the "funny" thing is that on their earnings call from November 6th they didn´t see anything coming.....
What a farce!
How you could not get the info that something was wrong with subprime holding is beyond me.....
"Swiss Re valued the ABS CDOs to zero and the subprime securities to 62 percent of their value, bringing the market value of the portfolio to 3.6 billion francs, the company said. "
According to the WSJ the hedge fund industry is really picking up steam. Markets just aren't efficient enough to support trillions of dollars of speculative funds. So a large percentage of these things are necessarily ponzi schemes. That's why we see oil near a $100 while the real US economy is slowing.
We saw a very similar phenomenon of an explosion in speculative businesses in the late 20s.
Thanks Ben:
During the summer, hedge funds were back on their heels. Some big names closed down, others were startled by sudden losses and some investors questioned whether juicy opportunities were a thing of the past.
Now, with notable exceptions, hedge funds are storming back -- and pulling in more money than ever from investors.
Leading in market performance are old-school stock pickers, some of whom anticipated the subprime-mortgage mess and have won bets they made against financial companies and lower-rated slices of debt. Unsettled markets also have helped hedge funds. That is because many of them buy certain shares while wagering against others. Some hedgies also are scoring from big moves in oil, gold, currencies and emerging markets.
"Everyone got nervous over the summer, but now the good managers are taking advantage of the market's volatility," says John Rigas, who runs Sciens Capital Management, a firm that invests in hedge funds and is up sharply lately.
For the year, inflows have reached record levels. The growth is giving hedge funds more clout to put pressure on companies around the globe and influence trading in various markets...
A reinsurance company takes the risk of the first company,or part of it for a cut of the fee.think of a bookie laying off a bet.counterparty risk anyone?
...insure an unnamed company against a "remote risk of loss" -- a loss that materialized.
"Remote.."
Is that US probability of recession remote, Fannie GAAP compliance remote or black swan remote?
Speaking of compliance, how many 10Qs do we need to put under the microscope before finding out who got the proceeds of this payout?
The next shoe in my opinion is when the reinsurers balk claiming fraud in taking out these types of policies. Unfortunately none will ever make it to open court where everyone's dirty laundry would be subject to scrutiny.
Swiss RE losing 1.2 bil on credit default swap (underlying asset not disclosed).....imagine a weaker seller of CDSs not being able to perform on its obligations.....the cascading effect and the potential systemic risk!
"The unprecedented and severe ratings downgrades undertaken by the Rating Agencies in October and the lack of any truly liquid market for these securities has resulted in a significant and material reduction of the value of the underlying assets."
OK, somebody go find Warren Buffett's classic rant about the reinsurance business. I already have ten windows open this morning and not enough coffee. It was regarding Berkshire's purchase of Gen Re, and as I recall his complaint about reinsurance contracts was along the lines that you can stab them with your steely knives, but you just can't kill the risk.
In other news, Tanta, Gretchen finally picked a story for her Sunday column that might not be incorrect! It's good to see the gray lady's persistence with that reporter pay off.
Also, your request for Buffett's reinsurance rant.. are you referring to his 2003 message to investors, downloadable off the BH website?
"This company (Gerling Group) owes many billions of dollars to hundreds of primary insurers who now face massive write-offs."
When we purchased Gen Re, it came with General Re Securities, a derivatives dealer that Charlie and I didnt want, judging it to be dangerous. We failed in our attempts to sell the operation, however, and are now terminating it.
But closing down a derivatives business is easier said than done. It will be a great many years before we are totally out of this operation (though we reduce our exposure daily). In fact, the reinsurance and derivatives businesses are similar: Like Hell, both are easy to enter and almost impossible to exit. In either industry, once you write a contract--which may require a large payment decades later--you are usually stuck with it. True, there are methods by which the risk can be laid off with others. But most strategies of that kind leave you with residual liability.
Analysts on a conference call questioned why a company better known for determining the risks of hurricanes and floods was in the business of providing insurance against market moves -- and how management came to consider the loss as "remote."
