My guess, from reading his Fairholme letters, he got tired with the lack of progress in the P&C loss ratios and expenses, there's been very little progress there in the last 3 years. And AIG was a 50% position in his fund, too much concentration for so long without seeing significant upside.
He's still in pretty deep. I just think he has to hedge and diversify a bit. For better or worse, we don't. I'm in much deeper than Bruce even. If I'm wrong? Ouch!
I, as a private investor, am not constraint and have to show performance like Berkowitz, has with his fund, I agree with j0n, Berkowitz must still believe AIG will prove to be a good investment, he just cannot wait for it to happen. I am in for the long run.
Not bullish, but it makes sense. He's been into AIG since the meltdown and suffered subpar results ever since. I'm sure he still believes in AIG, but can't afford to be overweight in it any longer. I have no idea what he sees in Sears Canada, though I do know he likes real estate. I'm too wary of retail to follow him in on that one. You get burned on retail if you don't shop the stores yourself.
Still has 23.5M warrants down from 24.4M, he's probably responsible for most of the selling volume in the warrants last quarter
He can't make something happen that isn't there. But it's nice to know somebody is watching to make sure management acts in the shareholders interests. That's not magic, just sound business. I suspect Carl will have to accept Peter's point of view on the matter. But Carl is going to hold Peter to task. There will be no room for more excuses.
Food for thought. I lack that insider insight, but am hoping the push to "big data" will help them get a grip on who the rainmakers are and where they're making money. Studies seem to show we overestimate change in the short run (1 year), but underestimate change over the longer term (3+ years). AIG has a good franchise. Maybe Peter can find a way to make that profitable. At these prices, they don't have to climb to the top. Anything better than last quarters' "pathetic" should yield an acceptable result. Low expectations is one key to happiness.
I don't believe they will ever catch up until they fix their loss reserve status. Every quarter they are digging themselves out of a hole. It is very difficult to price new and renewing business when you don't have a handle on ultimate loss ratios for older accident years. Moreover, IMO, this is not the totality of AIG's problems. I also believe the company has a distribution issue. The insurer is so used to dealing predominately on a brokerage model that it pays very little contingent or supplemental commissions. This was an acceptable approach when you wrote the most difficult lines and clients needed you. However, Hancock has changed the business model and AIG is trying to write more "gravy" business. Unless the insurer changes it's approach to producer compensation, I don't believe the carrier will generate the market acceptance it desires.
Now we're on the same page. I would follow up with one question however. AIG has been blaming legacy policies for their poor combined ratios. How long should investors expect to wait for that to work through? At one point will it be reasonable to hold management accountable for catching up to their peer group?
Conservative reserving forces your pricing actuaries to take a more conservative approach to rating the business you bind. You assume a higher incurred loss ratio going into the A/Y and must price for that to make the economics work. Poor loss reserving is a vicious cycle which lead to poor pricing of business which inevitably lead to more under-reserving. It's tough and painful to get off this treadmill, but the longer the delay the greater the ultimate cost.
Yours is a repost from a previous thread. I'll respond in kind. Loss reserves seem to affect WHEN losses or gains are booked, but not HOW MUCH- at least not over the long term. More conservative reserving would not correct poor underwriting pricing. Correct me if I'm wrong. Under-reserving seems to indicate a poor understanding of the underlying risk exposure. That's a problem.
One of the principal reasons AIG compares unfavorably to its peers' underwriting performance is the status of the insurer's p-c loss reserves. The company's CEO says that management establishes its loss reserves to "best estimate", which is another way of saying that it establishes incurred loss pics to a mean projection -- a 50/50 probability of being too high or too low. Unfortunately, this methodology is no longer standard practice among the best p-c carriers in the business. These underwriters invariably establish loss pics in which the probability is much smaller than 50% that they will prove to be inadequate. In fact, the expectation is for these insurers to generate modest loss reserve redundancies on a quarterly basis. This compares to AIG, which frequently incurs quarterly loss deficiencies. Consequently, most periods this firm starts out in the hole vis-a-vis it's best competitors when it reports it's underwriting performance.
Like a lot of things "in principle", "best estimate" reserving seems to make sense, but it rarely works in practice. As someone who's been involved with the loss reserving process, a company can never get it totally right, and the pressures of the "real world" tend to bias estimates downward rather than upward. Also, it's the nature of the p-c insurance business that surprises tend to be of the negative variety. Consequently, well managed insurers, e.g., Travelers, ACE, Chubb, Cincinnati, Great American, RLI, RenRe, Partner, Validus, etc., set their reserve pics to a much higher confidence level than 50%, typically in the 80% range. The goal is to generally release redundant loss reserves every quarter. This helps to explain why AIG doesn't have a chance in meeting the underwriting performance of its major competitors -- with the possible exception of Zurich. It's always been my view that AIG should "bite the bullet" and take a charge necessary to boost its reserves to an 80% confidence level. This will at least put them on a level playing field with respect to its peers, and one can then judge the current accident-year underwriting performance on its own merits.
I've heard the layoffs have made no sense. Some high profile people that have contributed significantly to the company's success and rebound from 2009 have been let go. (Just read the glassdoor reviews to confirm this.) A lot of people have moved on as well due to morale issues and that a post-bailout AIG no longer appears to be the place to be. To me there's no doubt the company will meet the expense targets. But the company that will be left will be anemic.