Txvestor

Upon reading this and seeing that Allied was responsible for about $400M of the $900+M cat losses, I decided to go back and look historically at Allied's underwriting. It is impressive. They certainly don't look like some of the companies that FFH bought back in the day that were early disasters (but eventually turned out well). $2.2B in favourable reserve development in the past 15 years. Only one year in 15 years that was over 100% CR. They averaged 90.5. Very consistent. Keep in mind their Portfolio is in the $9B range and they had $400M loss. As a percentage basis, they had more than their fair share within the FFH Group, that I agree with. Take a look at page 18 - "Income Statement" http://www.snl.com/Cache/1001217885.PDF?Y=&O=PDF&D=&fid=1001217885&T=&iid=4078260 That was my impression as well, and Prem even touted their long term compounding of BV with a solid underwriting track record as the underpinning of their quality and reason for paying premium to BV. Yet when you look at this Q numbers, they are significantly worse than legacy Fairfax insurance divisions. What's more, even EXCLUDING the Cat. losses this Q, AWH's CR was 106.2%. Again a Q does not make a reputation, but had AWH been trading on an exchange, I am pretty certain they would have been taken to the woodshed on these numbers. One hopes there is not more to this than just a Q of unfortunate developments.

Agree with Dazel, the CR for AWH and Brit were brutal and certainly much higher than legacy units. Hopefully its not a cause for concern and certainly a quarter does not make an underwriting reputation, but it certainly the relaive differential caught ones attention.

So true. Ask Pabrai 2016 v 2017. It is linear only when viewed in the rear view mirror. Lol.

Perhaps, but truth be told his recent investment record has not been anything to crow about. Most certainly a man of the utmost integrity and humility. And certainly pre 10yrs ago had an enviable track record but of late it has been bad with multiple permanent impairment of capital investments.

More extend and pretend. These gov'ts are betting on permanently lower interest rates in Euroland. If and when that changes, then we will se who has been swimming naked. My semse is that the way these places are piling on debt, we won't need rwtes to go up too high or for too lomg for this to become evident. The day of reckoning is coming. ZIRP has just slowed down the passage of time getting there.

Well, he did plug SHOS and ONDK and he tends to concentrate. So putting those two things together it doesnt surprise me that he still has $40M AUM.

Dazel, Whilst I share your enthusiasm for fairfax and their excellent insurance underwriting operations in a potentially hardening insurance market, the release states that the $1.4B is inclusive of the 9.9% shareholding they will have remaining. So I think you've double counted the remaining holding to get to the $2B. That is why I posted some time ago that when Prem sold the initial 12.2% stake to Warburg pincus for $USD383M back in May, they appeared to leave almost $200M USD on the table. Not sure what the issues were, but just 3mths later the stake is valued 60% more???

HJ, So good, i think most people here can see that the american people have been had. US gov't and corporations have cut bad deals for the averege american citizen. Isn't that the whole point! As to your preference for chinese doctors in tier 1 chinese cities. With the limited knowledge I have about standards there, I wouldn't consider myself eligible to comment. That said however when one reads of Mao Zedong's Barefoot chinese doctors and their qualifications etc. I can't say it inspires much confidence. And remember average is what matters if comparing apples to apples. Finally the point i made was not unique to the medical industry. It is much more systemic.

