Hoodlum

I only become familiar with the ILS instruments over the past few days. Does anyone see any potential issues with how these are used today. I would think this would have less oversight then the Reinsurance businesses and I become wary whenever an investment instrument becomes more in vogue.

Yes, it would seem that the ILS infusion in this scenario is directed at a specific area of need. It looks like we may avoid the more abrupt overall switch from hard to soft market that we typically see after a prolonged hard market. That could change if reinsurance experiences large losses this hurricane season, as that could provide the impetus for new entrants.

I should have posted in this thread. I found some additional details from AM Best on why we are not seeing a softening of the insurance market and that this is likely not changing for the next few years unless we have new entrants in the market. It would seem that new entrants are not able to secure funding as the traditional sources for these funds are able to take advantage of the Hard Market through better availability of Insurance-linked Securities (ILS). https://www.reinsurancene.ws/no-new-class-of-reinsurers-despite-best-returns-since-1993-am-best/

An interesting overview of the existing hard market. There have been different catalysts driving this hard market, instead of the usual catastrophic event. There have also been no new reinsurance entrants. AM Best expects this hard market to continue through at least 2025 and possibly longer. We may need to readjust our expectations over the next couple of years https://www.insurancebusinessmag.com/ca/news/reinsurance/hard-reinsurance-market-not-going-away--am-best-495863.aspx

I wouldn’t think so but I am not sure if a regulatory body would step in.

It looks like Fairfax wants to divest this investment. https://www.lapresse.ca/affaires/entreprises/2024-07-03/concurrents-jusque-sur-le-marche-des-capitaux/bauer-et-ccm-pourraient-avoir-de-nouveaux-proprietaires-cet-ete.php Similarly, Fairfax and Sagard are considering divesting Bauer, whose activities are grouped together under the Peak Achievement name, including the assets of Maverik, a lacrosse brand. The American bank Morgan Stanley is working on the deal, according to a person familiar with the situation who asked not to be named to avoid damaging his industry connections.

Yes. Are we still holding any Fairfax swaps that could go up or down depending on share price?

I was just thinking that the extra $250M could be to help cover the share purchase from Prem. Fairfax may want to keep their cash holdings high as we enter Hurricane season. Fairfax also has the extra dividends available at the subs in case it is needed. Fairfax is just keeping all options available for flexibility depending on what opportunity presents itself. I was glad to see them drop the TRS, as that has reduced one risk if we do have a catastrophic event.

Fairfax is replacing $500M short term debt from Allied World into long term debt under Fairfax’s existing notes. Fairfax’s is also taking out an additional $250M in debt, which I presume will be used to continue buying back shares. https://www.fairfax.ca/press-releases/fairfax-announces-pricing-of-senior-notes-offering-and-re-opening-of-6-000-senior-notes-due-2033-2024-06-18/

Thanks Viking for sharing this. The last 2 charts in particular are interesting as they remove most of the short term volatility. It is interesting to see how Fairfax compares to a similar sized business as TRV that trades at 1.9x book with a 15x PE. Lots of upside for Fairfax.

Yes, that is what I missed.

Could someone help to explain the acquisition cost of these shares? I presume this would lower the number of outstanding shares significantly, although I don't understand the low cost to Fairfax of only $2.34 per share.

Fairfax Announces Termination of Total Return Swaps and Acquisition of the Common Shares. https://www.fairfax.ca/press-releases/fairfax-announces-termination-of-total-return-swaps-of-ensign-energy-services-inc-and-acquisition-of-common-shares/

Go Digit jumped over 10% in the last hour of trading but I couldn’t find anything as to why. We will find out tomorrow if this holds.

