I think with reinsurers you are never going to want to hold them for the long term. If a huge catastrophe occurs you can lose everything. I would say that reinsurers typically need to be held for shorter periods… Sometimes, you will see them stay depressed even after hurricane season. That might be a good time to start looking at the group. But I would not own most reinsurers through hurricane season because of that black swan catastrophe risk.

With short-tail insurers, like in car insurance which you refer to – I think that holding periods can be extended. If you can find an auto insurer that is conservative with their reserving practices, great record of combined rations, has a history of profitability, and is trading below book because of some temporary dislocation you might have an opportunity to grab a great holding that will grow for years.

You might want to look at insurance brokers. They tend to be profitable in soft and hard markets, but can really earn a lot if the market turns hard. They allow you to remove the need to figure out one insurer and instead bet on the overall market. Willis Group (WSH) is one that I was looking at because it seems to have that quality.

Still, when you see a lot of reinsurers trading at low multiples compared to their historical average, you might find some opportunities. With Hati, Chile, there are exposure fears, but maybe one in the group is pretty insulated. For reinsurance you really need to get a feel for management and their track record with underwriting because the future is always so uncertain. I don't advocate doing buy-and-hold-forever with reinsurers, for me it is more like a play on earnings normalizing which should push up the multiple Mr. Market is giving them.

Another way to look at it is, I don't think the accounting really works for Reinsurers. What I mean to say is if once a decade or so a good portion of your book value is payed out, then part of your book value is really just float. So does paying full book value make sense. Some would argue that a dollar in float is worth at least as much as a dollar in assets. I feel I need to think about this issue more.

The other worry I have is that you have to talk about really really long holding periods, like 10-20 years, before the concept of “average” returns really starts to make sense.

What are your thoughts on these issues?

That said, I held MRH for a couple of years and only sold in early 09, to by some absurdly undervalued stocks. I think they have great management, and you might want to consider them. Thanks to your post, I'll certainly be considering buying back in to MRH, or perhaps a reinsurance basket.
Thanks!