Business: FSR is a Luxembourg based Reinsurer/insurer with lines of P&C, short tail specialty, casualty, marine liability, engineering and aviation. They carry an A- AM Best rating, A3 rating with Moody's and A- from Fitch. P/TBV of 0.6(diluted BV of 13.34/share), with limited BV growth since inception but revenue growth of 29% for four years.
Their investments are interesting compared to the majority of insurance firms. They basically strive for indexing of investments through futures. This is great except when its not. In 2008 they got absolutely crushed seeing investment losses of (272M). For fixed income 8.7% of their portfolio is BBB and this has risen from 6.3% in 2009. Their desire to mitigate catastrophic meltdowns has resulted in moving assets to what everyone else has...corporate bonds. T-bills have gone from 59.7% of fixed maturities in 2009 to a mere 17% in 2010. With such a low exposure its no wonder they jumped >5% on 7/29. It will be interested to watch the overall effect the debt ceiling debacle has on them versus AHL or other insurers who clearly retain higher amounts of T-bill exposure.
Overall: What I think is strange and fairly myopic is; yes they do have low exposure to T-bills but they are so closely interwined with the general markets. What if the US defaults, T-bills swing erratically but then so do world equity markets? A drop in T-bills would likely resolve itself should congress see the damage they have done (if any, I'm not predicting simply playing out a scenerio).
The WSJ had an interesting article discussing the merits of defaulting. My fear is that it could seriously derail futures and their values. Whether or not this will be an issue is unknown. I remain on the sideline waiting for a greater discount to TBV. That coupled with the lack of history and poor BV growth (understanding that yes they did indeed start up during the last cycles peak) leaves me anxious and not terribly comfortable with a long term holding. They seem destined for disaster.
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