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At the margin (which is your point), there is a natural timing deferral: reserves are expensed upfront and may be released in later years. But there’s little room to game the system — reserve levels require actuarial justification, not management discretion. Both IFRS 17 and the Canadian Income Tax Act (s. 1407) explicitly limit over-reserving as a tax deferral strategy, and regulators like OSFI provide independent oversight. That said, your broader point stands — there is deferred gratification in running a conservative book. The payoff comes in the form of modest tax deferral, smoother earnings, stronger market credibility, and the ability to allocate capital with confidence.

Sigma Companies International Corp - Value Investing 101 In 2017, Fairfax invested $41.4 million in a private company - Sigma Companies International Corp. Fairfax held an 81.2% equity interest. On March 28, 2025, Fairfax sold its equity interest in Sigma for $327.1 million. Fairfax received: Cash consideration = $284.1 million Retained ownership interest in Sigma of 16.1% with a fair value of $43 million Fairfax booked a realized gain of $178.7 million. Yes, we have incomplete information. But since making their initial investment 7 years ago, it appears Fairfax has earned an exceptional return on Sigma. With a sale price of $327.1 million, Sigma was Fairfax’s 17th largest equity holding. This is a reasonably large asset sale for Fairfax. ————— What are some of the lessons to be learned from Fairfax’s investment in Sigma? 1.) The senior management team at Fairfax has been executing exceptionally well in recent years. Their capital allocation has been best-in-class among P/C insurance companies. 2.) Value investing is alive and well. Buy low (quality businesses). Sell high. Rinse and repeat. Sigma is just the latest example for Fairfax confirming the two statements above. In 2024 it was Stelco. In 2023 it was Ambridge Partners. In 2022 it was pet insurance and Resolute Forest Products. (These are other recent examples of Fairfax making well timed sales.) “All intelligent investing is value investing — acquiring more that you are paying for. You must value the business in order to value the stock.” Charlie Munger "We don’t discern companies between growth and value. Our definition of value investing is to figure out what a business is worth and pay a lot less. It’s not low-price to book or low-price to sales." Joel Greenblatt 3.) Analyst’s earnings estimates for Fairfax are too low. Why? Because they largely ignore investment gains. Investment gains are an important income stream for Fairfax. It represents about 20 to 25% of the total income streams at Fairfax each year (on average). This makes it a material income stream for Fairfax. Yes, this income stream is very lumpy from quarter to quarter and even from year to year. But here is the interesting thing… when averaged out over a 2 or 3 year time-frame, investment gains are not nearly as volatile. Using a 2 or 3 year average allows investment gains at Fairfax to be estimated for future years with a fair bit of accuracy (and much less volatility). And of course what matters when valuing a business is the total amount of cash it will generate in the future. Lumpy doesn’t matter. The certainty of the total number is what matters. Are analysts simply being conservative? Ignoring something that is likely to happen is not being conservative. That is bad analysis. Underestimating future earnings (on purpose) is going to cause you to underestimate the value of the business today. That is going to result in a sub-optimal investment decision. That is not rational. 4.) Book value at Fairfax is understated. Sigma was a private holding. From an accounting perspective, it was equity accounted. Over the past 7 years, the fair value of Sigma was growing much more quickly than its carrying value. Carrying value is what is captured in book value. Sigma is a great example of economic value that was being created at Fairfax that was not being captured in accounting value (EPS and book value). Other P/C insurance companies do not have this ‘problem.’ Other P/C insurance companies invest primarily in bonds. And bonds are generally very easy to value. So economic value and accounting value tends to run in tandem over time for other P/C insurance companies. Excess of fair value over carrying value At March 31, 2025, the excess of FV over CV for Fairfax’s associate and consolidated holdings was $1.4 billion. This is economic value that has been created that is not captured in Fairfax’s earnings or book value. This ‘bucket’ will be a significant source of investment gains for Fairfax in the coming years - like with Sigma, when Fairfax monetizes or revalues the assets. Importantly, when it comes to holding assets, Fairfax is not like Berkshire Hathaway - Fairfax is not a buy and hold forever type of investor. Fairfax sells investments when it makes sense. Fairfax’s focus instead is driving per share value for Fairfax shareholders over the long term - they are not constrained by a buy and hold forever ideology. —————— Fairfax’s 2017AR “On August 2, 2017 the company acquired an 81.2% non-voting equity interest in Sigma Companies International Corp. (‘‘Sigma’’) for cash consideration of $41.4. Sigma, through its subsidiary, is engaged in global water and wastewater infrastructure projects.” Fairfax’s Q1 Interim Earnings Report “On March 28, 2025 the company sold its equity interest in Sigma Companies International Corp. ("Sigma") for total consideration of $327.1, comprised of cash consideration of $284.1 and a retained ownership interest in Sigma of 16.1% (through a new limited partnership interest) with a fair value of $43.0 at closing of the transaction, which is classified as FVTPL. As a result, the company recorded a realized gain of $178.7 in the consolidated statement of earnings.” Fairfax Q1 Earnings Report ————— From Sigma's corporate web site: “SIGMA Companies International provides a wide range of water infrastructure products, OEM services, HDPE products, and plumbing and fire protection products to customers throughout North America.” https://www.sigmacointernational.com "Where we began… Over the next four decades, SIGMA pioneered sourcing in China and India with strict quality protocols, introduced proprietary designs for a variety of products, made multiple strategic acquisitions, and set the industry standard for customer service. "SIGMA has grown into a $500 million dollar global corporation with a major presence in North America and Asia, and thousands of loyal customers around the world. SIGMA Corporation offers a wide range of water and wastewater infrastructure products, original equipment manufacturing products and services (OEM), precision castings, and HDPE products. We are a market leader distinguished by innovative quality and supply chain processes, and we offer both domestic and global sourcing options. Our engineers are constantly developing new products and services to meet the changing needs of our customers every day." https://www.sigmaco.com/about ————— Acquisition (April 10, 2025) Wind Point Partners https://www.wppartners.com/wind-point-partners-acquires-sigma/

This is a very perceptive comment.