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

[schin]

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?

[Myth465]

I dont know what the top ones are, but I own / am watching 4 insurers.

 

CNA - Cheapest by metric, 68% of book. I sold to raise capital but will buy soon.

FFH - Best investor, probably trading above book value now. I own leaps. Selling the leaps, will buy a sludge of stock, and will buy more after the season.

LRE - Best underwriter, trading below book. Buying back stock, this season should be a good test for them. Will buy more after the season.

HALL - Seems like a great company but no longer cheap. On the watch list.

[twacowfca]

I dont know what the top ones are, but I own / am watching 4 insurers.

 

CNA - Cheapest by metric, 68% of book. I sold to raise capital but will buy soon.

FFH - Best investor, probably trading above book value now. I own leaps. Selling the leaps, will buy a sludge of stock, and will buy more after the season.

LRE - Best underwriter, trading below book. Buying back stock, this season should be a good test for them. Will buy more after the season.

HALL - Seems like a great company but no longer cheap. On the watch list.

 

 

A good list, especially the two in the middle, but there are excellent Bermuda reinsurers that are just as balance sheet cheap as CNA and have great long term records.  Aspen is a good choice if hurricanes scare you.  They don't have much exposure to them.  Montpelier Re is so cheap they could take a hit from a hundred year storm and still would be selling below BV at their current price if you believe their new and improved models.

[Myth465]

Thanks for the tips. I may end up doing a Bermuda and FFH basket of 2 - 4 insurers. I like CNA but its huge investment portfolio will really wipe around book value, and I believe it will take them a few years to trade up to book value. They have had crappy underwriting for 20 years and the market will want a long timeline before it rewards them. I like the new CEO and believe they are headed in the right direction. I may leave my exposure to them in Loews and go with a few other Bermuda insurers. I should have some cash from the FFH Leap sales.

 

Thanks for the tips. I will start looking into those this week. What are you doing in relation to hurricane season? I want to have a toehold into 2-5 insurers prior and if its a rough one and they sell off I can really double / triple down.

[twacowfca]

Thanks for the tips. I may end up doing a Bermuda and FFH basket of 2 - 4 insurers. I like CNA but its huge investment portfolio will really wipe around book value, and I believe it will take them a few years to trade up to book value. They have had crappy underwriting for 20 years and the market will want a long timeline before it rewards them. I like the new CEO and believe they are headed in the right direction. I may leave my exposure to them in Loews and go with a few other Bermuda insurers. I should have some cash from the FFH Leap sales.

 

Thanks for the tips. I will start looking into those this week. What are you doing in relation to hurricane season? I want to have a toehold into 2-5 insurers prior and if its a rough one and they sell off I can really double / triple down.

 

 

 

Bought a small amount of Lancashire last week on the dip.  Have  ton of cash now.  Midway through the hurricane season will probably load up if it looks like a low loss year.  Currently very happy to have the cash to take advantage of unusual opportunities with the recent volatility.  Cash position is up nicely as we closed out our puts for a nice gain, although we still have a sizeable SPY option arbitrage position open that hopefully will produce a profit at or just before the June options expire.  :)

[Guest misterstockwell]

HCC is trading below book for the first time in awhile. They are excellent underwriters. I'll second Aspen as well.

[twacowfca]

HCC is trading below book for the first time in awhile. They are excellent underwriters. I'll second Aspen as well.

 

 

I would buy HCC in a heartbeat if we had a more diversified portfolio.  There's no better pure P&C  insurance company in North America IMO.  ( except a couple of you know who's that shine investing their float ).  :)

[Uccmal]

MFC is a life/health and wealth management company.  As such it is not comparable to the others on your list.  Right now it is trading according to the equity indices (S&P/TSX).  Hence, why it is below book.  With each 10% change in the indices they book roughly a 1 billion change in earnings (mark to market). 

 

 

[Packer16]

Another nice aspect of HCC is they have a 5% cost advantage (expense ratio in the 25% range) versus the competitors.  This is one indication of a sustainable advantage.

 

Packer

[twacowfca]

Another nice aspect of HCC is they have a 5% cost advantage (expense ratio in the 25% range) versus the competitors.  This is one indication of a sustainable advantage.

 

Packer

 

 

Their returns have been less volatile than most P&C cos.  They farm out the management of their portfolio to Gen Re.  To the best of my memory they didn't lose money on the investing side during the financial crisis and like Lancashire produced steady although modest investment returns.

[Myth465]

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.

[twacowfca]

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.

[twacowfca]

Here's a rhetorical question.  If WEB was willing to bid book value last summer for one of the less desirable Bermuda Re companies (IPC), what's wrong with buying the best Bermuda Re co at .9 • BV or an above average Bermuda Re co at .7 • BV?  Considering the quality of these businesses, shouldn't they be valued at a substantial premium to BV, compared to IPC?  

 

Is not their current pricing compared to other companies more reflective of Mr. Market's fickleness, than their IV?  This is not to say that they couldn't be bought at an even greater discount in the future, given bearish sentiment or hurricaneophobia.  Comments?

[Packer16]

Another good firm to look at is AWH.  The only reason I could see (beyond Mr. Market), Aspen and Allied World are trading at a 30% disc to book is they both have about $1 b in Non-agency RMBS, CMBS and ABS (about 30% of their BV) but so does HCC.  Go figure?

 

Packer

[Guest HarryLong]

Y'all, I don't mean any offense, but you haven't even grazed the surface when it comes to researching quality insurers  ;D

[Packer16]

I may have left out the upfront filter I have applied to all these insurers, namely, CR<100 over the cycle (in most cases by large amounts), growing book value by greater than 15%/yr over the past 5 years, historical reserves redundancies over the past 10 years (assures historical underwriting is rationale), a 10-year track record, investments in reasonably conservative investments and a good amount of insider holdings.  Given these parameters what else can an outsider look at?

