Dudley

Whether @Viking's earnings estimates are exactly right or approximately right is not important. He is directionally right. There is no doubt that earnings have skyrocketed due to a Munger-esque lollapalooza confluence of factors that Viking has outlined. The stock has not kept up and after a few more impressive earnings results and maybe some buybacks, the stock price will eventually reflect the true earnings power of Fairfax. The beauty of this setup is that even if Wall Street continues to be slow to appreciate the story here, Fairfax has the ability and desire to buy back stock, which would make the stock even more attractive. It's a win-win scenario that could only possibly be improved by more cash at the Holdco.

@longterminvestor I'm in the insurance distribution space as well, but as an investor and partner. I agree with all of your posts. Great commentary! @valueseek You asked if retail brokers have a more robust business model than wholesalers. I think they do. Whoever "owns" the client and is closer to them has a more robust business model, in my opinion. That being said, RYAN offers a compelling value prop to both insurance carriers (distribution & field U/W) as well as retail brokers. For small retail brokers, RYAN offers market access and ease of doing business. RYAN has more expertise than a small retail broker and can help them level-up with their clients. For the very largest retail brokers, I'm less certain of the value prop. RYAN may have access to certain unique programs with carriers. My guess is that RYAN has more "premium under management" than the vast majority of retail brokers, as they are taking a smaller commission on a larger volume. So, RYAN's ability to aggregate risk in unique carrier programs is likely better than everyone outside of maybe the top 5 retail brokers. Pat Ryan's thesis is essentially two-fold (which I happen to agree with): 1) E&S will continue to grow at a faster clip than the broader market; and 2) Retail brokers continue to want a consolidated wholesaler panel. On the 2nd point, Pat is saying that whereas in the past retail brokers may have worked with 3 or 4 wholesalers. They are starting to whittle that down to 1-2 wholesalers (likely, Amwins and RYAN).

If the stock continues to not react to great results, I hope Prem drops the chase for IDBI Bank and focuses on buying back stock soon at these levels in earnest. At this point, it is a much better use of capital and aligns with his stated LT goals.

Yep, @Viking nailed it on the corporate cannibalism here. Looks like Fairfax is purchasing the interest in GIG at a 15x P/E (based on 2022 earnings). The structure of the purchase is amazing. In a high(er) interest rate world, the ability to stretch out these payments essentially "for free" over 4 years is fantastic.

@Viking That's a fair point. They are (maybe with the exception of Recipe) great businesses. In other news, this just dropped. Looks like IFRS 17 will have a $94/share impact on BV (or ~14% of 12/31/22 BV). Without factoring in Q1 earnings, that's a BV of $751.68. "The Company’s preliminary estimate of the effect of IFRS 17 on common shareholders’ equity is that it will increase common shareholders’ equity as at December 31, 2022 by approximately $2.2 billion (an increase in book value per share of approximately $94)"

@Viking Great summary of the equity portfolio. It sounds like their poor investments from 2014-2017 have either turned around or are so small that they are now insignificant as a % of BV & earnings moving forward! It does indeed seem like Prem & co have learned lessons from that period. I'm a believer in the "New Fairfax". However, I'm not entirely sure whether their investing style has firmly moved from a deep value mindset to a Charlie Munger-style "buy wonderful businesses at fair prices" mindset. Do you have any thoughts on this?

Spot on. Who benefits from rising rates? The answer to that question is exactly what drew me into Fairfax this year after watching this stock for the past 7-8 years!

Does anyone have a good handle on the impact of the implementation of IFRS 17? My understanding is that it would require insurers to apply a discount rate (for the first time) to long-term insurance contract liabilities. As a result of rising rates, this should in theory shrink liabilities and expand book value.

I agree with this take. Fairfax is trading at 1.0 P/B while MKL and BRK are at ~1.5 P/B. By itself, the $1B increase in bond income (i.e. from $500M to $1.5B) accounts for a 6% return on book. The one counter to do this is that it may indeed be temporary, although I'm sure they will manage to extend/lock in this income stream for as long as possible. It's hard to think of another company that benefits from rate increases as much as Fairfax. Psychologically, I think that Prem has to be equal parts excited and cautious. The only thing he wants more than fully capitalizing on the opportunity in front of Fairfax is not repeating the mistakes of the past. Once you've been through a long period of underperformance, it's hard for that not to leave an imprint on your psychology.

After that earnings result and call, it's amazing that the stock is trading at ~1.04x P/B. My guess is that it's probably fighting the market's fear today of another 50bps rate hike, which ironically is positive for Fairfax. I agree with the take that the thoughtful deployment into bonds as it relates to rate and duration are more important than taking excessive risk in an effort to optimize bond interest income.