Another 66k block traded at the close today

The IPO had a big jump in share bids on the final day of the subscription. I was a little worried yesterday as we had not met the required share allocation in some of the categories. This should help with a good open on the market next week. https://www.moneycontrol.com/news/business/ipo/go-digit-ipo-issue-subscribed-retail-investors-niis-qibs-virat-kohli-anushka-sharma-12724760.html/amp The public issue was subscribed 3.7 times in the retail category. Non-institutional investors bought 4.17 times their allotted quota. The portion for qualified institutional buyers (QIBs) was booked nearly 9 times their portion, exchange data showed.

Here are some of the initial pre-IPO investors. https://www.ndtvprofit.com/amp/ipos/go-digit-mops-up-rs-1176-crore-from-anchor-issue-in-pre-ipo-fundraise Go Digit General Insurance Ltd. has raised Rs 1,176 crore from anchor investors, ahead of its initial public offering. The company allotted 4.32 crore shares at Rs 272 apiece to 56 anchor investors. The American multinational Fidelity Investments-backed fund got the highest allocation of 7.95%. Goldman Sachs Funds (5.31%), Abu Dhabi Investment Authority (5.31%), Custody Bank of Japan (4.25%) and Bay Pons Partners (4.11%) are among the other marquee investors in the pre-IPO round fundraising. Eleven domestic mutual funds have applied through a total of 23 schemes, the company said in an exchange filing on Tuesday. They have collectively netted 33.5% of the anchor portion of Rs 204 crore. ICICI Prudential Mutual Fund, SBI Mutual Fund, Mirae Asset and Axis Mutual Fund are among the key investors in this category.

Someone didn’t like this share purchase.

Here on some additional comments from Kamesh Goyal on their decision to lower the IPO price. They also decided to reduce number of shares on offer by 40%, as non-convertible debt secured in December has reduced the need for additional funding. https://www.moneycontrol.com/news/business/go-digits-kamesh-goyal-says-we-took-investor-feedback-to-decide-the-ipo-price-hope-to-give-them-value-12719353.html

Some more details of the IPO price range. This would suggest they are raising ~$310M US, if my calculation is correct. Not sure how this translates to total valuation of Go Digit. https://www.moneycontrol.com/news/business/ipo/go-digit-ipo-price-band-likely-to-be-rs-258-272-per-share-total-issue-size-may-be-around-rs-2600-cr-12718739.html/amp The price band of the public offer is expected to be around Rs 258-272 per share and the company is likely to raise Rs 2,538 crore at the lower end of the price band and Rs 2,614 crore at the upper band, sources aware of the matter told Moneycontrol on the condition of anonymity.

It looks like the actual listing date is May 23rd. https://www.freepressjournal.in/amp/business/go-digit-on-the-block-virat-kohli-anushka-sharma-backed-company-to-issue-ipo-on-15-may The IPO comprises of a fresh issue of Rs 1125 crores. On offer sale is up to 109,445,561 equity shares. Each of these equity shares is worth Rs 10. The IPO will close on 17 May. The company will be listed on both National Stock Exchange and the Bombay Stock Exchange. In this, 10 per cent will be earmarked for Retail Quota. 75 per cent will be earmarked for QIB or Qualified institutional investors. In addition, 15 per cent will be for NII or Non-Institutional investors. After closing of the IPO, refunds will be arranged on 22 May. The shares would be credited to the account on 22 May. Finally, the IPO will be listed on 23 May.

You are correct.

At that rate the buybacks would add $20US/qtr to the book value per share.

Fairfax has GO digit listed as 49% ownership in their shareholders letter. But it looks like Fairfax was able to covert their debt to shares in advance of the IPO. IRDA did fine them yesterday ~$120k for non-disclosure of a change to how they were converted but it looks like it went through. This was likely the last step before going ahead with the IPO. I still don’t see what Fairfax ownership will look like after the IPO but they will likely have majority ownership as this was a key component of the IPO for Fairfax. I would expect that Fairfax will issue a press release after the IPO announcing their new ownership share of Go Digit along with the impact on Book Value. https://www.indiainfoline.com/news/business/irdai-penalizes-go-digit-insurance-with-1-crore-for-non-disclosure-of-ccps-change