 

Packer

[Guest HarryLong]

If that's your filter, you should be finding a lot more companies.

[twacowfca]

I may have left out the upfront filter I have applied to all these insurers, namely, CR<100 over the cycle (in most cases by large amounts), growing book value by greater than 15%/yr over the past 5 years, historical reserves redundancies over the past 10 years (assures historical underwriting is rationale), a 10-year track record, investments in reasonably conservative investments and a good amount of insider holdings.  Given these parameters what else can an outsider look at?

 

Packer

 

 

I always give high weight to a company whose CEO has a large amount (50% or more) of his wealth in the company, provided that he has a long term record of dealing fairly with other shareholders.

[Packer16]

How do you determine the CEO's net worth?  I can find his salary from the proxy statement.

 

As to the filter list, the key filter is the highest BV growth and market return on book value (so the comparison is based upon market value of equity versus book value of equity).  The top firms on this list include - HCC, RNR, AWH, AHL, FFH, LRE LN and MRH.  AWH, AHL and MRH sell for a significant discount to book so their required growth to get the same return is correspondingly less.  FFH was included even though it has deficiencies because of its investment expertise and returns. 

 

Packer

 

[biaggio]

did charlie munger not say that in general, the insurance business is not a good business to be in. I thought I read that recently?

 

I have bought FFH, BRK in last 3 years and am looking at adding L.

 

Is it wise to have a basket of insurance companies? Why not stick with your favourites-it strikes me that most here like + own FFH, BRK, MKL ie why own your 3rd or 4th best idea in the sector especially if it is true that insurance business can be difficult and not a good business according to munger

[twacowfca]

How do you determine the CEO's net worth?  I can find his salary from the proxy statement.

 

As to the filter list, the key filter is the highest BV growth and market return on book value (so the comparison is based upon market value of equity versus book value of equity).  The top firms on this list include - HCC, RNR, AWH, AHL, FFH, LRE LN and MRH.  AWH, AHL and MRH sell for a significant discount to book so their required growth to get the same return is correspondingly less.  FFH was included even though it has deficiencies because of its investment expertise and returns.  

 

Packer

 

 

 

That's a good list.  Similarly, growth in FDBV/share would be our #1 metric.  If possible, we like to average that over two complete business cycles or sometimes use a proxy like Brindle's record at Lloyds.  If records for two cycles aren't available, we'll take what's available and normalize the record the best we can, but a company with a long term record and good prospects would be preferred.  Can you give more detail about how you compute market value return vs BV?

 

A good proxy for how much skin the CEO has in the company might be his economic interest in the co vs his compensation, aside from objective performance based compensation.

[Myth465]

did charlie munger not say that in general, the insurance business is not a good business to be in. I thought I read that recently?

 

I have bought FFH, BRK in last 3 years and am looking at adding L.

 

Is it wise to have a basket of insurance companies? Why not stick with your favourites-it strikes me that most here like + own FFH, BRK, MKL ie why own your 3rd or 4th best idea in the sector especially if it is true that insurance business can be difficult and not a good business according to munger

 

I have a basket because I think the sector is undervalued and I really like 3 Insurers and find 1 very cheap. They all have different expertise and should capitalize on different opportunities.

[Guest HarryLong]

Guys, have any of you actually read the financial statements of the companies you're discussing? Have any of you actually done any digging, other than looking at stuff that other funds/people are buying?

 

If it wasn't so disturbing, this would almost be comical. I think y'all can raise the level of your game significantly. But if you're satisfied with where you are, stay complacent.

[Myth465]

Yep with regard to Loews, CNA, FFH, and LRE. - Have owned FFH since late 2007 (sold Leaps last week) and owned Loews / CNA for just about a year before selling to raise capital. I have held Lancashire for about 8 months, it replaced ORH. I looked at and reviewed the financials for all of them and feel quite comfortable. Also have reviewed the conference calls and investor presentations as well. The only slightly dodgy one to me is CNA, but its hopefully being fixed up by the new CEO.

 

Currently the only things I own are Loews (bought back in over the last few days) and LRE. Got great tips and am now looking at HCC and AHL. I am looking to move into insurers after hurricane season and am doing research and gathering names now.

 

I would guess everyone here is doing the same. You got to start somewhere. The guy asked for a listing and everyone is posting / discussing their favorites. I would say most get ideas than do further research.

 

Do you just not like the names or the way they are being discussed? What do you think is missing from the analysis and what names do you like?

[Guest HarryLong]

Yep with regard to Loews, CNA, FFH, and LRE. - Have owned FFH since late 2007 (sold Leaps last week) and owned Loews / CNA for just about a year before selling to raise capital. I have held Lancashire for about 8 months, it replaced ORH. I looked at and reviewed the financials for all of them and feel quite comfortable. Also have reviewed the conference calls and investor presentations as well. The only slightly dodgy one to me is CNA, but its hopefully being fixed up by the new CEO.

 

Currently the only things I own are Loews (bought back in over the last few days) and LRE. Got great tips and am now looking at HCC and AHL. I am looking to move into insurers after hurricane season and am doing research and gathering names now.

 

I would guess everyone here is doing the same. You got to start somewhere. The guy asked for a listing and everyone is posting / discussing their favorites. I would say most get ideas than do further research.

 

Do you just not like the names or the way they are being discussed? What do you think is missing from the analysis and what names do you like?

 

The discussion is alright, it's the ideas themselves that, in general, aren't good enough  ;D