"Obviously (the client) said it was worthwhile to buy this cover," noted Heinrich Wiemer, an analyst at Vontobel, in a conference call with management. - Market Watch
What would entice a re-insurer to shy away from re-insuring natural disasters and instead refocus on market moves? Go back to 2005 and look at volatility in the markets compared to volatility in the Gulf Of Mexico. It isn't too hard to see why they might think markets are safer even if that assumption could be wrong.
Getting info on foreign stocks from the internet in the US is a pain. Swiss Re's PE ratio is given as 9.95 by the JPMorgan adr site and over 21 by Yahoo Finance. I have seen foreign stocks in the (almost worthless) Yahoo site with PE ratios said to be 3/10ths of 1. I think they turn the calcs, if they do them, over to high school drop outs.
OT, but it is amusing watching the market dragging stocks one by one out the back and shooting them, while GS keeps going up. If goldman continue to boast about how well they are doing, they are going to have to budget for a mercenary force to guard their execs and their HQ.
SwissRe PE is 5.7 with stock down nearly 11% today.
To think that banks don't have a lot more coming is comical. One of the worst will be Morgan Stanley who have 250% of equity in Level 3 assets and so far have only reported a $3 billion loss on a hedge of their book (that went wrong!) Imagine the size of the book they were trying to hedge!
One of the worst will be Morgan Stanley who have 250% of equity in Level 3 assets and so far have only reported a $3 billion loss on a hedge of their book (that went wrong!) Imagine the size of the book they were trying to hedge!
Just asked my MS broker (after explaining to him what Level 3 assets were) if MS was going bankrupt. No reply yet (via email). LOL.
============================
A reinsurance company takes the risk of the first company,or part of it for a cut of the fee.think of a bookie laying off a bet.counterparty risk anyone?
Tom Stone
The other thought that springs to mind is this isn't the usual way of doing RE-insurance is it ? I mean, if CDS' didn't change the game entirely then REinsurance is about splitting the risk between parties, not insuring all of it - I mean I thought REinsurance is about some part, either a proportion or past a certain cap, of the existing insurance being insured.
Where I'm going with this is if this is the loss that a REinsurance company is suffering, what's the loss and who is the company that suffered the primary loss ?
Separately, for shorts, this real-estate bust just keeps giving. Reminds me of what the gliding CFI at Pune, India told me when I asked him what the air was like - he said - "If you throw a stone up in the air, it'll FLY"
Swiss Re can handle this hit better than the monolines can. The clock is ticking until the first downgrade of an AAA monoline. If it's MBIA, watch out!
rich,
The monoline insureres have already been downgraded, (by the mkt), through the CDS market. Nobody, in their right mind would buy insurance from a downgraded insurer (A/BBB/BB?)
You guys don't understand something. There's a difference between the rating of MBIA and Ambac, and the rating of the insurance subs of MBIA and Ambac. The CDS market is for CDS on the companies themselves, the ones that trade on the stock market, It is these companies that could go bankrupt. The insurance sub is another entity.
SwissRe passed MunichRe this year to become the world's largest reinsurer.
SwissRe lost more money than this on the San Francisco earthquake...of 1906.
The emerging story of interest in the insurance business (both direct writers and reinsurers) are ILS's. Insurance linked securities are becoming more and more popular whether they are a securitization of reserves to free up capital or catastrophe bonds to help defray costs associated with catastrophe losses (hedge funds love these things). The numbers for these ILS's are miniscule compared to the mortgage world but they are growing like wildfire.
The catastrophic risks (i.e. 2005 hurricanes, etc.) are large but not necessarily the problem for the "long-tail" exposures. What kills the reinsurers (and really pisses them off) is the effect of the American Tort system re liability. I started off in commercial reinsurance two decades ago and what was frustrating was to have a liability suit (think asbestos, etc.) filed for something decades before and not even be able to find a physical policy that even existed.
