Loews 1Q16 Earnings Call Notes

Loews (L) James S. Tisch on Q1 2016 Results

Agency distribution has helped keep us insulated from third party capital

“Over the last several years, there’s been a significant increase in third-party capital coming into the insurance and the reinsurance market, and this capital is increasing competition for the more generic insurance and reinsurance providers. It’s having less of effect on CNA’s book of business, however, because of the company’s extensive and well-established nationwide agency network. This network is a tremendous asset, and CNA is one of only a handful of industry players with this type of distribution channel. This web of distributed offices with local underwriters working with local agents is remarkably expensive to duplicate, creating high barriers to entry for new players.”

He who lives by the crystal ball…

“One of my favorite sayings is he who lives by the crystal ball must learn to eat ground glass. And while I’m not a fan of ground glass, I’ll share with you what I’m seeing and forecasting with respect to oil.”

US shale is now the worlds swing producer and it can come on quickly and cheaply

” it is now abundantly clear that in the absence of OPEC intervention, U.S. shale oil is the world’s swing producer. Shale production can come on quickly and relatively cheaply, and is largely developed by nimble independent producers who have the incentive to quickly respond to changing prices.”

US crude production should continue to decline

“The second point that’s becoming clear is that U.S. shale producers are unlikely to experience any time soon, the growth they enjoyed several years ago. In order to simply maintain production using internally generated cash, our guess is that the U.S. shale industry needs oil prices to be about $50 per barrel to $60 per barrel. With current prices at around $45 per barrel, U.S. production will continue to decline.”

The hedge fund space has become very crowded

“we’ve been reducing our hedge fund investments over the past year or year-and-a-half. But I would say – I have a slightly different take on it than Buffett. I would say that the space has become very crowded and returns have been competed away. When 20-years-ago, there were one or two or 10 payers (30:52) traders, market neutral hedge funds could earn very, very attractive returns. Now that there are hundreds of them, the rate of return that those hedge funds can earn has come down rather dramatically.”