Phoenix01

The increased volume on 2/18 & 2/19 might point to more re-purchases. Interesting that the debt issuance for 600M was completed right after (3/3). We will see....

Check this out: Fairfax Completes US$600 Million Senior Notes Offering https://finance.yahoo.com/news/fairfax-completes-us-600-million-162000239.html

Check this out: Fairfax Completes C$850 Million Senior Notes Offering https://finance.yahoo.com/news/fairfax-completes-c-850-million-131900618.html

Check this out: Fairfax Launches C$850 Million Senior Notes Offering https://finance.yahoo.com/news/fairfax-launches-c-850-million-155300225.html Great news! FFH pushing back debt and lowering rates.

Global insured Cat losses average $52B per year over the past 26 years. This will have a significant impact, but if we have a below average hurricane season it may not be that bad. The premiums are going in the right direction and will make absorbing these Cat losses easier. Net premiums of $4B in Q1 with a CR of 95% gives $200M of profit. That should cover the Texas Cat with a little profit left over.

Based on the historical percentage of US cat losses, an 18B event would cost FFH around $150M.

FFH taking advantage of the BB price spike will be huge for Q1 results. I have been thinking about this and was wondering if they might have used a term repo to lock in some financial flexibility. This would have allowed FFH to sell BB shares at a given price (let's say $15) with an obligation of buying them back at a higher price at a time of their choosing (let's say$17 in 2 years). In effect this becomes a loan with no monthly payments and it also reduces leverage. If the price drops before the end of the term, it allows them to avoid the tax liability on the gain. If the price increases they get to keep the potential upside. Does this make sense? How and when would FFH have to disclose such a transaction?

Prem's son & daughter on the board of directors is a head scratcher for me. Fairfax is definitely Prem's baby & he wants to take good care of it and everyone associated with it. His multiple voting shares allow him the freedom to do what he thinks is best. So far it has worked out very well, but it has not been a smooth ride. His children will inherit a fortune and perhaps they need to understand what that means and how it will impact all stakeholders. What better way than to place them on the board of directors? Allowing his son to manage a tiny portfolio may be the cheapest way to groom a future key player. If he fails, then it would have cost much less than had he been given a big role right from the beginning. If he succeeds then everyone wins. Nepotism is in the opportunities given to family members. Shareholders are not being ripped off. Even Buffet has family members on his board of directors....

Prem is not lining his pockets. Fairfax Financial Holdings Limited is worth CA$15b, and total annual CEO compensation was reported as US$1.3m for the year to December 2018. Bank of America CEO Brian Moynihan's pay for 2019 stayed flat at $26.5 million, the Charlotte-based bank said Friday. The bank's board gave Moynihan $25 million in restricted stock and a base salary of $1.5 million for his performance, according to a Securities and Exchange Commission filing.Feb 7, 2020.

Yet the deals keep headed towards Fairfax....

Prem is all about establishing and growing relationships. This sometimes goes against immediate optimization of every deal. This is pocket change for Fairfax and the benefit from supporting allies is much greater for their reputation. It is a matter of judgment. It is not a simple screw everyone and take as much profit as you can.

Best seems to like what they are seeing at Fairfax. https://www.businesswire.com/news/home/20200710005503/en/Affirms-Credit-Ratings-Fairfax-Financial-Holdings-Limited How does this compare to the previous (pre-Covid) reports?

Maybe they are hedging their hedges.

Selling 90% of the long US bond portfolio is huge!!! Q&A should be interesting tomorrow.

Here is an interesting interview with a TD economist. http://tdwealthmedia.com/videos/overheated-housing-in-canadian-cities/

Why is the end of 2008 a reference number? Maybe the number was too low at the time because of panic? Quick look at Morningstar shows a 10-year total return CAGR on the SP500 of 4.47% and of 3.03% for 15 years. Not exactly a golden era. Picking start and end points matters a lot. That is a good point. I picked that as a starting point, because it was the beginning of the Central Bank massive intervention. 7 years on, the economy is still on Fed life support, yet the markets have rallied greatly. There is a definite mismatch.

At the end of 2008 the Market capitalization of listed domestic companies (current US$) was 11,590,277,780,000. The markets have gone up by $17T. That is a 146% gain in 7 years or a CAGR of 13.5%. Much better than GDP growth. :o

The graph in this article needs to be seen to be believed. http://www.news1130.com/2016/02/02/vancouver-house-price-new-record/

"That's how they make money! It's all about selling overvalued equity to the bagholders! They are so lousy investors, this is only reason they are still in business." This will be a great post to review in 2 years, when FFH has doubled in BV!!!!

After the conf call, I just hit me that FFH not only has operations running at $700M profit in a soft market, but they have also realized 1.2B that they have not had to pay taxes on, because they are shielded by 1.4B in unrealized losses. They realize 2B this year and only have to pay taxes on $500M! These guys are geniuses.

Thanks for the excellent post. I think a big portion of the increase is due to Andrew Bernard. He has done a great job with the insurance side of the business.

"With traditionally safe pension investments such as bonds no longer yielding enough to cover obligations, a number of Canadian plans are ramping up leverage strategies -- approaches intended to squeeze more profit from their investments by doubling down with debt." This is not going to end well!!! Here is a link to the article. http://www.bloomberg.com/news/articles/2015-11-10/hedge-funds-leverage-are-hot-formula-for-canada-pension-funds

Let me apologize if this has already been posted. I found the following presentation that is a little dated but very relevant: http://www.slideshare.net/ndsouza22/the-big-short-ii I also really enjoyed this article: http://www.fool.ca/2014/12/02/10-jaw-dropping-numbers-from-canadas-real-estate-market-2/ In summary, the price appreciation of real estate in Canada is a result of higher lending. The income to support that lending has not kept up and lending is at a saturation point. It can't go much higher. Calgary is a good example of what to expect. http://www.bnn.ca/News/2015/11/10/Empty-floors-shadow-vacancies-new-norm-for-Calgary-tower-owners.aspx

When we are in a risk on environment - $$ flows into the insurance industry. I think Prem referred to this as naive money that will get shaken out in the next hard market. This happens all the time. Cats also cause hardening, but so do economic cats. Why do rates have to go up?

Since nobody controls the price, for me it all comes down to book value growth per share. FFH has one of the most amazing track record for compounding BV, even though it is in a lumpy way. FFH has the following that can move BV: 1) Insurance Companies - These are making reasonable returns in this soft market and will make big returns when the market hardens 2) Bond portfolio - if things deteriorate, these go up. 3) Equity position (hedged) 4) CPI Derivatives In a risk on environment (such as we have seen for several years) the insurance markets are soft, the bonds do OK, equity positions gains are canceled by hedging losses and CPI derivatives lose value. In a risk off environment, the insurance market hardens, the bonds soar, the equities loses are covered by the hedging gains and CPI derivatives also soar. This give FFH a ton of cash when the markets are bottoming out. The question is do you think that there will be risk off environment in the future? If so, then owning FFH is a good idea. When the risk off event will occur and how the FFH price will react is unknowable for me.