This unfortunately falls into the category of slogan solutions that theoretically exist but politically un-attainable. Real life is not a slogan. Will China remove all trade barriers? Tax only Apple and Google? Won't happen. Unfortunately democracy is a b.... Call it the friction in this political economy. Sometimes there's no solution other than to slow down the leap into the utopia and take a step back. I realize that. I'm talking about what I think should be aimed for, which is different from what many others believe (nationalists who believe their country/group is special because they were randomly born in it and such). Goals and slogans are different. If you don't have goals and just do whatever is politically expedient or advantageous at the moment, you just float around with the currents and rarely get anywhere. I am not sure it should even be aimed for. Would you wish to accept chinese environmental standards? Food and drug standards? Should we allow the free movement of chinese medical professionals with their level of skills and training into our system? I can site many such examples. And if we do not allow some parts of the economy access but we allow others, we again create the precise social disequilibrium that we are discussing. Despite the issues we are discussing, there are a lot of things about the US that are very right, and which must be preserved. The corporations aren't that much interested in this, and are far more interested in their bottom line and expanded market access. This is a very complex issue without a simple solution. Right now however the voice of the corporations is reigning supreme over the voice of the people. That was the clear theme of this last election, whether that was Trump on the republican side or Sanders on the democraric side. You had to have blinders on to miss that. The reality however is that the average person today is not percieving international trade to be helpful to his/her prospects. They are further frustrated that their will is not being expressed in the policy sphere. China and other trading partners will not interrupt this arrangement willingly as they obviously are net beneficiaries of the arrangement. Their goal is to let this keep rolling along for as long as they possibly can while developing teir domestic economy as quickly as their can. They are building a middle class out of it and the bigger they can build it, the easier their internal transformation will be. Same with most of our other trading partners. Free trade only works when the prosperity hence created over there then creates more demand for US goods and services. If it does not do that, then the system becomes solely about wage arbitrage by US corporations and with a net benefit to the other country. Cheaper goods at Walmart is a poor substitute for a stable and steady job. A proxy for measuring all of that is the US trade deficit. And glaringly apparent are the very real issue of rising trade deficits, rising levels of total national indebtedness as well as other non debt obligations, income inequality and federal reserve currency debasement. Many of these things are growing faster than GDP. These are most certainly not features of a strong economic transformation but rather a very unhealthy and dangerous one. They will invariably affect growth rates and social cohesion if they aren't doing so already.

My view here is that the interests of the average american citizen and those of giant multinational corporations have diverged and been so ever since NAFTA. And in many instances they are diametrically opposed. One side has the lobbying power and ability to manouver a very archaic political system of rules and governance which is the US system, and the other has the votes. The people however do not have quite the same ability to navigate the political system and so their will is being drowned out. This break in the transmission mechanism is leaving the public very angry with the political and other classes of DC elites whom they see as serving the corporations and at their expense. And I have to say that perspective is with some justification. If you look at every single law passed in this country in the past couple of decades, it intentionally or not(I believe in the former) favors corporations over small businesses and multinationals over american based manufscturers. Even the tax system enormously favors the under 75k cohort of earners and the giant corporations but the small business owner pays 44.6% plus State/local/property taxes etc. ending up with a marginal tax rate over 50%. Whatever your view on progressivity, surely one can agree that it is a mess and not a fair system when the burden falls so heavily on one subsection of the population. Currently the higher wage earners and working couples and small business owners are facing the brunt of this system. The public sees that and percieves that the ladders of success available to them are being pulled away.

He just had another dud with Teva recently.

http://m.economictimes.com/markets/stocks/news/infibeam-rises-2-as-fairfax-financial-looks-to-buy-10-12-stake/articleshow/60097207.cms

I think the price is amongst the highest I've seen. It's even higher than the 2.8 BV or so multiple MKL recently paid for State National. And that one came with a lot of synergies and float etc. then the quota share is like the icing on the cake. Prem made it clear that this was a one off and a deal championed by Mr Atthapan who felt like this would help first capital grow their footprint much faster in Asia and beyond than they are currently able to do with Fairfax backing alone. That was I think the impetus for the deal from his perspective. I notice this is for 97.7% of the company, not sure whether Mr Atthapan has a small stake he is retaining or if the 2.3% is part of the employee share ownership or what exactly. If anyone has any insight into it they can share I would appreciate them sharing it. The $900m after tax gain plus the $700m plus from ICICI Lombard that is yet to hit the books should make a meaningful $57 lift to the BV per share which by my calculation goes from $378 to $435 all other things being equal. FC is a crown jewel and Prem was at pains to say this was a one off and done with the initiation of Mr Atthapan who is retaining his roles with both Fairfax Asia and FC. The 25% quota share arrangement offers tremendous flexibility to Fairfax allowing them to utilize their insurance capital more effectively while outsourcing the underwriting to one of their best underwriters in Mr Atthapan's team that has a far larger pond in which to now go fishing(underwriting). I think he has decided to take 1/4th of a much larger cake while receiving an excellent price for the business as well. Thats as close as one gets to having your cake and eating it too. LOL. He stated 1B written premium as if that was a foregone conclusion which leads me to believe Mr Atthapan sees strong growth imminent from this deal. Bear in mind FC is already overcapitalized for the premiums it is currently writing! So this ceding of 25% was something phenomenal to get IMHO. The initially seeded capital to FC in 2002 was $35M USD and the sale price represents a 29% PA compound rate over 15yrs, even the legendary Peter Lynch record was just for 13yrs! It just helps puts Mr Atthapan's underwriting and compounding record in perspective! My one concern as a long term shareholder is that this news will cause a run up in FFH share price and having just significantly diluted ourselves with shares in the $445 range, we may have to pay significantly more to buy them back. Perhaps allied world would turn out to be such a phenomenal home run that my fears are misplaced but I wonder if this couldn't be done in a better way.

