HoldForDearLife

Last year's corporate and interest expenses came in at 1.3 billion. If you assume a 4% increase, you get 1.35 BUSD for 2026. Say they write 27.5 billion of net premiums this year, 1.35B of underwriting profit from that base requires a 95.1 % CR. That's how I got to 95 CR in my calculation, I may be wrong though.

That's underwriting a 95% CR, no? Not egregious, but that's not exactly a "nothing" assumption either in a softening market. If you were to underwrite at a 100% CR instead, you'd need the return on the equity portfolio to be around 8.0 % to offset the drop in underwriting income. That said, one of the many reasons I like Fairfax is that you're in no way dependent on terrific underwriting for the investment to make sense. If we go five years at a low 100s combined ratio, we're probably going to remain profitable and suffer less than competitors. We have the cash to survive a bad year with catastrophes. Compared to many other insurers with combined ratios in the low 80s, I do very much prefer "our expectations" over them.

While this is true, I think it should be mentioned that a lumpy 15% can be a difficult hold, despite the more lucrative return potential. I can imagine that the current market conditions are exacerbating the challenges of holding their lumpy but high-MoS investments; I don't think any active investor can be fully immune to seeing their "correctly made" investments do nothing, when people are making boatloads of returns by being invested in one sector of the market, basically regardless of how "correct" their decision-making has been. Now obviously, you cannot really be invested in these "lumpy 15%s" companies without the understanding that you're not going to move hand in hand with the general market, or else the periods of relative underperformance are going to be tough and likely lead to mistakes. But I'd say that generally speaking, a person allocating capital to the Fairfax-type companies of the market needs to have some system in place to protect themselves from when their portfolio isn't producing returns. This goes especially if they're running a concentrated portfolio, or have most of their portfolio invested in these types of firms. I actually think that @bearprowler6 asks a valid question. It's one thing to estimate how likely a five-year 0% would be - you ideally answer that question before initiating a position - but if you think you're right about the lumpy 15% return over the long-term to the point where you invest in the company, you kind of have to consider what bearprowler said too. What part of your investment process keeps you invested, if the market disagrees with you for five years straight and your investment returns nothing? I guess there are multiple right answers to that question, but I do think that it can never be as simple as "my holding period is forever, I don't care" or something along those lines. At some point, everyone starts to wonder why they're not earning a return, and that's the point where the system gets tested. Fairfax has tested us relatively little for the last five years, but at some point, it likely will. Right now, it's easy for me to look at the 20% drawdown, see that the company is diversifying its earnings streams, buying back lots of stock, and being managed by a team that I trust, and deduce that I'm probably OK with my oversized position. Two more years of this? Might be a different answer then. We'll see.