petec

I have not done the numbers but I would agree directionally. I think the hard market is indeed driven by lower rates. In the end, capital requires a return, and if it can't get it one way (investing float) it has to get it another (underwriting). There are several features of hard markets that work in Fairfax/s favour: 1) Higher CR's on higher NPW = significantly higher underwriting profits. 2) Lower risk, because price is more likely to cover exposure. 3) Greater float and therefore greater investment leverage. We all tend to focus on CR, but actually I think no3 might be the most important over time. Fairfax have said that float "won" in hard markets tends to be sticky. In other words if the investment portfolio goes from $40bn to $50bn in the hard market, you shouldn't assume it shrinks again later. I don't really understand why this is, but that was Fairfax's experience in the last hard market and it would be very positive if it happens again.

Seconded!

Agreed. Digit has looked like a potential game changer for Fairfax since the beginning; now, it is starting to be one. Genuinely exciting.

+1. On another note, can anyone remember where Digit is held? Is it at the holdco or at the insurecos? And if it is at the insurecos, does the new valuation mean their underwriting capacity is increased without any need for capital from the holdco? I think this is the case, but I’m not 100% sure.

As I read it, that refers to the investment by Sequoia et al in Digit, NOT the legal change and regulatory approvals required for FFH to reflect the new valuation in its financial statements.

Where does it say this? All I can see on timing is this statement: will not be reflected in Fairfax’s consolidated net earnings or in the calculation of book value per share until the Indian government gives final approval of its announced intention to increase foreign ownership limits in the insurance sector from 49.0% to 74.0% and Fairfax obtains regulatory approval specific to its holdings in Digit.

Are we sure this even goes into q3? I don't think they have said that. Also, are we sure the $61 is post-tax? Either way, it is a superb result, and quite possibly only the start for Digit. Plus, the net excess of market value over carrying value is growing and the gap between tangible book and reported book is shrinking. All very positive. My guess is in line with Viking's: "fully adjusted" book value is now approaching US$600, with more to come from India, Greece, Atlas, and possibly others.

I think this is a material event, and as such they may feel they have to report it themselves rather than let the market figure it out from Indian news reports. Also, they know they will be asked when and why the gain will be recorded, so they might as well lay it out (given that it is not a matter of choice).

Thanks!

Do you have a link?

No, that’s fair.

Absolutely! It’s almost like he’s not a complete moron…

Does anyone know whether the convertible prefs have an anti-dilution clause? Or has Fairfax been diluted here?

Even assuming dilution, Fairfax’s stake is now nearly 2.5bn. At what point will they have to mark to market? This is a much bigger equity raise than January, but I’m not sure what the rules are.

Yes, point taken. I have to say it doesn’t really make sense from my POV, but that’s just me. Prem knows that if he does this, suddenly every senior executive wants a piece. Weird.

Being charitable can improve social standing. I’m not sure gifting an asset to an (already wealthy) ex-employee and being made to look a fool in the process has the same impact.

Bizaro, why do you think management took advantage of minorities here? For that to be the case (in my view) management would have had to have benefited. I don’t see why Prem benefited. I don’t think selling Torstar at this price was in minorities’ best interests, but I don’t think it was in Prem’s either. Do you disagree?

Definitely KW, and maybe Altius even.

My guess is they’re buying Mosaic as an acquisition platform. We all know insurers are having to do more and more to manufacture investment opportunities, given low rates. That means doing things others can’t. Having a platform to buy small businesses when (for example) retirement forces a sale could be a good way to deploy a decent amount of capital at high returns over many years. It’s possible this was always part of the game plan with Mosaic - IIRC the original investment gave them >60% on a fully converted basis, and they’ve always consolidated it as a result.

http://www.prnewswire.com/news-releases/concerned-shareholder-urges-blackberry-board-to-follow-lead-of-major-corporate-governance-advisory-firm-and-oppose-watsa-as-director-301316666.html

Bloomberg reporting Fairfax has received permission to buy in the stubs in both Eurolife and SingRe.

Prem talked a lot about Modi, but if the case rested on Modi alone he wouldn’t have set this up as a permanent capital vehicle. He’s sometimes wrong but I don’t think he’s stupid.

I seem to remember when they bought in the Odyssey stub, they did it when the CDS had started to work but that wasn’t public info. So they basically got it cheaper than people realized. Given how much is going on in the underlying holdings at FIH, I wonder if they are doing the same here. Is there something they know that we don’t?

I really can't understand this from Fairfax's perspective. It's not like they're unwilling to IPO things, as we have seen recently. They could easily have done this themselves. And I simply can't see what their incentive would have been to sell Torstar to Rivett well below value. The only rational explanation is that they disagreed with him on Torstar's value, and were wrong. But that feels pretty feeble. I am bemused.

Sounds about right to me.