WR Berkly 3Q15 Earnings Call Notes

Competition modestly on the rise, but hard to find any catalyst that would shift that

“Yes, competition is modestly on the rise, but truly is at its incremental rate. And in spite of some of the recent headlines that we heard about cat or cat-like events occurring and affecting the industry, the impact has really been quite modest and one that that’s hard-pressed to find any type of catalyst out on the horizon that is going to shift the direction or I should say the overall market climate.”

Cheap reinsurance has empowered less responsible behavior

“cheap reinsurance has perhaps empowered less responsible behavior. And to that point, both domestically and internationally, we have seen increasing correlation between areas of the industries that are under the greatest pressure and those that are most dependent on reinsurance.”

Pace of erosion in reinsurance may be slowing

“On the topic of reinsurance, certainly again a topic we’ve discussed with you all in the past, the marketplace remains exceptionally competitive. Having said that, it would seem as though the pace of competition seems to be not moving or increasing as quickly as it has over the past several quarters. I don’t think that we’ve necessarily touched bottom, but it would seem as though we continue to get closer as again the pace of erosion is slowing.”

Insurance companies are double hit by inflation

“We’re maintaining the quality of our investment portfolio and keeping a short duration, because the risks of an insurance company are doubling down if inflation comes. You get hurt with your loss reserves and if you extend the maturity and duration of your investment portfolio, you’re effectively doubling down. So we’ve chosen to reduce that risk, the one that we can control.”

(Only 1 analyst on the call)

Brown and Brown 3Q15 Earnings Call Notes

Overall market conditions improving, but questions on outlook due to news about companies cutting costs. We’ve seen some slight impact.

“we continue to see the overall market conditions improve in certain areas of the country, which is good. However, there are some questions regarding potential outlook due to the recent news about companies reducing their workforces and cutting costs. We’ve seen some slight impact already and will continue to monitor our customer base closely.”

Lack of hurricane drives rates down

“2015 appears to be another year without a major hurricane hitting the United States. This lack of weather events along with excess capital in the market continues to drive rates down.”

Low interest rates also putting pressure on insurance rates

“We do expect rates to remain under pressure due to historically low weather events and low interest rates. We feel the realignment of our Retail Division strategically positions us for incremental profitable organic growth in future quarters.’

When you hire someone right out of college, you are teaching them about life

“let’s make sure we’re clear on that. Everybody’s development is different. When you hire somebody right out of college, you are teaching them not only insurance, but about life. And so it takes several years for them to get into the production mode, but they’re being very successful in adding value to our team and learning the business in other ways, but they may not be a producer right away.”

Different people have different trajectories of success

“It’s not as easy as saying, we hire somebody and one year later you have X. It’s not that easy. And I know you’d like that, there’d be more like manufacturing, but it’s not like that. You hire a new person and some people are successful more quickly, some people, it takes a little longer for them to launch in their career. But we can tell you that we’re looking for a certain type of person and that person, when we find them has a high probability of success in our system over a long period time, if they continue to do all the desired outputs and actions that make us a producer successful.”

Markel 2Q15 Earnings Call Notes

Small loss in investment portfolio due to marks on foreign holdings

“The investing message is short and straightforward: we made modest returns of 1.5% in our equity portfolio for the first six months; and we were flat on our fixed income portfolio, as a slight rise in interest rates offset the modest coupon income from the portfolio. After the effects of foreign currency exchange rates are taken into account, we show a small loss of 0.5% for the entire portfolio, due to our holdings of foreign currency bonds.”

Foreign holdings to offset foreign currency liabilities

“As a reminder, foreign holdings exist largely to match against our foreign currency interest liabilities. The net effect to Markel from swings in the value of the dollar is as close to zero as we can possibly make it. Our longstanding policy of matching our foreign liabilities to foreign assets remains in place and it has functioned well over many years. That will continue to be our approach. But given the large moves in the dollar recently and the low level of interest rates, the relative contribution of that line item is bigger than normal. As such, I thought it was worthwhile to call it to your attention.”

