giofranchi Posted January 2, 2014 Author Share Posted January 2, 2014 Report: Reinsurers face big premium slide • 8:24 AM - Following a 2013 in which the number of natural and man-made disasters fell by half, reinsurers could be hit with up to a 25% decline in premium revenue this year, according to broker Willis Re. - Combining with the lack of catastrophes is a market in oversupply as pension funds and hedge funds (like GLRE and TPRE) rush into the business - a $50B increase in industry capital, says Willis CEO John Cavanagh. - U.S. property casualty reinsurance faces the biggest hit - 10-25% - while European premiums could fall 10-15%. - Hannover Re (HVRRY) last week said it expected premiums to fall this year, fueling concern about a price war with competitors like Swiss Re (SSREY) and Berkshire Hathaway (BRK.A, BRK.B). - Among U.S. reinsurers: ACE, XL, PRE, RE, RNR. Gio Link to comment Share on other sites More sharing options...
dcollon Posted January 21, 2014 Share Posted January 21, 2014 Loeb’s Third Point Takes 9.5% Stake in Ally Financial http://www.bloomberg.com/news/2014-01-21/loeb-s-third-point-takes-9-5-stake-in-ally-financial.html Anyone have excerpts from the letter? Link to comment Share on other sites More sharing options...
maxthetrade Posted January 21, 2014 Share Posted January 21, 2014 http://www.thirdpointpublic.com/wp-content/uploads/2014/01/Third-Point-Q4-2013-Investor-Letter-TPOI.pdf Link to comment Share on other sites More sharing options...
dcollon Posted January 21, 2014 Share Posted January 21, 2014 Thanks for posting maxthetrade Link to comment Share on other sites More sharing options...
muscleman Posted February 6, 2014 Share Posted February 6, 2014 Gio, do you have any insights in the reinsurance market? It seems like the cycle is going down right now. When will it hit the bottom? I guess current NAV per share is $13.5 or so. just a wild guess based on the monthly gain and loss reports from TPRE's site. So it is trading at a 13% premium right now. I am not too excited to get in. Link to comment Share on other sites More sharing options...
giofranchi Posted February 6, 2014 Author Share Posted February 6, 2014 Gio, do you have any insights in the reinsurance market? It seems like the cycle is going down right now. When will it hit the bottom? I guess current NAV per share is $13.5 or so. just a wild guess based on the monthly gain and loss reports from TPRE's site. So it is trading at a 13% premium right now. I am not too excited to get in. No, I have no particular insight. I just sold both TPRE and GLRE, to buy what imo are more undervalued and defensive companies right now. But I will buy back both of them in the not too distant future. And I intend to hold them both for the next 20 to 30 years (reinsurance cycles don't matter all that much to me! ;) ). Anyway, a 13% premium over BVPS is a very good price to pay, to partner with someone of the caliber of Mr. Loeb. :) Gio Link to comment Share on other sites More sharing options...
giofranchi Posted February 6, 2014 Author Share Posted February 6, 2014 January 2014 Monthly Report Gio2014-01_January_Monthly_Report_TPRE.pdf Link to comment Share on other sites More sharing options...
SpecOps Posted February 6, 2014 Share Posted February 6, 2014 This one has been on my watchlist for a while, but tbh there are much better insurance companies with combined ratios in the 80% region that I hold, so they dont even need the investment returns. Plus Dan Loeb is managing so much money now it must be hard to get stellar performance with it Link to comment Share on other sites More sharing options...
no_thanks Posted February 6, 2014 Share Posted February 6, 2014 This one has been on my watchlist for a while, but tbh there are much better insurance companies with combined ratios in the 80% region that I hold, so they dont even need the investment returns. Plus Dan Loeb is managing so much money now it must be hard to get stellar performance with it Do you mind sharing some of those insurance companies. I just hold Markel now, but I imagine there are better options out there. Thanks in advance. Link to comment Share on other sites More sharing options...
muscleman Posted February 25, 2014 Share Posted February 25, 2014 gio, would you mind if I ask some basic 101 questions? 1. Do you know how Bermuda's regulators feel about the capital levels of these re-insurers? If there is another 2008 crash and the investment portfolio is down 50%, will the regulators push for a capital increase? 2. Why are so many hedge funds creating re-insurers instead of the regular insurance companies like BRK? Is it because it is less tightly regulated? 3. If TPRE makes money in its investment portfolio, does it need to pay capital tax gain to Bermuda government? If the answer is yes, then this seems inferior to directly holding a % of Dan Leob's hedge fund, because shareholders are subject to double taxation, right? 4. My primary concern for this company is the mark to market loss. If that happens to be in the same year as a big re-insurance loss, then we could be wiped out. What do you think about this risk? How does BRK avoid this type of risk? Link to comment Share on other sites More sharing options...
