes an insurer an average underwriter, not a poor underwriter as I discussed. Ironically, you know the example of CNA, but you ignore it anyway. OK.  ;D

 

Harry, I would remind you that you used these words which did not speak of a "poor" underwriter:

 

"Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market.And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?"

 

III. My timing was fabulous? Thank you. Do you know the history of my investment in FMMH? Then you must know how right you are...I just sat around and magically got great timing  ;)   Every hear of buildfremont.com? Ever hear of "systematic methods" for entry and exit?

 

Yes, your timing was fabulous, congratulations again.  Systemic methods for entry and exit do not guarantee an immediate favourable outcome, but certainly the thought process is helpful to be in a position where such an outcome might occur.

 

IV. Netflix. People didn't understand my point at all. They thought it was about prediction. It turned out to be about risk control. Go through the thread. There was even some fool on the Netflix thread who called my points about risk control "incoherent ramblings." They didn't get the point at all, and I was far too diplomatic in not pressing it. They're adults? How lucky they are that I persisted in my points despite their insults. I had nothing to gain. It was totally altruistic.

 

Altruism is an interesting thing.  We all get something out of everything we do, even if we don't/can't articulate what it is.  Reflect on that, and think about what you get out of posting on this forum and how that might colour your posts.

 

In the end, we will just have to disagree that the purchase price is a key consideration when evaluating P&C insurers.  I will stick to what I do, and you can go ahead and buy securities without looking at the price tag. :-*

 

[Guest HarryLong]

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market. And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Let's do an experiment: which P&C insurers hit a combined ratio of 89 or less during the last 5-6 years? And then, which P&C insurers which passed that first test still had a combined ratio of 89 or less for the last year, the last 6 months, and the last quarter?

 

 

 

 

Er...what if you can find an insurer that will write low-to-mid-90s and currently sells at 0.6X or 0.7X BV?

 

Price is what you pay, value is what you get.  We need to pay attention to both.

 

 

SJ

 

Fremont got taken over, CNA Surety got taken over, and now you lecture me about price and value. Wow. Since when have I suggested paying exhorbitant prices?

 

 

Uh, Harry, nobody was lecturing you....just as a reminder, this is specifically what you stated:

 

Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market.And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?

 

Your statement excluded any reference to the market price of the security.  I kinda think it's an important factor.  So my answer to your rhetorical question of "Why be invested in the P&C insurer rather than the alternatives" is that the P&C insurer can be bought at 0.6X or 0.7X BV, which can even turn a poor underwriter into an ok investment.

 

If you read the thread in detail, I think you will see other posters also reminding you that a singular focus on underwriting misses out on investing prowess and price.

 

Regards,

 

SJ

 

No, no and no! Just because the insurer can be bought below book does not turn a poor underwriter into an ok investment! That is precisely the myth that will make you lose money in this business. Those value traps are often the most dangerous to your wallet!

 

Have you ever looked at CNA? It's been selling below book for years! Have you ever done a backtest to actually have evidence for you assertion? Of course not, or you would know how totally wrong it is.

 

Try to engage in evidence based reasoning.

 

I am trying to help you and all you can focus on is that I am not gentle while trying to keep you from losing money.

 

I've been diplomatic with friends before, and they went backrupt. I promised myself I would never be diplomatic again when it comes to helping people. Being diplomatic is not about courtesy towards other's feelings, it's about a selfish urge to be liked. I would rather save you money than have you like me.

 

In retrospect, I was too diplomatic in the Netflix thread with those suicidal shorts. Think of how much money they've lost because other people on the board were trying to be polite. I don't have an ego need to be liked. I have a need to help people.

 

 

Really Harry, why is it so hard to simply acknowledge the points that other posters have made in this thread?  There were really just two of them, which were simply that underwriting ability matters, but don't forget investment prowess or market price when evaluating a P&C insurer.  Why such a visceral reaction to a couple of very indisputable points?

 

In CNA you found one example of a real dog with chronic adverse development that sells for well below book.  If you would tone down the testosterone level for 5 minutes, you might recall me saying to you in a previous thread that I would not touch it at its current price because of the adverse development and the mediocre investment history with CNA.  However, the fact that CNA is a value trap does not mean that all insurance companies that sell for less than book will also be value traps.  In fact, there's a pretty bright chap on these boards who has identified a mixed life and P&C outfit out of Canada that sells for about .6 or .7 of book, and it writes in the mid-to-high 90s and has done so reliably for years.

