Markel 2Q17 Earnings Call Notes

Richard R. Whitt, III – Markel Corp.

Insurtech space

Sure. Couple; just quick examples. We, like a lot of people, are starting to look at the Insurtech space. And the State National, I think they are ideally situated to sort of be the go between the Insurtech folks and sort of your standard insurance carrier types. It’s a clash of cultures there, I would say. The Insurtech folks are used to things happening lightening fast and with minimal regulatory issues and all that and that’s not insurance. So there almost needs to be a translator between Insurtech folks and standard insurance folks. And that is a role that State National plays wonderfully. And we see them helping us with our Insurtech initiatives sort of being that translator between us and those folks, and we think a lot of other people do that as well.

WR Berkley 2Q17 Earnings Call Notes

Robert Berkley

A ground swell of competition

“Without a doubt there is a grown ground swell of competition. You can see it manifesting itself in a couple of difference ways. A couple of macro observations will be the standard markets, particularly national carrier seems to be expanding their appetite and spilling over into what a while had been viewed as specialty market exposure. We also are seeing a state-assigned risk plan beginning to depopulate, again as carriers are I guess expanding their appetite if you will.”

Insurance Tech has become the flavor of the day

“Few other macro comments from my perspective on the marketplace, overall. Certainly over the past several years we have seen more and more progress and to a certain extent chatter and buzz around data and analytics. More recently there have been new technologies that are developed and Ensure Tech has become sort of the flavor of the day to a certain extent. Having said this, we think all of these tools have great value and we are users of them and quite frankly we are investors in some Ensure Tech opportunities. Having said that for our perspective, when the day is all done these are just tools and ultimately how effective they are, how helpful they are will be determined by the people who are using them and the expertise that they have”

Travelers 2Q17 Earnings Call Notes

Alan Schnitzer

An active weather year

“This has been an active weather year, with first half after-tax catastrophe losses of $488 million or 6 points on the combined ratio. To put that in some context, this was our highest level of first half catastrophe losses since 2011. While relatively high, the level of weather losses this quarter and year are within an over time range that we plan and price for. And we are confident that we are appropriately managing our exposures.”

Piloting investments in AI and robotics

“We are focused on our digital agenda on advancing the way we leverage data on exploring and piloting smart investments and things like AI and robotics on setting the standard in terms of the experience for our customers and distribution partners and as always on being as productive and efficient as possible. So as much as we are relentlessly committed to day-to-day execution we are just as committed to our long-term strategic position.”

Lowering price to generate incremental premium is a fools errand

“Yes, Josh. We have always thought that lowering price to generate incremental premium is a fool’s errand, because we operate in a very competitive marketplace and you just end up with same relative market share at lower profitability. And once you lower the price and consequently lower the margins on the business you are keeping, then you got to write a whole lot of new business to get that margin back. So, we don’t feel like that strategy. “

Greenlight Capital Re 1Q17 Earnings Call Notes

David Einhorn – Chairman

Seems less likely that the Rite Aid acquisition will see regulatory approval

“Rite Aid was our biggest detractor during the quarter as the company’s proposed merger with Walgreens did not close as expected. We’ve trimmed our position as circumstances have changed, and it now seems less likely the merger will see regulatory approval.”

The bubble will eventually pop

“Our bubble basket of shorts including Tesla also detracted from our performance during the quarter. For the time being, investors remain hypnotized by Tesla’s CEO. They’re skeptical that the company will be able to mass market its model 3 volumes and margins that justify the current valuation. The enthusiasm for Tesla and other bubble basket stocks is reminiscent of the March 2000 dot-com bubble as of the case then, the bulls have rejected conventional valuation methods for a handful of stocks that seemingly can only go up. While we don’t know exactly when the bubble will pop, it eventually will.”

Bought Conduent and Perrigo

“We added a couple of new small long positions during the quarter. We bought Conduent, a Xerox spinoff. We believe the management will renegotiate our exit under earning contracts, run off on profitable business units and simultaneously cut costs, which will lead to improved earnings and revenue growth over the next few years. We also added Perrigo, a private label manufacturer OTC pharmaceutical products. Perrigo is poised to grow its profits in its core U.S. OTC business and to expand margins as it streamlines its portfolio of European OTC brands.”

Third Point Re 1Q17 Earnings Call Notes

Daniel Loeb – CEO of Third Point LLC

We see the recovery continuing for the time being

“we’re comfortable with US growth and European growth and even though it does – even though this recovery is long in the tooth, we see it continuing for the time being.”

