12 Comments
Member
5 May 25, 2024 2:30 pm
Travis - your comment "It is easy to be negative, and to speak with pessimism, because that tends to make you sound smart. For whatever reason, human beings tend to believe that doomsayers are smarter than pollyannas. That, in a sentence, explains the enduring success of a good chunk of the investment newsletter business (and the devolution of politics, frankly). You see more folks holding placards that scream, βthe end is nigh!β β¦and not so many that say, βitβll all work out.β Itβs easier to poke holes than it is to believe." this observation is simply a brilliant summary of complexity. After 40 years of being a psychologist I highly value succinct statements that cut through complexity . This is only one of many reasons I am a loyal reader and subscriber. Thank you. Respectfully submitted Peter Pearson
Member 22353May 25, 2024 3:10 pmThanks Peter!
Member
11 May 25, 2024 10:48 pm
Hi Travis I'm wondering if you wrote the above piece on Markel before or after NOAH came out with its scary prediction yesterday (Friday) for the 2024 hurricane season. Do you think that prediction is a major concern for MKL or, for that matter Berkshire?Thanks Ron S
- Member 22353May 25, 2024 11:50 pmI don't pretend to be able to predict the weather... but I know Markel and Nephila were studying the same kind of data before NOAA released their prediction.In general, bad catastrophe years bring higher rates to absorb those losses, and it works out fine for good insurers over time. Nephila may have a tough time raising more capital if there are a couple big Atlantic hurricanes... but this falls into the "impossible for me to predict, so I won't try" category -- nobody watches catastrophe risk and climate change impacts as closely as P&C insurance companies, or takes them as objectively seriously... and the good thing, from an investor perspective, is that they get to update their policy prices every year.
- Member 11May 27, 2024 3:02 amThanks Travis! Thank you for sharing the wisdom you have accumulated with us.
Member
3 May 26, 2024 12:22 am
Hi Travis, thanks for the informative article. You have such a knack for explaining complex information in an easy to understand format. You also go to great lengths in explaining every aspect of the company you are covering. It is very much appreciated. I have become a better investor and a loyal subscriber.
- Member 22353May 26, 2024 11:04 pmGlad you find it useful, thank you!
Member
44 May 27, 2024 6:01 pm
Travis, you seem to have a lot of exposure to the insurance carriers. How are you thinking about the cyclicality of them? I believe we have seen pricing at record levels and most combined ratios are fully βhealedβ. If there is ever a test case for greed-flatiron, it could be them. If we are at cyclical peak levels, are you resetting your prescribed multiples on the stocks? My sense is this group does not have a history of performance consistently up-and-t0-the-right, no?
- Member 22353May 28, 2024 10:02 amThe industry definitely goes through cycles, and I set my buy prices (and asset allocation) at levels where I'm willing to own for a long time with my current outlook. That's why my positions in WRB and KNSL are relatively small.We're probably closer to the top of the insurance rate cycle than to the bottom, and the companies have also gotten a boost from higher rates... but I also don't see any particularly reason to expect a bad market for them in the near future, so my baseline expectation is that things will putter along similar to where they are now when it comes to rates and insurance profitability.The most likely risk is probably that P&C insurance companies tend to trade down to near book value when there's an ugly market, for whatever reason (either a broad market crash, or some catastrophes with big insured losses, or something else unknown), and many of the best underwriters trade at very high multiples of book value. That's likely to bring us our next really big buying opportunity, with really beaten down insurance stocks, but we haven't seen that for many years. You can see that quite clearly in the chart of Chubb, for example, dropping briefly below 1X book in 2000-2001, 2009-2010, and in the first few months of the COVID shutdowns:
But if you add in the share price to that chart, you can see the value a profitable insurance underwriter can accumulate over time -- it was best to buy at the downturns, clearly, but it worked fine to buy when it was relatively overvalued, too (at least on a price/book basis), as long as you could hold for at least several years.
That's not always true for lower-quality insurers, for sure, so it's important to own the ones who can consistently underwrite profitably. If they do that, everything else tends to work out over time.