They sold 12% of ICICI lombard to Warburg Pincus in May 2017 valuing the whole thing at 203B rupees so that's like $US3.2B right. Now a couple of months later the IPO might value 19% of it at Rs60B or $932M? That values the whole thing at $4.9B right? Did Prem just leave a whole lot of money on the table? https://finance.yahoo.com/news/icici-lombard-files-first-indian-150837598.html

I think this goes back to WEBs stated objective that he wants to make investments for his shareholders rather than off of his shareholders. He has taken this principle quite seriously all through his career and I think by stating this quite openly he considers everyone forewarned. Historically pretty much anyone selling to WEB has come out the loser. In my opinion it also serves to provide us less able practitioners of the valuation art a public service on entry level from the master of the art valuing his own work.

I had wondered how long it would take for him to finally throw in the towel. This last Q of declining revenues was what did it for me. Management has zero credibility left. They have misread the trends and underestimated the new entrants and I fear permanently impaired their competitive position. They have further compounded their woes by weakening their balance sheet with recent stock buybacks and dividend hikes. All of this can only work when you later find the growth and increased profitability. All their financial shenenigans are now coming home to roost.

I think that is a bit extreme. Don't forget to live a little. Life is a journey and it is not just how you finish but how well you averaged it across the whole time that is important. And though money doesn't always get you quality things, sometimes the best things are free, being too frugal can cause you to miss a few experiences and opportunities along the way also. That said I do agree with the general principle that one should try harder earlier to save, and then somewhat take their foot off the accelerator as they get into each decade of life. Since the time compounding effect of that early career dollar is a lot more than one later on in life. Aside from that your earlier accumulated capital starts to augment you more and more so that even with that increased spending you keep moving ahead. Even starting at 50% savings in your 20s and working down by 10% a decade should get you plenty ahead. And who knows sometimes spending on a trip where you meet a strongly positive infuence in your life or gain some useful insight cannot be measured. Sitting at home or in some rural area like a hermit isn't always the best strategy. On a personal level I have never saved more than 1/2 my income, and with that, 2 decades in, I think I am close to being able to generate what I need going forward. I will continue to do what i do for a living becaus it is something I derive immense satisfaction from and I enjoy the company of the people I work with.

When asked aboit ICICI Lombard. He was coy but seemed to suggest that something might be in the works. We have heard rumors about $1B which wouldn't surprise me one bit considering its market position. He also said that he thought fairfax shares were trading below IV and though he didn't give any numbers he said something about we have done share buybacks in the past and you can look back where we have done them etc. This was in response to a Q about share dilution paying for AWH. Something left me wondering if a good part of that $1B might go to reducing share count. Definitely some speculation on my part here but that was the impression I got.