Access to the investment strategy

“Sure, well for one thing, anyone as a stockbroker can buy shares in TPRE and have access to our investment strategy, so the biggest distinguishing factor is the daily liquidity that you get in investing in a public security where the underlying investment portfolio is virtually the same as our main hedge fund. So as you probably know, if you want to invest directly you have to be a qualified investor and you can – there are liquidity restrictions around redemptions, so that’s the biggest difference. Obviously we are – if you are investing in Third Point via TP Re, you own an equity – security which is also an insurance company, so you’re getting whatever the advantages are or disadvantages of owning an insurance company and we believe that over the long run as John and team bring down the combined ratios, you’ll have two opportunities to win. You’ll get some positive return from the insurance company added to the investment returns. I think the reason for the discount is that it’s been a very difficult environment for reinsurance, but as that reality and perception changes I think you’ll see that discount shrink”

Fairfax 1Q17 Earnings Call Notes

Prem Watsa – Chairman and Chief Executive Officer

Administration’s policies have the potential of significantly boosting economic growth

“As I said at our annual meeting, and on our fourth quarter conference call, we believe the new US administration’s proposed policies of reducing corporate taxes to 15% rolling back regulation and business like Obamacare, Dodd-Frank, and a myriad of other regulations and significant infrastructure spending has the potential of boosting economic growth significantly in the United States. Already sentiment among small businesses has improved dramatically and animal spirits in the United States are being revived.”

US economy doing well alleviates some concerns over world wide recession

“When the US economy, which is approximately 20 trillion, does well much of the world does well. To us this means our concerns of China or Europe precipitating a worldwide recession depression have been significantly reduced, but not delaminated. Also the trade policies of the US could precipitate a collapse in world trade, so these risks will be very much monitored by us, but we think the new administration’s policies may make this a stock picker’s market and one in which we have thrived over the past 31 years.”

Have been reducing our short positions

“Paul, we don’t comment on individual securities of course, as you know. But broadly speaking we have been reducing our short positions, but there are certain individual names where we think it is a good match for our long positions and so we continue to maintain them, but we have refrained from mentioning any names of the past.”

Markel 1Q17 Earnings Call Notes

Thomas Gayner – Co-Chief Executive Officer

Prices in this world are high

“Prices in this world are high and there is a lot of capital sloshing around, trying to find deals. We will continue to focus on organic growth opportunities at our existing businesses and we’ll opportunity respond when we see the chance to do so.”

Starting to see loss cost trend move up a bit

“As just as people start to talk about rates potentially moving up and inflation maybe starting to move a little bit, you’re starting to see loss cost trend, which makes sense. So there it’s a mixed bag depending on which line of business of ours we’re talking about. But we’re seeing a little bit of a trend and that’s driven some of those rate increases and we also just had some one-off things in the first quarter that drove some of that increase.”

Richard Witt

Reinsurance combined ratio hit 132%

“The combined ratio for the reinsurance segment was 132% compared to 82% in 2016. As Anne just discussed, the significant increase in the combined ratio this quarter is due to adverse development on prior year loss reserves, driven by the $85 million or 38 points of reserve strengthening in U.K. motor reinsurance. It’s worth pointing out that this London written business was discontinued in 2014.”

Third Point Reinsurance 4Q16 Earnings Call Notes

Daniel Loeb

Moved to financials and industrials after the election

“The Third Point equity portfolio was down 3.1% on average exposure during the fourth quarter. We shifted exposures meaningfully following the election, decreasing exposure to TMT and consumer and ramping up investments in financials, industrials and other cyclicals. Despite these moves, gains in financials and industrials were offset by losses in consumer and healthcare investments.”

Excited about the opportunity set

“We are excited about the opportunity set presented by the current market environment. We expect the combination of accelerating growth and fiscal stimulus and U.S. will create a reflationary market which is favourable for Third Point’s investment strategies including event driven and value investing, risk arbitrage and activism”

We see plenty of opportunities

“Yes. I mean, look, market levels are important. I’m not sure that given the increase in S&P earnings that we expect due to changes in policy as well as tax reform that it’s as overvalued as people think, but no we don’t invest in markets, we invest in individual companies and we are seeing – we’re seeing plenty of good valuation, situations particularly those in which companies are involved in some sort of corporate transaction and the complexity is obscuring the earnings power of the company or companies that are going through financial or operational restructuring. So, we’re not really fazed by that. And don’t forget we’re long short fund to the extent certain companies get ahead of themselves that provides a good hedging opportunity or short-selling opportunity for us as well, so we are not really fazed by that way of thinking.”

W.R. Berkley 4Q16 Earnings Call Notes

Robert Berkeley

There are some markets that are exceedingly attractive, reinsurance remains irrational

“Having said that, there are some parts of the professional market that are exceedingly attractive and there are other parts where people need to be quite cautious. Commercial auto, while it does continue down a path of improvement from our perspective, much of that marketplace still has a way to go. Casualty remains the bright bulb, at least for the moment. And finally, the reinsurance market remains as irrational as ever from our perspective. And quite frankly, it’s a bit disappointing because every now and then, you see some green shoots popping through and in relatively short order, it would seem as though somebody comes along and stops those out.”

Continue to be surprised at industry resistance to change

“we continue to be quite surprised by what one might refer to as the resistance that the insurance industry, particularly the commercial lines, P&C space continues to have towards change. Specifically, the struggles around embracing analytics and technology as well as what would seem to be a lack of recognition for the change in consumer behavior.”