This market is bizarre to me

“This market is bizarre to me. We’ve got a disproportionate number of names at the top and a disproportionate number of names at the bottom at the same times, with very few companies in the middle of the range. To me, this illustrates the volatility and somewhat topsy-turvy nature of things right now. I apologize for my use of such technical terms. More importantly, my point – and I do have one – is that I believe this represents a real opportunity for us.”

Increased our equity holdings in energy, finance and consumer products

“During the first six months of the year, we increased our equity holdings as a percentage of our shareholders’ equity from 54% to 56%, with our steady and unrelenting program of regular additions to the equity portfolio. With the price volatility present in the markets, I believe we’ve been able to purchase shares in high-quality companies at very reasonable prices as they go on sale and that we’re stocking the pipeline for attractive future returns. Specifically, we continue to acquire holdings in energy, finance and consumer products businesses that meet all of our four-point tests. And I’m optimistic about the future returns we’ll see from doing so. Expect us to continue this approach.’

In the current marketplace see more opportunities in publicly traded securities than private

“In the current marketplace, we see more opportunities to buy attractively priced, publicly traded securities than private businesses so we are allocating our capital more towards public markets.”

Our strength is that we have a 360 degree view of capital markets

“We continue to actively hunt for opportunities in both arenas, and I’m optimistic we’ll find treasures in both markets. That’s one of the true beauties of Markel and that we are able to pursue the highest and best returns no matter where they might be. We have a full 360-degree view of insurance, industrial and public and private debt and equity markets, and we’re comfortable in deploying capital into any and all of them as circumstances arise. “

ACE 2Q15 Earnings Call Notes

The underwriting environment continued to soften this quarter

“I want to now say a few more words about current commercial P&C insurance market conditions. The underwriting environment continued to soften in the quarter for our commercial P&C business globally. As I have been saying, the underlying pattern we have seen over the last few quarters is that large account business is more competitive than midsized, wholesale is more competitive than retail, and property more so than casualty-related.”

Folding Chubb international operations into ACE’s

“There will be a lot of efficiency we will gain between the two operations, because they are a duplication. Our plan is to integrate Chubb’s international business into ACE’s. So, we will have only one statutory entity in the geographies and the vast, vast majority of those will be ACE entities. Canada is an exception. We will integrate ACE into Chubb up in Canada.”

I guarantee that we will covet Chubb’s claims capability and service

“For agents and brokers, they want to know that we are going to behave in the similar way. They want to know that we are going to covet Chubb’s claims capability and service, which is simply renowned. And I can guarantee you we are going to do that. And they will be leading those efforts.”

We will keep compensation structures in place too

“Agents want to know that we are going to maintain compensation structures and that by the way, that we are going to keep the agency, the independent agency system as a centerpiece of distribution here to the customers. And we are being loud and clear that that is without a doubt”

Opportunities to enhance Chubb’s offerings with ACE’s

“Chubb does a great job in traditional middle market products and some specialty products and towards industry verticals that they are such a great deep knowledge of and are great at. On the other hand, imagine the products that ACE sells, everything from environmental liability to farm and ranch to product recall, the construction and we could go on and on with a lot of product that will enhance the offerings to those verticals and also might help to expand into a few others as we go along. That’s middle market, and that is distinct from small commercial, which we have each been have sort of nascent efforts towards that we will endeavor to pursue in a far more meaningful way.”

Most of our competitors are good stewards of capital, they wont buy just to buy

“I have been reading lately that there will be more large acquisitions because of ACE and Chubb. When I think about it, I am not sure that’s right. I can’t speak with any certainty but first of all, most of my or many of my competitors are very thoughtful and they are good operators and they are good stewards. They attempt to be good stewards of shareholder money. And they have a good sense of strategy for their companies. Anybody who thinks that way, first of all is going to look at an acquisition not from a point of size, they are going to look at it at the intrinsic value due to the characteristics of that to be acquired holds. And whether it is truly value-creating in a transformative way, otherwise you don’t do something large.”

