SoonParted
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Posts posted by SoonParted
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On 9/19/2023 at 12:17 PM, Viking said:
@Crip1 well said. What are your thoughts about the interplay between underwriting profit and investment returns? Are they linked? Can we put numbers to each?
At the end of the day, publicly traded P/C insurance companies need to make a 8-10% ROE over time. The CEO’s want to hit their bonus payouts and also keep their jobs.
As a result, i think CR and investment results are linked. Let’s assume fixed income yields stay at the elevated levels we are seeing today. Can a 100 CR get a company to a 10% ROE? Maybe Fairfax today because of the leverage they have with float. But i think most P&C insurers would struggle to deliver an ROE of close to 10%. Given most have taken a capital hit on their fixed income portfolios due to rising interest rates i just don’t see a big or rapid turn to a soft insurance market. Bond yields are still too low. And insurance companies lots of near term risks they need to build into their models when pricing (elevated catastrophe losses, reinsurance costs, inflation etc).
I'm speculating here, but is there an effect where poor underwriting forces a larger proportion (beyond legal requirements) of low-yielding "safe" investments as a reserve against claims? And good underwriting could allow for higher-return investments with a bit more risk. -
Thanks, @SafetyinNumbers. I'm US-based...if FFH income were predominantly received in unhedged CAD, I'd expect the stock price changes in CAD to most closely reflect proper value for FFH. So I might want to partly hedge--usually I'd do it by selling deep-in-the-money FXC calls. But FFH income is not predominantly in unhedged CAD, it seems, so there is no need for that in this case.
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Does anyone know, or know where I can find, any numbers on the sensitivity of FFH earnings to the CAD/USD exchange rate, or on the proportion of their earnings in CAD vs USD? Do they hedge currency risk?
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OK here goes. I don't feel knowledgeable enough to have large positions--largest single stocks (FFH, BUR) are 6-7%.
Brookfield (52% BN, 37% BIP, 11% BAM)
Burford
Fairfax Financial Holdings
Odet
Constellation Software
Berkshire
Thermo Fisher
Nelnet
Energy Transfer
FRP Holdings
Grupo Aeropuertario del Centro Norte
Apt. Invest. & Mgmt.
New England Realty
CVR Partners
Veris Residential
Volkswagen Pfd
Basic Fit
Avid Biosciences
Textainer
Monarch Cement
KKR
Fairfax India
Clipper Realty
Lumine
JD.com
Converge Tech. Solut.Mexico Nearshoring Basket (6-7% total: GMexico Transportes, Promotora y Operadora de Infraestructura, FIBRAHotel, FIBRA Mty, FIBRA Macquarie)
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btw, is FIH's hurdle hard or soft?
And is the 5% hurdle in growth of NAV in rupees or dollars?
Has anyone been able to find out about the currency used when calculating NAV growth? Seems like a make-or-break question. I asked Investor Relations recently, they didn't have an answer(!), said they'd get back to me.
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Thanks, globalfinancepartners. The IRS seems to have changed the rules recently on PFIC's in IRA's so that you don't have to file form 8621 and so on, so that helps a lot. The downside is that in an IRA, if there's foreign tax paid (taken out of a dividend), then you can't get a credit for it.
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This is a question for American investors in FIH. It was noted earlier in this thread that FIH could well be deemed a PFIC by the IRS. Jurgis commented, "It likely will be [a PFIC] unless it acquires controlled operating businesses fast." So I'm wondering how others are dealing with this issue. Possible strategies:
(1) Ignore the risk and hope the IRS either doesn't notice or decides it's not a PFIC. Might work if you're a small shareholder. Huge losses if it doesn't work.
(2) Try to figure out the PFIC rules, and go by them. My impression is that the taxes one would then owe would make the investment much less attractive--I think essentially, all unrealized gains are taxed like ordinary income each year. Also it's unclear to me what information is needed for tax filing, and how to get it if the company doesn't help out.
I've only owned one PFIC, and the (Canadian) company provided Americans a sheet each year with the necessary information to deal with PFIC filing.
Useful link:
https://ustaxcompliance.wordpress.com/tax-triggers/a-pfic-primer/
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Doesn't the Canadian home of FIH make it a PFIC for US investors? At least, it would seem to be a risk that it could be deemed one.
-Poll- How much Fairfax does the board own?
in Fairfax Financial
Posted
I have 11% Fairfax (largest position), 2% Fairfax India, in my portfolio of individual stocks. This doesn't include fixed-income holdings or the mutual funds in my 401k.