ERICOPOLY

I grew up with good healthcare as my father was an HP employee. Then I had great insurance through UCLA, then hired right out of college by Microsoft (the very best health insurance available). Now, I am not employed and I went on COBRA for my first few months. Then I didn't know which health insurance to get, so we went with a local business that acts as a broker and she found our insurance for us. This was an interesting process because I discovered that I can't find insurance to cover prescriptions... anywhere! Literally, it's just not available. So if one of us gets cancer, I'm fully on the hook for chemotherapy (which I hear is easily running people into six figure bills annually). So I frankly don't see how the government is going to crowd out the private sector, when the private sector isn't even offering the kind of insurance I want! I can pay for broken bones out of pocket... what I want insurance for is the "supercat" of health coverage... cancer treatment. There is a loophole though that I can exploit... I just have to create some phony corporation (any corporation) and then the insurance companies are required to offer me a plan that has prescriptive coverage (to cover cancer chemotherapy). How stupid can this be!!!

Would it be possible to shift the expenses to the balance sheets of the companies that sell the junk food, thereby incentivizing the production of healthier foods? The free market doesn't do a good job of ensuring that producers bear the true costs. There are these external costs that they aren't responsible for paying. From afar, the food industry may appear to be feeding America profitably, but what if that is only because many of the expenses show up elsewhere?

And if you want to be in the insurance business for the insurance business, there is MKL. But with MKL you are not getting the underwriting profit for free... you have to pay for it just like any business that isn't selling for free. It's a BV premium, and when paying that premium one needs to realize that it's just like anything else... you pay a multiple of earnings. You can start out with $1.35: A) Buy $1 of FFH Buy 0.35 of any other business that earns a profit B) Buy $1 of MKL book and pay an additional 0.35 for MKL underwriting profit (can't buy one without the other) Is it more complicated than this?

I can see that happening. However, even if that were to happen... where is the harm? Is the harm only done to the private equity holders of insurers, or do we all lose out somehow? This industry has been private for a long time. Normally, when we think of free enterprise and private competitiveness we think in terms of it's benefits: innovation. It is imperative that our industries remain innovative and competitive on the global stage. Does that matter for health insurance? Is there such a thing as innovation here? This is what I'm at a loss to explain -- why are so many people convinced that any benefit is derived from a private insurer vs a public one? Don't they just bring in premiums, collect interest on float, and settle claims? Will we lose any global competitiveness if the govt pushes out private insurers?

I asked myself how the public option would make health care cheaper. In order to get an answer, I first had to determine where exactly health insurers get the bulk of their profits. From my observation, it would seem that they make profit by getting premiums far in advance of claims, and investing this float in government bonds. Therefore, they are getting premiums essentially directly from taxpayers long before taypayers actually get sick and need to visit a doctor, and these taxpayers effectively are also on the hook for the interest payments on the government bonds. Now, I ask what would happen if a public "option" were simply forced upon America, and the private insurance industry was forced into runoff. Where does the cost savings come from I ask? Well, I think there is cost savings in that the government would be paying the claims in real time as they come due, thus eliminating a middle man "float". So the savings from the public option comes from the time value of money -- interest not paid to insurers on float.

This is the way to go. As you say, fire people for writing less business and the remaining staff will be certain to not repeat their mistake. This is an investment holding company with cheap leverage, as far as I'm concerned. No underwriting profit? Boo hoo. Leucadia doesn't have underwriting profit... shit, as long as you make a lot of money investing that's what counts most.

The premium shows up as an asset -- goodwill.

They only lost $21.1 on commutations in all three quarters combined of 2009 (all in Q3 actually). You are probably looking at the line where they talk of the $80m commutation at C&F -- but look at the date on that... 2008.

Why did "fair value" of equity accounted investments fall from $737.5m (Q2) to $570.1m (Q3)? Okay, I found it -- it was a decrease in "Fair Value" of ICICI Lombard. Hmmm... but why?

I remember MRH had impressive combined ratios until they lost 70% of equity from the hurricanes of 2005.

Instead of blaming Greenspan he talks about idiots that were allowed to be in control, and he also talks about the mess that was created by deregulation of financials. Putting it together, it looks like Munger thinks the purist free market types came to power and wrecked everything with their ideology, and that those people are idiots.