Like many have said. It all depends. Having some flexibility goes a long way in planning. As always, margin of safety is important if making a clean and definite break. I would say with markets where they are and fed monetary policy where it is, that margin of safety needed is heightened. Perhaps 50% more is warranted. What is more, since interest rates work like gravity on investment returns, expecting much more than 2.5%, post tax, post inflation(hidden tax) reliably seems like a tall order for most of us mere mortals. Since I consider 100k as a needed baseline income, i would say something in the 4-5M range should give you that comfort of financial independence. I do not count social security since though I will have contributed much, my view is that means testing is a near certainty within the next decade or so. That will mean that most on this board by definition would have tried and been penalized for having done so. Irrespective of the moral hazard involved, the politics is such that its coming. If they just limit it to UHNW individuals, the savings will be meager, so they will have to get the top 10% or so, I beleive that would mean income over 100k USD a year. Medicare is a joke. Its now a form of corporate entitlement and increasingly dominated by corporate behemoths be they Insurers, PBMs, Pharma, Hospital chains etc. Alas healthcare is a skill and labour intensive service. The end result of marrying the two is inflated costs and less quality care, less provider satisfaction even as flawed "quality metrics" show differently. We the people would all be far better off in a less regulated, freer market with price transparency, but we are a far far way from that. Neither party is genuinely interested in changing this and the irony is that such a freer market is more easily available elsewhere even if the skills and technology is not as yet. Finally moving to the other side of the coin. Spending. One should look to see where they can find "retirement value" and that may not always be the US/Can/Europe. On a recent trip to Puerto Vallarta, Mexico, I realized that there were nearly 60k retirees from predominantly the US and Canada living there. Clearly they were not all stupid. Your needs differ as you age. Medications and health care costs generally were a lot cheaper. The weather was amazing. It is a beautiful place, the people are friendly, they generally work hard and honest help is not hard to come by, there were medical facilities catering to expats and tourists and they even had a Costco and Sams club, Starbucks etc if thats your thing. My assessment was that $40kUSD a year would get me a very high quality of life there(something that might easily cost me double that in the USA, and I do not even live in the most expensive part of the USA). In addition at that age, learning a language, meeting new people, engaging in a different culture etc. can be a very invigorating experience. It is something I would consider.

If munger was on it, it would be an all time classic episode.

Agree. This is a big reset. They may not now be appropriate for all invested. Especially for those that were using fairfax as a hedge in their portfolio. That said it is one of the cheapest diversified insurers around, one with a decent underwriting record one can find. This acquisition does nothing to change that, and arguably cements it(considering fairfax's underwriting record prior to a few years ago). So everything hence rests on the investment prowess or lack thereof. There's a case to be made here that Watsa and co. have lost their marbles on this. They are now 6-7yrs into a woeful investment patch. They have underperformed significantly, hedges and deflation swaps excluded. That's certainly a risk but consider that they have still grown BV despite that woeful performance. If they fire on both underwriting and investments for any length of time, this will turn out to be a very spectacular investment. It's a tough call but definitely an inflection point. And IMHO Mr Market has priced accordingly at current levels. For those with a negative view of the market and looking for a conservatively managed portfolio with decent underwriting and shareholder first management perhaps WTM is a consideration. It also trades barely above BV. They have piles of cash in case of a market/economic meltdown.

This is fine and partly a concern for me as well. That said, a little perspective is in order. Unlike with the hedges and deflation swaps where there was clear downside. Whilst this may not be a spectacular acquisition, it is not at all clear to me that it is a bad one either. AWH has a large US footprint and a very good underwriting record. They mentioned in the conference call that Cardilini and Barnard went to the same school etc. so clearly there is some background in this deal. No one can reasonably argue that Andy Barnard has done a great job with the insurance operations in recent years. AWH portfolio is also not very risky, arguably more conservative than Fairfax's from what I can tell. So far it is only a word that they will be more bullish on US acquisitions going forward. This acquisition does not imply heavy bullishness. I think none of us like the dilution and Prem and co. are working on alternatives and reading the verbal and other queues on the call it sounded like they would keep the dilution to lower than the mentioned 28%.

The risk of course being that they played defense(when they should've been playing offense) and will now play offense when they should be playing defense! The first part of this is now undeniable. The money in the hedges, the deflation swaps etc was all lost. Their long investments have significantly under performed with even a few bankruptcies e.g. Sandridge energy and many others RFP, BBRY, Eurobank, XCO significantly under water. Prem's comment about the deflation swaps like as if they are a foot note now, says all you need to know that he has thrown in the towel on that trade. A major geopolitical even handled badly by Trump next year could make everything slide in reverse in the still fragile, highly leveraged environment.

If you ask Buffett the same question he will tell you a low cost S&P index fund. Most of us could hardly be any better at giving you suggestions, but that won't stop us from opining. That's after all how we ended up on this board ;). My pick is MKL, as they have the guru investor, a solid capital base, a measured approach to risk, conservative leverage, the right culture and a runway long enough for the time frame you proposed.

Everyone is subject to their own biases. He was a big Hillary supporter and one wonders if the election didn't figure into his perception. A lot of business optimism has emerged in the business class which felt besieged by the Obama administration. Could that have contributed to the bump?