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@mananainvesting , that is a great graphic description of what has been going on...

Planting Acorns: A Hidden Driver of Fairfax’s Insurance Growth - Part 1 An Underappreciated Strategy Behind Fairfax’s Long-Term Value Creation Introduction Great compounders often share a common trait: they plant many small seeds that quietly grow into very large businesses over time. Most seeds never become significant. A few fail. But occasionally one grows into an oak tree — and those few successes generate extraordinary value. Fairfax Financial has quietly applied this strategy for decades within its insurance operations. Fairfax grows its insurance business in three primary ways: Organic growth Acquisitions Planting small, early-stage insurance businesses with exceptional operators The first two are well understood. The third receives far less attention from analysts and investors. Yet historically it has produced some of Fairfax’s largest sources of value creation. Fairfax regularly backs talented entrepreneurs building new insurance platforms. These initiatives typically begin as small investments — what Fairfax leaders sometimes refer to as “acorns.” Over time, some of these acorns grow into very large businesses. And occasionally, when price and circumstances are right, Fairfax monetizes an oak tree and recycles the capital into the next generation of opportunities. This combination — incubation plus opportunistic monetization — is one of the least appreciated features of Fairfax’s business model. A short paragraph from Prem's letter in Fairfax’s 2025AR illustrates the strategy still at work today: “Now in its second year as a public company, Digit Insurance continues to excel under the leadership of Kamesh Goyal. Digit Insurance finished 2025 with $1.3 billion of premium, 5,000 employees and had $113 million in earnings. With the success of Digit Insurance, we have partnered with Kamesh again in India on Digit Life Insurance and a reinsurance company called Valueattics Re. We have invested $80 million for a 34% interest in Digit Life and $16 million for a 65% interest in Valueattics. It is still early days, but Digit Life wrote $185 million of premium in only its second year and Valueattics wrote $20 million of premium in just its first six months.” Fairfax Financial, 2025AR At first glance this appears to be a routine update on an investment. It is not. It highlights one of Fairfax’s most powerful — and least appreciated — competitive advantages. From Acorns to Oak Trees Fairfax’s history includes numerous examples where small initiatives eventually became very large businesses. Digit Insurance is a recent example. Fairfax invested in Digit in 2017 (cost $101 million), backing entrepreneur Kamesh Goyal to build a modern, technology-driven insurer in India. Less than a decade later, that investment was worth $2.039 billion at December 31, 2025. Fairfax’s Investment in Digit Cost (total investment less dividends received): $101M Fair value (Dec 31, 2025): $2.039B CAGR: 41.9% Operationally, Digit continues to scale rapidly: Premium: $1.3B Employees: ~5,000 Earnings: $113M (2025) Digit is now a major insurer in India and continues to grow under Goyal’s leadership. Fairfax planted a small acorn in 2017. Today that acorn has grown into a very large oak tree. Digit is not unique. Earlier generations of acorns produced similar outcomes. Acorn Outcome ICICI Lombard Sold from 2017-2019 for ~$1.6 billion First Capital Sold in 2017 for $1.7 billion C&F Pet Insurance Sold in 2022 for $1.4 billion Digit Insurance $2.039 billion fair value Ki Emerging digital Lloyd’s platform These successes are not frequent. But when they occur, the impact on Fairfax can be enormous. Planting the Next Seeds Importantly, Fairfax does not simply harvest success and move on. Instead, it reinvests alongside proven operators to build the next generation of insurance businesses. Following Digit’s success, Fairfax partnered again with Kamesh Goyal to launch two new ventures. Digit Life Insurance Fairfax investment: $80M Ownership: 34% Premium written (year 2): $185M Valueattics Re Fairfax investment: $16M Ownership: 65% Premium written (first 6 months): $20M Both businesses remain in their early stages, but early growth has been encouraging. Fairfax continues to plant the next generation of acorns. The Fairfax Acorn Framework Fairfax’s approach to building insurance businesses tends to follow a consistent pattern. 1. Back Exceptional Operators Fairfax partners with talented entrepreneurs who want to build an insurance business but require capital and long-term support. Examples include: Kamesh Goyal — Digit Mark Allen — Ki Andy Barnard — Odyssey Marc Adee — Crum & Forster R. Athappan — First Capital 2. Provide Permanent Capital Unlike private equity firms, Fairfax does not operate under short investment time horizons. This allows operators to build businesses patiently through insurance cycles. 3. Maintain Decentralized Control Entrepreneurs retain operating autonomy, which attracts strong leaders who prefer independence over bureaucracy. 4. Allow Time for Compounding Insurance businesses often take years to reach scale. Fairfax’s long-term orientation allows promising initiatives to mature. 5. Monetize Opportunistically and Recycle Capital Fairfax is not dogmatic. When an acorn matures into a business that is worth far more to a strategic buyer — or when the facts change — Fairfax will sometimes sell, realize the gain, and redeploy the proceeds into new high-return opportunities. This final step is critical. It turns the acorn strategy into a repeatable capital-allocation engine. Fairfax as a Venture Capitalist Viewed through this lens, Fairfax operates partly like a venture capital firm embedded inside a global insurance company. A venture capitalist provides capital to promising early-stage businesses in exchange for equity ownership. Most investments produce modest returns. Some fail. But occasionally one succeeds spectacularly. Those few successes generate a disproportionate share of total returns. Fairfax applies this same logic within the insurance industry. Instead of funding technology startups, Fairfax backs: insurance entrepreneurs niche underwriting platforms new insurance markets innovative distribution models The company provides: capital credibility infrastructure patience time And when the moment is right, Fairfax may also monetize the investment and recycle the capital into the next opportunity. That is not traditional insurance-company behavior. It is much closer to venture capital. Fairfax as an Insurance Incubator Over time, Fairfax has quietly become an incubator of insurance businesses. Across the organization, talented operators are given: autonomy capital long-time horizons This decentralized structure attracts entrepreneurs. Marc Adee, CEO of Crum & Forster, described this strategy in his 2024 book Once and Future C&F as “planting acorns that grow into mighty oaks.” Within C&F alone, several specialty divisions began as small initiatives launched by entrepreneurial leaders and eventually grew into large underwriting businesses writing hundreds of millions — and in some cases billions — of premium. Occasionally an acorn becomes valuable enough to monetize. For example, C&F’s pet insurance business was sold in 2022 for $1.4 billion. Acorns Can Be People Too Sometimes the acorn is not a business. It is a person. Prem Watsa highlighted this idea in Fairfax’s 2008 Annual Report when he described hiring Chandran Ratnaswami in 1995: “This may be an acorn for a future oak tree.” Over the following decades Ratnaswami helped build Fairfax’s entire Indian platform, including: ICICI Lombard Fairfax India Thomas Cook India Fairbridge Capital What began as a single hire eventually produced an entire ecosystem of businesses. Another oak tree. This point matters. Fairfax is not simply good at buying assets. It is good at identifying people, trusting them, and giving them the runway to build. Scroll to next post for Part 2