A billion isn't a lot for Swiss Re. They are big enough that there was bound to be something. However, this is about the same magnitude as a couple of decent sized hurricanes, which we thankfully didn't have this year. There were some European windstorms.
I guess people don't trust them, but there exposure is small enough that I think they want to get it out there as fast as they can and took a number they think will hold up. Double it and you have their likely maximum loss on this.
When I saw the headline I assumed it was a loss on their float investments; it is not and I don't see any way to characterize their position other than 'stupid'.
Warren Buffet was nervous because he at least has a memory. He remembers what went on at the Lloyds market in London, with both asbestosis and the LMX Spiral.
I'm sure all this worry is for nothing. I just saw on the Yahoo homepage that I can get a $200k mortgage for only $855/month through LendingTree, and I don't even need a Social Security Number. Obviously, the loan crisis is over.
Swiss Re is a very large organization and has a couple of hundred billion in assets. They dodged the bullet on the asset side, but picked up some exposure on the underwriting side. This isn't likely to happen again. I'm sure they were seduced by the AAA credit ratings and the 'super senior' status of this stuff. I can't see it happening again.
Given their overall position, there is absolutely no reason for them to not get it all out on this call.
How many hits can the insurers take before they start to quiver?
Wow, how many billion dollar hits can these reinsurance companies take? How many insurance companies will take a hit? What is reinsurance?
I thought after the close friday was the traditional confessional time. Was the past week an exception?
Moin,
the "funny" thing is that on their earnings call from November 6th they didn´t see anything coming.....
What a farce!
How you could not get the info that something was wrong with subprime holding is beyond me.....
"Swiss Re valued the ABS CDOs to zero and the subprime securities to 62 percent of their value, bringing the market value of the portfolio to 3.6 billion francs, the company said. "
Here the
Swiss Re Presentation with more details
Stock down 9 percent
According to the WSJ the hedge fund industry is really picking up steam. Markets just aren't efficient enough to support trillions of dollars of speculative funds. So a large percentage of these things are necessarily ponzi schemes. That's why we see oil near a $100 while the real US economy is slowing.
We saw a very similar phenomenon of an explosion in speculative businesses in the late 20s.
Thanks Ben:
During the summer, hedge funds were back on their heels. Some big names closed down, others were startled by sudden losses and some investors questioned whether juicy opportunities were a thing of the past.
Now, with notable exceptions, hedge funds are storming back -- and pulling in more money than ever from investors.
Leading in market performance are old-school stock pickers, some of whom anticipated the subprime-mortgage mess and have won bets they made against financial companies and lower-rated slices of debt. Unsettled markets also have helped hedge funds. That is because many of them buy certain shares while wagering against others. Some hedgies also are scoring from big moves in oil, gold, currencies and emerging markets.
"Everyone got nervous over the summer, but now the good managers are taking advantage of the market's volatility," says John Rigas, who runs Sciens Capital Management, a firm that invests in hedge funds and is up sharply lately.
For the year, inflows have reached record levels. The growth is giving hedge funds more clout to put pressure on companies around the globe and influence trading in various markets...
Hedge Funds Shake Off Summer Jitters - WSJ.com
A reinsurance company takes the risk of the first company,or part of it for a cut of the fee.think of a bookie laying off a bet.counterparty risk anyone?
When the insurers can no longer insure,...well, that's the day to take off and call in sick.
...insure an unnamed company against a "remote risk of loss" -- a loss that materialized.
"Remote.."
Is that US probability of recession remote, Fannie GAAP compliance remote or black swan remote?
Speaking of compliance, how many 10Qs do we need to put under the microscope before finding out who got the proceeds of this payout?
The next shoe in my opinion is when the reinsurers balk claiming fraud in taking out these types of policies. Unfortunately none will ever make it to open court where everyone's dirty laundry would be subject to scrutiny.
Swiss RE losing 1.2 bil on credit default swap (underlying asset not disclosed).....imagine a weaker seller of CDSs not being able to perform on its obligations.....the cascading effect and the potential systemic risk!