A CEO paid $242k, and the shareholder represents this as an outrage? His raises have only been 5% per annum, and that appears to be what all the fuss is about.

It must be easy to lure people away from a firm that won't pay a bonus for effort.

A strong insurable event would lead to a hard market and lots and lots of profitable float which could quickly bring intrinsic value up by a 8-10 billion dollars. Thats why using BV as a wading wand for intrinsic value ain't the smartest thing in the world...but I understand why many chose to do it, anchoring. The gap between IV and BV will only increase when they start do more business. The key phrase is "when they do more business". Sanjeev pointed out recently that soft markets can last more than a decade.

That's pretty close to what I get (I get about 0.72x using $125 US GAAP figure and stock at $90 in June 2006). An assertion was made that a terror attack or a hurricane would knock down the valuation to 0.6x book... Let's look at what happened to ORH after the 9/11 attack: the stock was driven down to $11.29, but ORH had a book value of about $13.50 at the time (not the exact figure, I'm working from memory). So that was roughly .8x book. Then there was Katrina/Rita/Wilma -- it drove ORH P/B down to about 1.0x. But it was already trading near book in the first place. I mean, the stock actually was higher in November than in July! So today FFH is trading at book value... will KRW repeat, and if it does, will FFH follow ORH and actually go UP?

0.6x US GAAP book has only happened once, in 2003. Some people think there was a huge book value discount in 2006 but much of that was due to differences in how Canadian GAAP valued those finite re arrangements.

I would be amazed if Mohnish would buy that lunch were it not going to charity. This was a convenient means of giving back to society while also securing a meeting his mentor. Now, if Buffett tried to sell lunch for $50k and pocket the profit, I doubt anyone would pay (out of self respect).

http://seattletimes.nwsource.com/html/businesstechnology/2010131911_wamu25.html "Someone in Florida had made a second-mortgage loan to O.J. Simpson, and I just about blew my top, because there was this huge judgment against him from his wife's parents," she recalled. Simpson had been acquitted of killing his wife Nicole and her friend but was later found liable for their deaths in a civil lawsuit; that judgment took precedence over other debts, such as if Simpson defaulted on his WaMu loan. "When I asked how we could possibly foreclose on it, they said there was a letter in the file from O.J. Simpson saying 'the judgment is no good, because I didn't do it.' "

I can't figure out why anyone would value Dick Bove's opinion above Warren Buffett's. Seriously, can this be explained?

I think FFH actually grew book faster than ORH over the last quarters. FFH went into this quarter with a higher percentage of book allocated to equities, and that brings more punch to the party. Perhaps though they sold investments early and that's one thing that would lead to exagerrated expectations, just like Q4 last year with the long bonds.

I can't take credit for any hedging. I was doubting it actually (before the crash). I didn't do anything to hedge until FFH was already at $250, which is a little bit slow on the uptake really :-\

Say 1.5x in 6 yrs from today's base of approximately 0.95x. That's 8% per annum tailwind from the book value expansion. Then add in 12-15% per annum from investments/operations, and you've got 20-23% per annum. That's tax-deferred compounding -- equivalent to getting more than 30% annualized from short-term trading (I paid 35% tax on that stuff this year). And with fund manager fees, you're looking at more than 40% to beat it... unless you are the fund manager :)

Personally, I can't tell you... but I think I can use HWIC as a proxy for smart money. (one strategy -- of many -- is to follow the smart money) Today, the S&P500 is up 16% since the peak of December 2008. Did HWIC invest "all in" (or nearly all in) for a mere 16%? To be that far into equities last December without any selling or hedging, are we to infer anything from it other than that they expect the risk of loss to be less than the potential of gain? Does a 16% pop materially change that view?

I agree. Adding to that, looking back 3 yrs... the driver of the stock price has been results. In June 2006 the stock was at about $90 at the bottom, US GAAP book was about $125, and today the US GAAP book is somewhere in the $380 ballpark. So yeah, the stock was maybe 25% below book at the 2006 bottom, in hindsight, the biggest driver in the share price has been the profits. This company IPO'd at 2x book. One might have argued then that there was no point to invest as it was not a Graham value.

I have 50% in FFH, and it's a large sum of money. Therefore I sleep fine because in the worst event I'll still have a large sum of money.