Saturday, February 16, 2008

Looking at interesting insurance stock buys and sells during 4Q 2007

By region

US & Canada

Lets start of with Markel Corporation (MKL)(led by Chief Investment Officer Tom Gayner) . Markel found investment opportunities in the US title insurance sector which has been suffering from the housing recession. Markel initiated a new position of 930,500 shares in LandAmerica Financial Group (LFG). Markel also raised their stake in Fidelity National Financial (FNF)by 125% to 1.68 mil shares.

Mohnish Pabrai sold his stake 17,500 BRKB shares in Warren Buffett’s investment holding company Berkshire Hathaway, retaining just one BRKA share. Berkshire’s shares have seen a decent run up over the last few months as investors have sought refuge from the credit crunch in Berkshire’s rock solid balance sheet which is a genuine AAA (unlike others!). Mohnish kept his stake in Canadian property and casualty insurer Fairfax Financial Holdings (FFH) largely unchanged selling around 1,900 shares to end the year with 314,165 shares. Fairfax Financial’s large credit default swap bet , on a decline in the housing sector and the repricing of credit risk, has worked a treat over the last 6 months.

New York based Alleghany Corporation(Y) led by CEO Weston Hicks made a foray into the distressed mortgage insurance sector picking up 1.65 mil shares in Chicago based Old Republic (ORI). Old Republic have a more diversified book of business than their other mortgage insurance competitors.

Bruce Berkowitz and the Fairholme Fund (FAIRX) team who practice the investment philosophy of ignoring the crowd certainly did when they embraced controversy and bought a new stake of 7.65 mil shares in Wellcare Health Plans (WCG). This Florida company has been under investigation by federal and state authorities. Fairholme also initiated a small 4.16 mil share position in auto insurer Progressive Corporation (PGR). This is an interesting buy given the poor performance of most auto insurers and Progressive in particular which has been facing tough competition from Geico, a subsidiary of Berkshire Hathaway (BRKA,B). Do Fairholme feel that the market may harden and premium rates could start to improve for the auto insurance sector?


Mackenzie Cundill Value Fund with famed value manager Peter Cundill took advantage of market volatility in 2007 to add to their position in the world's second largest reinsurer, German based Munich Re AG (MUVGN.DE - XETRA). According to their fund's annual report, it is now the fund's largest position.

Post year end , Warren Buffett and Berkshire Hathaway snapped up 3% of Swiss reinsurance giant Swiss re (SWCEY-Depository receipt; RUKN.DE - XETRA) , which has been caught by the subprime crisis, and will take one-fifth of all Swiss re's property & casualty premiums over the next 5 years in return for providing one-fifth of the risk. This deal looks to be more than just an insurance stock buy and more a stategic reinsurance partnership.


The successful Third Avenue International Value Fund (managed by Amit Wadhawany)initiated a new position, buying 771,224 shares in Bermuda based reinsurer Montpelier re (MRH - NYSE). Here is a quote from the annual report for 2007 ...."Shares of Montpelier Re were purchased at prices which we believe understate its value as a going concern, as it imputes little to no value to the company’s operational infrastructure,underwriting expertise, or the membership at Lloyd’s."

Asia & Middle East

Longleaf Partners International Fund made no changes but retained a significant weighting to Japanese insurers , NipponKoa Insurance Company (6.7% of fund) (8754 - Tokyo) and Millea Holdings (3.7% of fund) (MLEAY.PK - US pink sheets; 8766 - Tokyo) Japan's largest non-life insurer. Both insurers represent a little over 10% of this Longleaf Fund.

Disclosure: I own shares in MKL,BRKB,FFH,Y,FAIRX

Disclaimer: The opinions expressed by the author in this article are not intended as investment advice & should not be relied upon as investment advice.


uccmal said...

Hi Tarn, I believe Cundill is retired now.

Mark said...

what do you make of longleaf's ubs buy and would you expect they were adding after latest drop?

Tarn P Crowe said...

hi uccmal, I believe Peter Cundill is still an advisor to the fund but if you have newer info please share cheers

Tarn P Crowe said...

hi mark, I haven't had a close look at UBS but Longleaf are very astute & I'm sure they are assessing the situation on whether or not to add. I gather the UBS private banking franchise is the jewel in the crown and would have motivated them to buy. I guess they're doing the numbers based on the most recent subprime losses UBS reported and checking their investment thesis here.