Warren Buffett Sells More Munich Re

Warren Buffett (Trades, Portfolio) continued to cut his position in Munich Re (XTER:MUV2, Financial) on Thursday, from 9.71% to 4.6%, according to a regulatory filing Friday.

Buffett, formerly the company’s largest shareholder, had also reduced the position in September of this year, from about 12% to 9.7% of shares, held between his companies National Indemnity Company and Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial).

“Probably the most well-known of our current shareholders, Warren Buffett (Trades, Portfolio), recently reduced his shareholding,” Dr. Nikolaus von Bomhard, chairman of Munich Reinsurance Company’s board of management, said in his third quarter letter.

“Naturally, we are sorry about this, but we were aware that Berkshire Hathaway has always regarded its investment in Munich Re purely as a financial investment. We are nevertheless convinced that Munich Re is still an attractive investment for share holders.”

Berkshire first disclosed a stake in Munich Re, the world’s largest reinsurance firm by premiums, in 2010, with 19,259,600 shares reflecting 10.5% of the company. His only other adjustment to the position came in 2011, when he increased it to 20,060,390 shares worth 11.3% of the company. Buffett reported his entire cost for the stake that year at $2.99 billion, while its market value climbed to $3.6 billion, then $4.42 billion the next year.

By 2014, Munich Re’s shares had declined to give Buffett a total stake value of $4.02 billion, trading around $166.80 per share at year-end. After gaining 12.4% over the past year, the company closed at $181.00 per share Monday, down 1.58% on Buffett’s news.

Buffett’s associates foreshadowed the shrinking of their holding earlier in the year.

“What was a very lucrative business is no longer a very lucrative business going forward,”Ajit Jain, who oversees Berkshire's reinsurance businesses, told the Wall Street Journal in July. “… Since the reinsurance business isn’t going to offer as many opportunities for the foreseeable future, we feel like we should go down the food chain.”

Buffett has previously said that one of his key criteria for deciding whether to hold or sell a company is whether he sees it doing better five years in the future that it was in the present. This was no less true for insurance.

In 1998, Buffett was seeking reinsurance companies primarily in international markets, “where the preponderance of industry growth will almost certainly occur,” he said in his 1998 shareholder letter. He also outlined the key points for evaluating an insurance company, which were the amount of float the company generated, its cost and, “most important of all, the long-term outlook for both of these factors.”

Read more about Buffett’s about-face on insurance companies at “Why Warren BuffettSold Munich Re.”

In the third quarter, Munich Re generated profit of 525 million euros amid a “challenging environment,” falling short of third quarter 2015 profit of 579 million euros and the first quarter’s result. The company kept its full-year 2015 result forecast of at least 3 billion euros unchanged, however. Munich Re also reported 3.6% higher gross premiums written, at 12.5 billion euros.

Another major investor, Third Avenue Management (Trades, Portfolio), exited its entire position in Munich Re, which it purchased prior to the Financial Crisis, in the third quarter.

“As a well”capitalized historically prudent underwriter and manager of its enormous investment portfolio, the company survived the Global Financial Crisis as well as the subsequent European Sovereign Crisis relatively unscathed. With those experiences behind us, a long stretch of low levels of catastrophe”related losses in the industry has led to an oversupply of capital in the industry,” Matthew Fine, lead portfolio manager of the Third Avenue International Value Fund wrote in his third quarter letter.

“Meanwhile capital continues to flood into the industry from financial investors and reinsurance pricing remains under pressure. Low pricing means low returns for the assumption of certain risks. In total we realized an IRR of 5.5% beginning in early 2008. We would like to return to quality companies in the insurance industry when some of the excess capital has been cleared out, premiums reflect a ‘harder’ market and prices of equities are available at cheaper prices.”

As of year end 2014, Buffett had only one other international company broaching the $1 billion range, Sanofi (XPAR:SAN, Financial)(SNY, Financial), with 1.7% of shares outstanding. He also disclosed a 2 million-share stake in Seritage Growth Properties (SRG, Financial), a spin-off REIT of Sears Holdings (SHLD, Financial), on Nov. 30.

See more of Buffett’s stock picks at his portfolio here. Not a Premium Member of GuruFocus? Try it free for 7 days.