Moin again,
wanted to add this quote from their release...
"The unprecedented and severe ratings downgrades undertaken by the Rating Agencies in October and the lack of any truly liquid market for these securities has resulted in a significant and material reduction of the value of the underlying assets."
OK, somebody go find Warren Buffett's classic rant about the reinsurance business. I already have ten windows open this morning and not enough coffee. It was regarding Berkshire's purchase of Gen Re, and as I recall his complaint about reinsurance contracts was along the lines that you can stab them with your steely knives, but you just can't kill the risk.
In other news, Tanta, Gretchen finally picked a story for her Sunday column that might not be incorrect! It's good to see the gray lady's persistence with that reporter pay off.
Also, your request for Buffett's reinsurance rant.. are you referring to his 2003 message to investors, downloadable off the BH website?
"This company (Gerling Group) owes many billions of dollars to hundreds of primary insurers who now face massive write-offs."
Moin again,
maybe some of the problems are coming from the GE reinsurance business that they have bought for over $ 7.4 billion in May 2006
Wouldn´t surprise me......
I was thinking of this:
When we purchased Gen Re, it came with General Re Securities, a derivatives dealer that Charlie and I didnt want, judging it to be dangerous. We failed in our attempts to sell the operation, however, and are now terminating it.
But closing down a derivatives business is easier said than done. It will be a great many years before we are totally out of this operation (though we reduce our exposure daily). In fact, the reinsurance and derivatives businesses are similar: Like Hell, both are easy to enter and almost impossible to exit. In either industry, once you write a contract--which may require a large payment decades later--you are usually stuck with it. True, there are methods by which the risk can be laid off with others. But most strategies of that kind leave you with residual liability.
http://www.tilsonfunds.com/BuffettWorries.pdf
Analysts on a conference call questioned why a company better known for determining the risks of hurricanes and floods was in the business of providing insurance against market moves -- and how management came to consider the loss as "remote."
"Obviously (the client) said it was worthwhile to buy this cover," noted Heinrich Wiemer, an analyst at Vontobel, in a conference call with management. - Market Watch
What would entice a re-insurer to shy away from re-insuring natural disasters and instead refocus on market moves? Go back to 2005 and look at volatility in the markets compared to volatility in the Gulf Of Mexico. It isn't too hard to see why they might think markets are safer even if that assumption could be wrong.
Getting info on foreign stocks from the internet in the US is a pain. Swiss Re's PE ratio is given as 9.95 by the JPMorgan adr site and over 21 by Yahoo Finance. I have seen foreign stocks in the (almost worthless) Yahoo site with PE ratios said to be 3/10ths of 1. I think they turn the calcs, if they do them, over to high school drop outs.
OT, but it is amusing watching the market dragging stocks one by one out the back and shooting them, while GS keeps going up. If goldman continue to boast about how well they are doing, they are going to have to budget for a mercenary force to guard their execs and their HQ.
Moin Jmaes,
with the financials it doesn´t matter what they show as pe....
There will be no earnings left for at least the next few quarters
SwissRe PE is 5.7 with stock down nearly 11% today.
To think that banks don't have a lot more coming is comical. One of the worst will be Morgan Stanley who have 250% of equity in Level 3 assets and so far have only reported a $3 billion loss on a hedge of their book (that went wrong!) Imagine the size of the book they were trying to hedge!
Robert C.,
Love your taxonomy of 'remote!' I think that was the first remote you mentioned...
One of the worst will be Morgan Stanley who have 250% of equity in Level 3 assets and so far have only reported a $3 billion loss on a hedge of their book (that went wrong!) Imagine the size of the book they were trying to hedge!
Just asked my MS broker (after explaining to him what Level 3 assets were) if MS was going bankrupt. No reply yet (via email). LOL.
============================
A reinsurance company takes the risk of the first company,or part of it for a cut of the fee.think of a bookie laying off a bet.counterparty risk anyone?
