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Flagstone Reinsurance

This is a rental, not a purchase per se, but toward the close, I bought some Flagstone Reinsurance.  It’s a new-ish company with one of the top 2 property reinsurance models in Bermuda.  Trading near tangible book, 6x earnings, with high quality assets and reasonable operating leverage, it is a reasonable play for the fourth quarter.

Why the fourth quarter?  No guarantee here, but property losses are headed for another light year.  No major storms in the Southeastern US so far, and by this time of year, prior patterns tend to maintain.  You can see the stock price of Ren Re take off, but Flagstone, Montpelier, and IPC Re have not moved so much.

One complicating factor: the second good year in a row will make surplus bulge at insurers, leading to lower rates next year.  I’m waiting to see articles on how the Southeast windstorm models are unduly pessimistic, or watch the state of Florida take the modelers to court.  (The State would lose, but the government there would be game to try it.)

What this means is that the rally in these shares will be cut short by the fears of falling premium rates, sometime after the third quarter earnings are reported.  So, be nimble here, and there should be a short-term rally in the property-centric reinsurers.

Full disclosure: long FSR

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One Response to Flagstone Reinsurance

  1. Insurance Investor says:

    Why FSR and not VR or IPCR then?

    Great blog by the way.


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.

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