I don’t think you can really say that better data will ameliorate the cycle

“the question about cycle management and data and all of that, I think you can’t paint it with a broad brush. And I think those who do are simply, they are overly simplistic in either how they think or certainly in how they describe certain areas of the business where you have broad distribution reach to get the customer, where you have more homogeneous pools of risk, lower severity-related, higher frequency-related, I think that is where there is a bit more discipline at least at this time. So, you would say more smaller commercial, more middle-market commercial, I think that is less subject though hardly immune on one hand. I think as you get up to upper middle-market, larger risk, I think you have a lot of players with a lot less data. People are buying much bigger limits, so you have a lot piling on to the same risk who just have capital and an underwriter and a dog and are chasing some volume. And there I don’t see that same sort of well. The insights of analytics will ameliorate a market cycle.”

ACE is rebranding as Chubb

“Well, we haven’t said Corp., but it will be Chubb. It will be Chubb something. It might be Chubb Limited at the parent. We have ACE Group Holdings as intermediate holding company. It may be Chubb Group Holdings.”

AIG at Deutsche Bank Conference Notes

Peter Hancock – President and CEO

We pay 134m in claims per day. We’re about using that data to help clients make better decisions

“We pay roughly a 134 million claims per day, whether it’s a $50 claim for a loss suitcase or a $1 billion for a microchip plant that explodes. So between those bookends there’s a huge amount of continuous learning which makes us smarter underwriters and the way we synthesize that information and get better at what we do and share those insights with our clients is our value added, it’s not simply about risk transfer, it’s about helping our clients manage their risk, manage their uncertainty and empower them to grow their businesses or as individuals to plan their retirements in a way that uses our insights about what they should fear, what they should not fear, what should insure, what they should not insure and what is the most cost effective products that can help them do that.”

Focus on making AIG more unified and customer centric

“And the final priority this year is to really embed this concept of being customer centric and that really gets to the recognition that for many-many years AIG was a lot of profit centers focused on their own product specialization often with competing brands and competing client strategies. And many of our clients deal with this in many products in many geographies and been able to integrate that and give them a customer experience where they’re dealing with one AIG is something that they have indicated will really differentiate us from our competitors.”

We do business with 99% of the fortune 500

“We do business with more than 99% of the Fortune 500 so capturing more clients is not the root to growth. The proportion of those Fortune 500 clients that would designate us their most valued insurer while material and probably higher than any other insurer has plenty of room for improvement.”

Cost cutting is intellectually easy, but emotionally hard…

” I think that cost cutting is intellectually easy but emotionally hard, growth is emotionally easy but intellectually very hard if you want to find profitable growth.”

Making the claim that banks were historically less regulated than insurance companies

“I think the first thing to recognize is that there is an enormous difference in this area between banks and insurance companies. There always has been but it’s never been more stark than today. Banks have fundamentally been much less regulated than insurance companies and I’ve worked in both sectors. And so we have roughly 200 regulators. Every U.S. state, every country we operate in and in many countries two regulators. And the system of regulation for financial services in general has obviously been severely tested by the financial crisis and there have been many reforms to try and improve it.”

Government partnership

“for the most part I would say where we encounter government whether it’s in Japan, the UK at the Federal level in the U.S or in the state level, we see an alignment and the benefit of having a collaborative relationship with all of the government agencies you operate with in my view far outweigh scoring points as to whether more or less government is good. We are in the business of serving our clients and rewarding our shareholders with great returns getting into an ideological battle of whether more or less governments or good things doesn’t seem like a winning proposition to us.”

There are different phases in the life cycle of a company

“So the 1990s was a period of rapid growth and the market put a very high multiple on the earnings based on growth expectations. And I think in hindsight there were a lot of lessons learnt that there is a phase in any given market where growth is the right thing to prioritize you’re a first mover advantage in this all that sector whether it’s a country where we opened insurance in many countries which would barely see in the insurance industry or products.