ni-co Posted February 25, 2014 Share Posted February 25, 2014 2. Why are so many hedge funds creating re-insurers instead of the regular insurance companies like BRK? Is it because it is less tightly regulated? There is an interesting paper regarding this question: http://de.scribd.com/doc/103328375/A-Tail-of-Two-Capital-Structures There was a full pdf online once, but I couldn't find it. Link to comment Share on other sites More sharing options...
giofranchi Posted February 25, 2014 Author Share Posted February 25, 2014 gio, would you mind if I ask some basic 101 questions? 1. Do you know how Bermuda's regulators feel about the capital levels of these re-insurers? If there is another 2008 crash and the investment portfolio is down 50%, will the regulators push for a capital increase? 2. Why are so many hedge funds creating re-insurers instead of the regular insurance companies like BRK? Is it because it is less tightly regulated? 3. If TPRE makes money in its investment portfolio, does it need to pay capital tax gain to Bermuda government? If the answer is yes, then this seems inferior to directly holding a % of Dan Leob's hedge fund, because shareholders are subject to double taxation, right? 4. My primary concern for this company is the mark to market loss. If that happens to be in the same year as a big re-insurance loss, then we could be wiped out. What do you think about this risk? How does BRK avoid this type of risk? I think you would want to look at what happened to GLRE in 2008: it went down a lot, but was not the end of the world for Mr. Einhorn & Co.! Of course, you might say, in 2008 GLRE didn’t experience significant losses on the reinsurance side of the business… therefore, 2008 was not the worst case scenario! And Mr. Einhorn’s investments in 2008 were down far less than Mr. Loeb’s… So, let’s hope two things: 1) Mr. Loeb has learnt the 2008 lesson and won’t be caught so much by surprise next time something similar happens. 2) Mr. Berger has learnt BRK’s true and tested formula for profitable underwriting: never be in a hurry to increase float, never chase volume, only write contracts when properly compensated for taking those risks. I think the odds Mr. Loeb will be good at 1) and Mr. Berger will be good at 2) are high. Though, of course, nothing is certain. ;) Gio Link to comment Share on other sites More sharing options...
muscleman Posted February 25, 2014 Share Posted February 25, 2014 2. Why are so many hedge funds creating re-insurers instead of the regular insurance companies like BRK? Is it because it is less tightly regulated? There is an interesting paper regarding this question: http://de.scribd.com/doc/103328375/A-Tail-of-Two-Capital-Structures There was a full pdf online once, but I couldn't find it. Thanks! I can only read the first 6 pages. Please let me know where you would find the full version. It looks quite interesting from the first few pages though. Link to comment Share on other sites More sharing options...
saltybit Posted February 25, 2014 Share Posted February 25, 2014 2) Mr. Berger has learnt BRK’s true and tested formula for profitable underwriting: never be in a hurry to increase float, never chase volume, only write contracts when properly compensated for taking those risks. What would be a good way to track this? I was thinking of looking at good reinsurers (with long established track records) and seeing how much volume they had underwritten for the year/quarter I am interested in, and seeing how that compares with the past "hard" and "soft" markets. (kind of like making a "reinsurance index") I can then normalize TPRE's underwriting volume and compare it with that index, to see how prudent they were that quarter/year. One disadvantage with this approach is that different reinsurers will have different specialties, and might be underwriting a mix of different things. There's probably a better way to track this than my idea. I am a beginner in analyzing the insurance industry, and would appreciate any pointers. Thanks! Link to comment Share on other sites More sharing options...
Carvel46 Posted February 25, 2014 Share Posted February 25, 2014 Thx ni-co! Here's a video interview with Taussig, author of the report (26 minutes): Link to comment Share on other sites More sharing options...
muscleman Posted February 25, 2014 Share Posted February 25, 2014 Thx ni-co! Here's a video interview with Taussig, author of the report (26 minutes): Thank you! It is nice that Bermuda companies don't pay taxes. I still want to wait for a discount to book value to buy though. The reinsurance market is very soft right now, so probably Mr Berger's skills won't show up for a few years. Link to comment Share on other sites More sharing options...
scorpioncapital Posted February 26, 2014 Share Posted February 26, 2014 I've noticed two types of reinsurance rackets. In the first corner, you've got the fixed income contenders with the 2 or 3 to 1 leverage. In the other corner, you've got the equity contenders, who, by virtue of this holding, are by law only able to do perhaps 1.5 to 1 leverage. In effect, what you've got is exactly your small time investor's portfolio. Does he buy a S&P 500 stock and leverage up 3 to 1 or does he use his capital to sell put options but with 1:1 leverage. The latter yields him 25% let's say and the former 6 or 7 %. With 3x leverage, they're aiming at 20-25%. It's a race - who will win, leverage vs large returns? Of course, the equity investors cannot write the same volume of re-insurance. In a downturn - or a catastrophe in re-insurance, claims must be paid and liquidations must take place. Link to comment Share on other sites More sharing options...
