AIG, Fairfax, Berkshire Hathaway: Favorite Insurance Plays for Long-Term Returns

During their latest episode of the VALUE: After Hours Podcast, Taylor, Carlisle, and Travis discussed discussed AIG, Fairfax, Berkshire Hathaway: Favorite Insurance Plays for Long-Term Returns. Here’s an excerpt from the episode:

Tobias: What about financials? Banks in general, financials generally, same deal?

Tim: Well, I think insurance companies have done really well. So like big positions for us for a long time, for many years were like assured guarantee, municipal bond insurance company. AIG was a big one. Fairfax, Berkshire, some of those are– And the mortgage insurance. All those have rocketed higher and have performed really, really well. Even though they’re highly regulated, they’re not in the spotlight as much as the bank. So I think that that’s an advantage. Nothing’s really as bad as the banking industry, it seems, as far as just regulation and sentiment and volatility economic stress. So those have been good– But we’re selling into this. We’ve seen a big rally on those names. So I think it’s a good time to take some profits there.

Jake: [crosstalk] Isn’t it tough to sell Fairfax still at book value?

Tim: No, Fairfax is one I’m not selling.

Jake: Okay.

Tim: Yeah. I would put Berkshire in a similar class as that. But those are, I think, better business, especially Berkshire. I like Fairfax a lot too there. I think they’re capable of generating a better return on equity than some of the other ones. The mortgage insurance space, we bought those at big discounts to book. Now a lot of them are at premiums to book. I don’t know how I feel about housing. I have some concerns. They might be totally wrong, but I don’t need to own those up here.

Jake: Yeah.

Tobias: You guys don’t have a diversion opinion on Fairfax, do you, both [crosstalk] Fairfax?

Tim: Same. We both like it a lot, and lots of–

Jake: Yeah. Well, obviously, it was easier to buy it at whatever 60 cents on the dollar book value like that. It felt like it made sense. But thankfully, it’s never really run up past book to really force my hand and make me feel like I needed to sell. So I’ve been able to enjoy the rising interest income without Mr. Market testing me too much.

Tobias: Do they still have all the hedges and things in there that they–? They made a pretty good name for themselves in 2008 with all the hedges, but are they still on? Can they make a name?

Jake: It didn’t work out so well for the–

Tobias: [crosstalk]

Jake: Yeah. 2015 to 2019 period, driving around with the brakes on. Didn’t work out. No, I don’t believe that they have the– I think there’s actually still some leftover like they have some– [crosstalk]

Tim: There’s still some laugh. Yeah. Not as much. So.

Jake: They have some swaps that are– I don’t know, they’re probably written down to practically nothing at this point, but I think they’re still on the books.

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