But at some point when you become a dominant force of the large market share marginal growth is probably not as attractive a risk return prospect at the early part. So knowing how we set the right balance between profitability growth and risk is something that we learned”

Markel 1Q15 Earnings Call Notes

If we were really clever we could probably do something that would increase the yield on our short term portfolio, but we’re not that smart

“Finally I’m sure that if we were really smart and clever we could find some alternative investment approach that would increase the yield on our short term portfolio from essentially nothing to something more than that. We’re not that clever or smart, so we won’t try to perform that sort of alchemy. We’ve seen enough of those experiments end badly to dissuade us from going down that path.’

Greenlight Re 1Q15 Earnings Call Notes

(Einhorn not on call)

Investment portfolio down 1.8% in 1Q

“Thanks Bart and good morning everyone. Greenlight Reinvestment portfolio was down 1.8% in the first quarter. At longs, led by Apple and SunEdison, outperform the market. Our shorts went against us by more than our longs gained and macro positions were slightly negative.”

New longs in AerCap, Chicago Bridge and Iron and General Motors

“We established a few new long positions in the quarter including AerCap, an Airline leasing company. Chicago Bridge and Iron, an energy — an engineering and construction firm that is down quite a bit along with the price of oil that has a significant multiyear backlog and we reestablished a position in General Motors. All three companies traded about eight times this year’s expected earnings.”

Only 16% Net exposure thanks to stretched valuations

“We also added several new shorts including shale oil frackers and increased our short exposure from 67% at December 31 to 88% as of March 31st. The investment portfolio’s net exposure was 16% at quarter end which is near an all-time low and reflects our concern about stretched valuations and challenges we see for corporate earnings in 2015. These challenges include the strong dollar, lower oil prices and difficult year-over-year comparisons in the next three quarters.”

Labor costs rising

“Another issue that has worried us and is less discussed is the commodity bust and its impact on peak margins. Labor hours are growing faster than GDP. Companies like Walmart and McDonalds are raising wages suggesting that the low end of labor market is tight.”

Earnings may shrink this year

“These issues lead us to believe that earnings have peaked and may even shrink this year. We are proceeding with caution and that also we aim to generate from the mix of long and shorts drive our results. Our current thinking is that 2015 is setting up to be a challenging environment and we are positioned accordingly.”

Markel 4Q14 Earnings Call Notes

Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

There’s always something to worry about

“We probably would have had a similar list a year before that, and a year before that, and so on and so on. Sometimes it seems like the issues we face at any given point in time, sound like the long list of side effects that you hear in the drug commercials on TV. There is always something to be concerned about.”

There’s always a way to make money too

“Despite what the models said, the very good news is that we are reporting a double-digit return of 14% in our book value per share this year. Those results came about because of the hard work, creativity, and dedication of the people at Markel. We will also acknowledge and be grateful for the good luck involving things like selective major catastrophes in 2014.”

Overcome challenges

“All of those concerns I just mentioned at the beginning were valid a year ago, and most, but not all of them, remain relevant today. When we look back at each year, there always seems to be some reason why things are going to get worse.

Fortunately, the people in this organization always seem to find a way to meet the challenges and keep building the value and values of this company. I expect that to continue to be the case over time.’

Nobody knows anything when it comes to the future

“There’s always uncertainty in the investment markets and while we’re talking about new highs as an example, people in the oil patch might not be feeling that way right now. I mean that price has been cut in half and it also just implications and things that fallout from that in ways that people didn’t foresee and I hope you don’t hold need to a forecast, I hope you don’t hold anybody to a forecast because some of things about the oil market that have struck me is I mean this is the biggest, the most liquid, the most important commodities which is trading in the world. And the fact that it could sell for over $100 bucks and then less than half of that within six months tells me that nobody knows anything about anything when it comes to the future.

So that being said that was the case three years ago, the case 30 years ago, and its fun to probably work every day because there is something you did not expect to happen that creates an opportunity.”