muscleman Posted February 26, 2014 Share Posted February 26, 2014 What makes me cautious to pay a 10% premium here: 1. Reinsurance is quite soft. It will likely be so for the next few years, as quite some capital flew into this sector for writing premiums in the past few years. 2. Paying 2/20 to Dan Leob is an even bigger tax than Uncle Sam. Yes, they don't pay cap gain tax like BRK, but BRK has long term investments and pays Buffet only a small salary instead of a huge 2/20 fee. Link to comment Share on other sites More sharing options...
saltybit Posted February 27, 2014 Share Posted February 27, 2014 2013 annual results are out. http://www.thirdpointre.bm/files/doc_news/Press%20Release%2026%20February,%202014.pdf Diluted book value per share was $13.12 as of December 31, 2013, an increase of $0.77, or 6.2%, for the fourth quarter and an increase of $2.23, or 20.5%, for the year ended December 31, 2013. Gross premiums written in Q4 27.9M to 162.4M jumped from 190.4M to 401.9M from 2012 to 2013. As a result, net investment income on float jumped from 4.8M to 11.825M in Q4. Combined ratio went down from 127.0% to 106.3% for Q4 2013 compared to last year's Q4. (2012 combined ratio was 129.7% compared to 2013's 107.5%) Link to comment Share on other sites More sharing options...
dcollon Posted February 27, 2014 Share Posted February 27, 2014 Loeb Sees More Volatility Boosting Chances for Investment http://www.bloomberg.com/news/2014-02-27/loeb-sees-more-volatility-boosting-chances-for-investment.html Link to comment Share on other sites More sharing options...
ni-co Posted February 28, 2014 Share Posted February 28, 2014 Thx ni-co! Here's a video interview with Taussig, author of the report (26 minutes): Thank you! That was quite interesting. Seems to me that the reinsurance market place is should become a lot more crowded, soon. One should not forget though how big a role management plays in these insurance companies – it's not all about generating high returns on your float. Underwriting, especially in reinsurance, still involves enormous risks and Taussig makes it sound just a little to easy by trying to sell that "structural alpha"… ("no free lunch") Link to comment Share on other sites More sharing options...
muscleman Posted February 28, 2014 Share Posted February 28, 2014 Thx ni-co! Here's a video interview with Taussig, author of the report (26 minutes): Thank you! That was quite interesting. Seems to me that the reinsurance market place is should become a lot more crowded, soon. One should not forget though how big a role management plays in these insurance companies – it's not all about generating high returns on your float. Underwriting, especially in reinsurance, still involves enormous risks and Taussig makes it sound just a little to easy by trying to sell that "structural alpha"… ("no free lunch") Also the 2/20 fee that Dan Leob charges essentially cancels out the benefit of being in Bermuda instead of in the US. Link to comment Share on other sites More sharing options...
kmukul Posted March 2, 2014 Share Posted March 2, 2014 Thx ni-co! Here's a video interview with Taussig, author of the report (26 minutes): Thank you! That was quite interesting. Seems to me that the reinsurance market place is should become a lot more crowded, soon. One should not forget though how big a role management plays in these insurance companies – it's not all about generating high returns on your float. Underwriting, especially in reinsurance, still involves enormous risks and Taussig makes it sound just a little to easy by trying to sell that "structural alpha"… ("no free lunch") Also the 2/20 fee that Dan Leob charges essentially cancels out the benefit of being in Bermuda instead of in the US. Dan also claims that most of BRK spectacular results are due to BRK insurance operations and not buffet's stock picking. How true is that? I find that hard to believe. if that's true BRK should still have a very good growth without buffet and in future. Thanks everyone for your insights Link to comment Share on other sites More sharing options...
giofranchi Posted March 2, 2014 Author Share Posted March 2, 2014 Also the 2/20 fee that Dan Leob charges essentially cancels out the benefit of being in Bermuda instead of in the US. But who cares?! Mr. Loeb has an 18 years track record of compounding capital at 21.1% AFTER FEES, EXPENSES AND INCENTIVE ALLOCATION. Furthermore, on this kind of extraordinary results you, as a shareholder of TPRE, don’t have to pay taxes! ;) Gio Link to comment Share on other sites More sharing options...
islonim Posted March 2, 2014 Share Posted March 2, 2014 Anyone knows what the underwriting teams' compensation method. In Greenlight Capital their bonus is based on 5year underwriting performance. Do you know if in TPRE has similar arrangement? Link to comment Share on other sites More sharing options...
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