Tom Stone
The other thought that springs to mind is this isn't the usual way of doing RE-insurance is it ? I mean, if CDS' didn't change the game entirely then REinsurance is about splitting the risk between parties, not insuring all of it - I mean I thought REinsurance is about some part, either a proportion or past a certain cap, of the existing insurance being insured.
Where I'm going with this is if this is the loss that a REinsurance company is suffering, what's the loss and who is the company that suffered the primary loss ?
Separately, for shorts, this real-estate bust just keeps giving. Reminds me of what the gliding CFI at Pune, India told me when I asked him what the air was like - he said - "If you throw a stone up in the air, it'll FLY"
-K
Swiss Re can handle this hit better than the monolines can. The clock is ticking until the first downgrade of an AAA monoline. If it's MBIA, watch out!
What's a billion among friends?
I put up some charts showing the change in household net worth adjusted for inflation and population over the years.
It looks like we could be sliding into the negative net worth growth abyss, but hey, that's just my opinion.
rich,
The monoline insureres have already been downgraded, (by the mkt), through the CDS market. Nobody, in their right mind would buy insurance from a downgraded insurer (A/BBB/BB?)
pjfny
You guys don't understand something. There's a difference between the rating of MBIA and Ambac, and the rating of the insurance subs of MBIA and Ambac. The CDS market is for CDS on the companies themselves, the ones that trade on the stock market, It is these companies that could go bankrupt. The insurance sub is another entity.
SwissRe passed MunichRe this year to become the world's largest reinsurer.
SwissRe lost more money than this on the San Francisco earthquake...of 1906.
The emerging story of interest in the insurance business (both direct writers and reinsurers) are ILS's. Insurance linked securities are becoming more and more popular whether they are a securitization of reserves to free up capital or catastrophe bonds to help defray costs associated with catastrophe losses (hedge funds love these things). The numbers for these ILS's are miniscule compared to the mortgage world but they are growing like wildfire.
Project Mayhem
The catastrophic risks (i.e. 2005 hurricanes, etc.) are large but not necessarily the problem for the "long-tail" exposures. What kills the reinsurers (and really pisses them off) is the effect of the American Tort system re liability. I started off in commercial reinsurance two decades ago and what was frustrating was to have a liability suit (think asbestos, etc.) filed for something decades before and not even be able to find a physical policy that even existed.
A billion isn't a lot for Swiss Re. They are big enough that there was bound to be something. However, this is about the same magnitude as a couple of decent sized hurricanes, which we thankfully didn't have this year. There were some European windstorms.
I guess people don't trust them, but there exposure is small enough that I think they want to get it out there as fast as they can and took a number they think will hold up. Double it and you have their likely maximum loss on this.
When I saw the headline I assumed it was a loss on their float investments; it is not and I don't see any way to characterize their position other than 'stupid'.
Warren Buffet was nervous because he at least has a memory. He remembers what went on at the Lloyds market in London, with both asbestosis and the LMX Spiral.
A Time Magazine story from February 2000 is on line here:
rigorousintuition.ca :: View topic - Lloyds of London Asbestosis Fraud
Swiss Re were involved and have NO EXCUSE for this loss.
it is a surprise we don't have more discussion on this topic. This probably signaled the second stage of housing bust.
NoVa,
Yes, I think you are right - the second stage of the housing bust or the first inning of the credit derivative meltdown?
I'm sure all this worry is for nothing. I just saw on the Yahoo homepage that I can get a $200k mortgage for only $855/month through LendingTree, and I don't even need a Social Security Number. Obviously, the loan crisis is over.
Swiss Re is a very large organization and has a couple of hundred billion in assets. They dodged the bullet on the asset side, but picked up some exposure on the underwriting side. This isn't likely to happen again. I'm sure they were seduced by the AAA credit ratings and the 'super senior' status of this stuff. I can't see it happening again.
Given their overall position, there is absolutely no reason for them to not get it all out on this call.