Brown and Brown 4Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Seeing construction depending on the region

“I would tell you that we see pockets of it regionally, but as a general rule we’re starting to see more construction starts. So let me give you an example, you might think as an example Phoenix, which was an area that slowed down a lot it started growing or seemingly growing more rapidly last year early in the year and the prior year and I would tell you that Phoenix it maybe got a little ahead of itself, meaning the metro area, so they are not seeing as much growth as maybe you might have seen right out of the blocks that doesn’t mean that is not growth, but that’s an example. If you come to South Florida there are so many cranes in the sky in Miami it’s kind of unbelievable. So depending on the city and what they are building in certain areas Josh we’re seeing more rental housing apartments being built than single-family homes, those are just some broad statements.

Three ways to use cash

“What I would say is this, we are thinking about how we best invest in our business and we can return or invest in that business one of three ways as you know. We can hire new teammates of which we are doing constantly and consistently. Number two, we can go out and acquire businesses which we are doing and we had the highest year of total annualized revenue acquired last year. And then three, we are returning to shareholders either in the form of dividend increases or through share repurchases.

A little bit of color on the acquisition process

“As you know we don’t budget acquisitions and so we are always out talking to the agency community about the possibility of joining the team at Brown & Brown and as you know the average agency owner today is 57 years old, doesn’t have a necessarily clear succession plan, doesn’t necessarily want to retire, but they actually would like to take some chips off the table. So if they fit culturally with us and we can come up with a financial terms and conditions that make sense for both parties we want to do it. And so I would tell you that we’re always talking to people in terms of when and why people sell those are different across the board. We would say that pricing continues to, I would say be on the higher end of the range and on certain instances we have seen acquisitions trade up in areas that financially we would not go to. And so we have a financial discipline that we employ when we evaluate acquisitions.

People are not hiring quite as much

“ would say that you have hit on an interesting point which is we’re not seeing that many people hire lots of new employees as a general statement. So to your question, we’re seeing more people doing more with the same amount of employees or very cautiously adding new employees.

A lot of businesses are having to think about how ACA impacts them this year

“I think that in the last year and probably in the future in this coming year there has been a lot of transitions as ACA impacts different employer groups in terms of size. And so some of the smaller firms are thinking about their options, I am not saying that they are mandated to go an exchange but an exchange could be a private exchange like the private exchange that we use

Greenlight Capital Re 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Greenlight lost 3.7% in 3Q

“The Greenlight Re investment portfolio loss 3.7% in the third quarter which brings the 2014 net return to 3.2%. It was a frustrating quarter as a lack of winners combined with a normal amount of individual losers led the losses from our long, short and macro positions. Nothing terrible happened, but we just got ground down gradually. In such circumstances, it is not obvious what to do other than stay the course and be patient.’

Thoughts on Apple, Oil States and US Steel

“Apple, which still trades well below our market multiple was our only notable contributor for the quarter as it start price began to reflect the strength of its iOS platform and the enthusiasm for new phones and services. The gain in Apple was roughly offset by a loss in our long position in Civeo, the accommodations business spun off from Oil States International. The stock sold off and management surprised the market with the substantial operating short fall and a decision to not move forward with the re-conversion. We disagree with the company’s actions and believe the company should be levered real estate entity that distributes most of its cash flows.

On the short side, US Steel temporarily benefited from panic ordering due to a shortage of raw materials which led to a spike in hot rolled steel prices. Given the new record spread between domestic steel prices and foreign steel prices, we believe that imports will arrive shortly, steel prices will retrace and the US Steel’s great third quarter will likely be the best result it reports for a long time.”

They were up 2.1% in October though

“We ended the quarter 40% net long which is our lowest net exposure so far this year at any month end. We were well positioned to be opportunistic in a dislocation in early October which was the first real dislocation we’ve seen in a long time. We added to our net long exposure during the correction, which unfortunately was brief. We returned 2.1% in October.’