TRH - Transatlantic Holdings

[link01]

in Y's 2006 shareholder letter hicks states:

 

"Our equity portfolios trailed the exceptionally strong returns of the S&P 500 owing to our

concentration of holdings in Burlington Northern Santa Fe and a basket of energy

stocks. On this point, we like our exposure to both railroad transportation and

energy for several reasons. First, we continue to believe that the long-term prospects

for both industries remain above average. Second, the pro-cyclical nature of these

industries is a natural hedge to our large and growing bond portfolio. Finally, we

believe that energy is negatively correlated with our property underwriting results,

and over the past three years this has indeed been the case."

 

while i understand this part "Second, the pro-cyclical nature of these

industries is a natural hedge to our large and growing bond portfolio." even if i dont agree that its necessarily the best kind

of natural hedge (ie, businesses with strong moats & high returns on capital such as web favors & even gayner at markel are

a very effective hedge against bond & inflation risk, even if its not exactly a natural hedge) i confess i h'm having difficulty with this part...."Finally, we believe that energy is negatively correlated with our property underwriting results,

and over the past three years this has indeed been the case."

 

anyone care to share an insight on this that i'm apparently clueless to?

 

[link01]

..."Finally, we believe that energy is negatively correlated with our property underwriting results,

and over the past three years this has indeed been the case."

 

anyone care to share an insight on this that i'm apparently clueless to?

 

the only way this remotely makes sense from a causal as opposed to some quirky statistical abberation that i can see is that property underwriting results & their associated loss claims might generally tend to be priced at a lag vs inflation trends energy prices would tend to lead or at least be co-incident vs inflation

[twacowfca]

pretty simple. inflation is bad for bonds and good for commodities.

 

 

Touché!

[link01]

pretty simple. inflation is bad for bonds and good for commodities.

 

 

Touché!

 

thanks, guys!

 

and to think i thought there might be some less than subtle distinction between saying

 

"First, we continue to believe that the long-term prospects for both industries remain above average. Second, the pro-cyclical nature of these industries is a natural hedge to our large and growing bond portfolio

 

and then saying in the next sentence

 

"Finally, we believe that energy is negatively correlated with our property underwriting results, and over the past three years this has indeed been the case."    :-\

 

[txlaw]

Very interesting.  Just read a couple of the Alleghany annual letters in the last half an hour.

 

A lot of the macro stuff we discuss on the board are in these letters.  There is even a shout out to Richard Koo in one of them!

 

Definitely will have to look more into these guys.  Take a look at the following excerpt from their February 2011 letter:

 

It should be clear from all of the above that the global economy remains in a very fragile state, and that there are significant risks to economic growth, continued low interest rates, and risk asset values. We are most concerned about the following:

 

1. The Federal Reserve keeps interest rates low for too long, resulting in soaring commodity prices which eventually break the consumer and cause the economy to return to recession.

 

2. The Federal Reserve tightens prematurely, contributing to another leg down in the housing market and the add-on effects on financial institutions, credit growth, and confidence.

 

3. Sovereign risk issues reemerge in 2011, causing a flight to safety and a sell-off in risk assets.

 

4. China overshoots in its efforts to contain domestic inflation.

 

5. Political instability in the Middle East.

 

 

[ShahKhezri]

Yup, refreshed up on the reading two weeks ago, they "get it" 

 

I'm starting to accumulate.