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10:50 am
August 15, 2011
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Jae Jun
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When I checked this on the weekend there was a 3% spread. If the deal goes through, and it's Buffett after all, the 3% spread is much better than any bank savings.
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4:46 am
August 15, 2011
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Graeme
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Berkshire placing a bid for the reinsurer Transatlantic underscores Buffet's belief in the reinsurance business. All these reinsurers have been showing up on my value screens for like 2 or 3 years now. If I knew how to value them, I'd be interested. Or just buy BRK.B
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1:31 pm
March 24, 2010
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Jae Jun
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a reinsurer is basically an insurance company that sells insurance to another insurance company. Hence to re-insure. Don't know much more than that. I remember reading about Buffett's explanation when he discussed GenRe in his annual letters.
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11:20 pm
March 23, 2010
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zehua
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sdev said:The reinsurance market in general is trading at a discount to book value or right at book value. Premiums have been soft (read some of Fairfax Financial's letters). Rather than classifying it as a "net net" or some variant of that, I think you're alluding to the fact that the public market valuation of reinsurers is on the low side right now. That should change when the market hardens up.
Excuse me, but could you please tell me what is a reinsurer?
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5:37 pm
March 22, 2010
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Sid
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The reinsurance market in general is trading at a discount to book value or right at book value. Premiums have been soft (read some of Fairfax Financial's letters). Rather than classifying it as a "net net" or some variant of that, I think you're alluding to the fact that the public market valuation of reinsurers is on the low side right now. That should change when the market hardens up.
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2:15 pm
March 22, 2010
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stocki711
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It will be a bad year for Berkshire Hathaway as well.
Not many insurance companies have cash that can cover all current liabilities. Part of the liabilities is cash reserves that are a fraction of each premium paid. So say AWH keeps 90% of the premiums in Treasury's so they can be liquidated when something such as earthquakes or oil spills or chemical explosions occur. The other 10% can be used as an interest-free loan to be held until it needs to be paid out. If it doesn't need to be paid out it is profit. Either way the interest you earn on it over the year is your profit as well. Insurance is the longest operating major industry in American and World history and a lot of their business overlaps with Berkshire Hathaway and General Re is struggling with AWH taking market share. I agree there can be bad years for reinsurance but this is a long-run type of pick that can be bought below cash.
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1:05 pm
March 22, 2010
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Jae Jun
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I agree with Zehua on this, especially with the natural disasters occuring in the world so far.
This year alone, I believe there has been about 4-5 earthquakes. Major + minor.
Could turn out to be a horrible year for re-insurance.
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12:56 pm
March 22, 2010
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zehua
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Don't all insurance companies and banks have a huge cash position? I think the most important thing is their insurance policies. If it says you pay me $1 a year, and in an earthquake I pay you a million, then it is doomed to die no matter how much cash it currently has.
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11:12 am
March 22, 2010
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stocki711
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Thesis: AWH is an insurer and reinsurer working out of the Bermuda Islands with insurance spread across the world in Bermuda, Hong Kong, Ireland, Singapore, Switzerland, the United Kingdom, and the United States. They specialize in catastrophe and specialized insurance made for specific companies and situations. They were founded in 2001 by a few guys from AIG and CITI. They currently have more cash and cash equivalents then total liabilities following a huge comeback year since they were heavily invested in securities in early 2009 and a slow year for catastrophes. Total cash and cash equivalents are $8,904,672,000 and total liabilities of $6,439,858,000 for a difference of $2,464,814,000 along with a very profitable insurance company that brings in over $1.7B in premiums annually after additional acquisitions. Current market cap is $2.22B for a EV of -$200M.
Company Model: Second biggest reinsurer in the world. Same business as Warren Buffett and a well managed portfolio that for 3 years prior to last averaged a 12% return annually.
Valuation: Trading at a negative enterprise value of -$200M. Large/Mid-cap with a large moat in their business. Slightly effected by recent earthquakes and windstorms including a possible $75M loss in Chile. Well capitalized with a revenue stream almost equal to market cap. Combined ratio regularly below 90% and invest income yield generally around 10% means ROE's have been 15-25% annually. Goodwill is $250M so adjusted EV is $50M no longer net-net. My target price is 1.1x book value or atleast a slight premium on book value. Current book value is $3,213,295,000 or $64.61 per share and a target price of $71.07 for an increase of 59.07% with a current dividend of 1.8% and rising annually and a ROE for the past 4 years of approximately 20% annually.
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