Tax reform could impact offshore insurance companies

“I think the other component which is perhaps in some ways a little less clear is what is the impact going to be as a result of tax reform on companies in the marketplace that are not domiciled in the United States. Many companies that participate in the US P&C market have benefited from being outside of the United States and the question will be whether that benefit will continue going forward or whether that is something that perhaps may change or be impacted by decisions and actions coming out of Washington.”

Commercial auto has touched bottom but it’s not a hard market

“As far as the market goes and apologies if I gave the wrong impression, our view is that it has finally touched bottom and it is moving in the right direction. We certainly do not believe that by and large, the commercial auto space is a hard market or anything approaching that. Having said that, it is one of the few lines where it seems like rate increases are outpacing trend as opposed to some other lines of business, where rate increases are treading water with trend or maybe in some cases, the product line is losing altitude.”

There are a lot of organizations that have gotten over-extended

” Clearly if you look at the accident year loss ratio, there are a lot of challenges that exist in the market. We have and continue to believe there are a lot of pain but this hasn’t come into focus potentially. And if you actually backed out or normalize for Cat activity and people stop living off of prior year development which eventually it would seem as though they’re going to need to, there are a lot of issues. So do I think this is going to turn into a situation like the late 90s in to 2000, no. But do I think that there are some organizations that got a little ahead of themselves, yes. And I think that there’s some pain and some of those companies that have some pain, I don’t think that there’s a lot of patience for volatility amongst their shareholders”

Bill Berkeley

Current tax law benefits offshore insurance

I think the answer is we have a President and a legislature who is very conscious of the fact that we shouldn’t have a tax law that gives preference to non-US entities and that is what insurance tax laws do at the present time. So two companies who write US business one offshore and one domestic, the company offshore pays substantially less to no tax. So we think that will benefit us because we think this President and his legislature will recognize that sometime over the next 12 months and level the playing field. So that will not lower – likely not – that part will not lower our tax but will raise tax – raise the tax of our competition. So, overall US tax rate we think will go down, which we’ll benefit. So we would expect there will be probably a continuing same amount of competition at a lower tax rate.

Travelers 4Q16 Earnings Call Notes

The Travelers Companies’ (TRV) CEO Alan Schnitzer on Q4 2016 Results

Cost of capital goes up if risk free rate and borrowing costs go higher

“And so there are couples of things going on that could impact cost and capital. For example, if the risk free rate goes up, cost of equity goes up. If the tax rate goes down then our after-tax cost of borrowing theoretically goes up. There could be other things in a change in tax policy. But if you just started with those two simple assumptions, you would look at that and say, gee, if the risk free rate goes up and if the tax rate goes down, you would speculate that our overall cost of capital would go up. If our overall cost of capital went up then our return objectives would go up with it.”

Brian Maclean

Combined ratios above 100 in personal lines

“So instead of taking you to a detailed reconciliation of the quarter, it would be more productive to focus on the full year ratios. For the full year combined ratio, we had a 104.0 and the underlying combined ratio was 101.8. These were both higher than we expected and at a level that does not meet our target returns. For full year 2016 underwriting combined ratio included about 2 points from the 10-year effect that we discussed last quarter. As we said then, when you are growing your book of business, the higher levels of new business will temporarily increase the combined ratio and the impact of 10 year in the year was as we expected.”

Deterioration is because of a trend towards more severe accidents

“The deterioration is primarily driven by an increase in the trend towards more severe accidents. Some of the factors that lead us to this observation are a higher percentage of claims involving distracted driving, more accidents involving higher speeds and more accidents on highways and at intersections. This is also consistent with recent industry data. For example, the National Safety Council report of significantly higher traffic cyclicalities in 2015 and 2016, a two year trend that we haven’t seen in decades.”

We are taking action to increase rates as a response

“In response to these developments, we are taking action in the marketplace. Our primary response is to file for increased base rate. And in November and December of 2016, rate increases were implemented in 16 states, which cover about 60% of our quote volume.”

Auto is a long tail business

“we’re talking about very recent accident periods for a very long tail-line of business, so just as a perspective. At the end of 2016, we have paid less than 15% of what we believe the ultimate losses will be for auto bodily injuries. So, it’s by nature a long tail-line of business, so it takes a while to play-out. We’re looking at all of the activity that we see, both in frequency and severity of loss, cut every which way you can think of, and looking at frequency activity, incurred losses, the paid losses.”

We’re seeing another increase in the trend of severity of bodily injury

“We got to ’13 and talked about a elevated level of bodily injury, and we were hoping that that would remain pretty constant. And we went through about two year period, 2013, 2014 into 2015, where we saw very constant, again elevated levels but constant with our expectations, of what we were getting in bodily injury. In fact, 2014 has developed favorably and we continue to see that. And what we are talking about now is another increase in that trend. And we’re talking about very, very recent accident periods, and looking at the data and responding, I think pretty quickly.”