Monday, October 13, 2008

White Mountains Insurance (WTM) Analyst Day – Q and A

WTM Analyst Day – Q & A – June 18, 2008

This is a rough transcription of the Question and Answer period from the White Mountains Insurance Analyst day held on June 17, 2008.

My other posts on the meeting:

WTM - Introductory Comments

WTM - The Reserve Issue

WTM - Review of One Beacon

WTM - Review of White Mountains Re

WTM - Review of Esurance

WTM - Investment Portfolio

WTM - Berkshire Transaction

Advantages of having Answer Financial and Esurance together?

We get a lot of traffic to Esurance – 3.5 million quotes this year – people coming to the site - our conversion rate for online buyers is around 8% - the rest are going somewhere else - we are paying anywhere from $250-300 to get a policy – I am trying to monetize that traffic. We also get traffic from states where we don’t do business – only in 28 states – 30 by the end of the year right now we sell that traffic but would be better to keep it in house and give it to AF and use it build their volume.

Write most of our business online Seventy percent of our customers go through process without talking to anyone – 30% get someone on line at call center - people who buy online – their loss ratios are 15 points below people who buy on phone – the rest are better handled by AF. We also want AF to sell more of our business – right now only 10% and want to move it to 20%.

Have gas prices impacted miles driven which impacts claim frequency?

Frequency is really coming down – year over year through 1Q 08 - down 4% - thought it would be flat and in May it was down 8%. I think people are driving fewer miles and hopefully slower – flip side is that cars are smaller which may lead to higher severity of claims. Claim inflation may also be an issue going forward.

Monetizing Assets?

At this price we are a buyer of our stock – whether we can monetize any of our assets we look at this all the time. We talk to people who are interested. In current market odds are we are a better seller than buyer.

Who initiated BRK transaction?

When I (Barrette) got back a year ago the company had been working extensively on the deal…started somewhere in conversation between Jack and Warren – not sure who started it but it clearly got going – almost reached a deal a year ago but it didn’t – then I understood his parameters better - basically he needed to sell at market – did not want a below market price – when price hot my price and I knew he was a seller at that price that’s when the deal got done.

Is there a material change clause in BRK deal?

No clause…only if IRS doesn’t approve.

What could drive the $21 million reversal in Q2?

A GAAP market to market of our liabilities – when markets a very volatile and you have low interest rates in Japan we assume that they will maintain that for next 8 ½ years – what needs to reverse that it higher rates in Japan or lower volatility.

How much of WTM Re America (Folks) book is ceded?

WTM Re America is ceding 75% of property business and 50% of casualty business down to Bermuda – would increase them somewhat maybe to 80% each. That’s of the WTM Re America (Folks) book.

More color on limited partnerships that dominate Level 3 assets?

Three quarters are long short equity partnerships – in terms of transparency we get monthly reporting from them – audited annually – get a portfolio list – in touch with the managers – strategies do not have a lot of leverage. Can get losses from pilot error but won’t get compound damage from leverage – mostly Value managers - $2 billion from Prospector – reason why most are Level 3 is lag time on reporting.

$140 million reserve – what has company learned institutionally?

Now WTM will have a Chief Actuary – some form of dotted line reporting to corporate people – so the CFO of units don’t feel that CEO of unit can dictate to them. We will due diligence more regularly and more reserve meetings.

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