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