The Answer, My Friend, Is Blowing In The Wind… – The Aleph Blog

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Posted on 25 August 2008 by David Merkel

That said, my question is: do I buy the property reinsurers here?? My initial guess is yes, because it has been a weak hurricane season so far, and the beginning and end of the seasons tend to be correlated.? But, it is too early to take action.? What I am more likely to do is wait until my next reshaping at the end of September, and make some shifts then.? Perhaps Gustav and some other hurricanes will prove my thesis wrong by then.

So, how are valuations for the reinsurers?? Cheap, but pricing is weak, because capital is plentiful.

Source: Yahoo Finance, Bloomberg

If I were looking to move tomorrow, I would consider IPC, Flagstone, and Validus among the “pure play” property reinsurers. Among the diversified players, I would consider PartnerRe, Endurance, Allied World, and Aspen. Note that the book value of PartnerRe is understated because they don’t discount their loss reserves. For conservative players, PartnerRe is compelling because of their strong balance sheet, very diversified book of business, and strong management. PartnerRe, Endurance, Flagstone, IPC and Allied World score some extra points in my book because of their conservative cultures.

I’m not doing this trade tomorrow, but with good weather, and continued pessimism over financials, this trade could look very good near the end of September.

Full disclosure: no positions

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. Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions. Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.