 

The other observation that I would make is that you never really know how long it might take for an investment to work out.  You try to get $1 for $0.50, but it can take quite some time for everyone else to agree that it's actually worth $1.  You have made some very astute calls, some of which culminated in a takeover....but a takeover is far from assured and you could still be sitting on a security that's worth $1 but happens to still sell for $0.50.  Congratulations on a favourable outcome, but a least have the humility to recognize that the timing was fabulous.

 

WRT Netflix, you were NOT far too diplomatic.  You made your point.  People understood your point.  Some of them just happened to disagree with you, which is their prerogative.  They are adults and they made their decisions.  It would not have helped anybody if you had elected to be more obnoxious in making your point.

 

 

SJ  

 

Where do I begin?

 

I. You are not processing correctly. Your low price argument is not an "indisputable point." It is highly disputable, since it's totally wrong. There is no evidence for it when it comes to insurance.

 

II. Now you're setting up a straw man that you strike down. Writing in the mid to high 90's makes an insurer an average underwriter, not a poor underwriter as I discussed. Ironically, you know the example of CNA, but you ignore it anyway. OK.  

 

III. My timing was fabulous? Thank you. Do you know the history of my investment in FMMH? Then you must know how right you are...I just sat around and magically got great timing     Every hear of buildfremont.com? Ever hear of "systematic methods" for entry and exit?

 

IV. Netflix. People didn't understand my point at all. They thought it was about prediction. It turned out to be about risk control. Go through the thread. There was even some fool on the Netflix thread who called my points about risk control "incoherent ramblings." They didn't get the point at all, and I was far too diplomatic in not pressing it. They're adults? How lucky they are that I persisted in my points despite their insults. I had nothing to gain. It was totally altruistic.

 

Let's be honest. You have a hard time hearing that you're wrong. Rather than focusing on correcting you mistakes, you would rather focus on the lack of diplomacy in the person helping you. In my business, that's called avoidance.

 

 

Well, Harry, I would suggest that you could have begun by calmly reading the thread before constructing a reply.  This is my last post on this increasingly vapid thread.  A few observations:

 

 

I. You are not processing correctly. Your low price argument is not an "indisputable point." It is highly disputable, since it's totally wrong. There is no evidence for it when it comes to insurance.

 

Ok, sheesh, now we're back to denying that the market price at which you buy a security has an impact on the ultimate return that you will realise?  Come on, Harry!

 

II. Now you're setting up a straw man that you strike down. Writing in the mid to high 90's makes an insurer an average underwriter, not a poor underwriter as I discussed. Ironically, you know the example of CNA, but you ignore it anyway. OK.  ;D

 

Harry, I would remind you that you used these words which did not speak of a "poor" underwriter:

 

"Pricing should only be a focus if your P&C investment can't acheive a combined ratio in the 80's during a soft market.And if it cannot acheive a combined ratio in the 80's, and there are alternative potential investments which can, why be invested in the P&C insurer to begin with and not the alternatives?"

 

III. My timing was fabulous? Thank you. Do you know the history of my investment in FMMH? Then you must know how right you are...I just sat around and magically got great timing  ;)   Every hear of buildfremont.com? Ever hear of "systematic methods" for entry and exit?

 

Yes, your timing was fabulous, congratulations again.  Systemic methods for entry and exit do not guarantee an immediate favourable outcome, but certainly the thought process is helpful to be in a position where such an outcome might occur.

 

IV. Netflix. People didn't understand my point at all. They thought it was about prediction. It turned out to be about risk control. Go through the thread. There was even some fool on the Netflix thread who called my points about risk control "incoherent ramblings." They didn't get the point at all, and I was far too diplomatic in not pressing it. They're adults? How lucky they are that I persisted in my points despite their insults. I had nothing to gain. It was totally altruistic.

 

Altruism is an interesting thing.  We all get something out of everything we do, even if we don't/can't articulate what it is.  Reflect on that, and think about what you get out of posting on this forum and how that might colour your posts.

 

In the end, we will just have to disagree that the purchase price is a key consideration when evaluating P&C insurers.  I will stick to what I do, and you can go ahead and buy securities without looking at the price tag. :-*

 

 

This is what happens when you try to help people. Confirmation bias at work. You have a right to refuse to learn, but you don't have a right to misquote me. As I've said before, I do look at the price of the goods--after I inspect their quality. It's over-paying to pay even 1 cent for a rotten apple.

 

Learn and prosper my friend.