SafetyinNumbers

I have a bias for fat right tails given the current market structure and I struggle seeing BRK have multiple expansion and grow faster than 10% (my hurdle rate) but I hope I’m wrong. Fairfax might grow 2x that and can expand its multiple.

I struggle with considering buying BRK until they start buybacks themselves. They certainly have the cash for it and unlike FFH don’t have obvious choices to deploy it like buying in the minority interests.

I think that’s a good way of framing the upside surprises we continue to see. While I agree FHAPS makes harder for an investor to see the true economic value any borrowing would be done at the asset level so it shouldn’t hinder access to leverage.

Fairfax has been back of the napkin math since @kodiak encouraged me to take a look in January 2021.

Thanks @Viking! Means a lot coming from you!

It’s mostly covered between GFR and the subscription receipts for the SCR/MEG proposal as it stands.

Split over 2 days but get me talking about stocks and it’s hard for me to stop.

Thanks! I’m hoping it makes more people take a look at SCR. One thing that I realized post recording is that WEF controlling 51% of SCR post MEG deal may be to maintain the tax losses and not just to fund the cash portion of the deal for MEG.

The bank swap book goes long the shares and the TRS is the short on the other side.

Another often overlooked aspect of the TRS is that the funding cost is floating so it probably cost them less than the dividend yield when they put it on and when interest rates went up the value rose a lot faster than the borrowing costs.

All investment decisions are probabilistic. The odds were very good here and it worked out but it really was just cheap form of leverage when other capital was needed to grow premiums. I think if using the Buffett method of book value + float it was outrageously discounted.

Agree 100%. I also think they may not issue more shares so they can avoid being put into play. The more employees and the family own the better.

Expectations for equity returns have been going up slightly but I still don’t think analysts or investors appreciate how the inherent leverage on the balance sheet amplifies the equity returns in ROE. I wrote about it in this substack earlier this year. https://open.substack.com/pub/berczyparkcapital/p/fairfax-financial-a-generational?r=ecc87&utm_medium=ios

They report Eurobank earnings on a lag of one quarter so FFH’s share of Eurobank’s Q1 earnings is what will show up in FFH Q2 earnings.

The insurance subsidiaries are capital and reserves heavy. I don’t the cash at the holdco matters that much except that some people really care about it.

Scotia updated their estimate for Q3 this morning.

Here is the consensus and the last 5 years of quarterly EPS for context.

Are you asking about seasonality in reserve releases? I haven’t investigated but my guess is 4 years after a particularly bad Cat quarter so maybe more likely in Q3s. If you study it please share. I’m also curious about regression analysis on cat losses between FFH and peers. The last three quarters we have seen a tick up which makes sense given when the hard market started. It’s hard to know how big the releases will be but once again it’s not like we are paying for it in the valuation.

Gift link if anyone wants it: https://www.theglobeandmail.com/gift/b04eb1bcd666173196423362ad31a8785d529ba1ad1cee14b25891c6ca2ccfbf/O2CNLFZ2JBGHFJOHYRCWASGEKE/ Obviously a super cat event would slow down BV growth in the year that it happens but unlike previous years it’s unlikely to result in a loss for the full year given the strong core earnings. Ultimately, it would harden the market and those earnings would be recovered over the next few years. The disclosure on historical cat losses in the ESG report gives a visual representation of how low losses have become measured by cat points as premiums have grown a lot faster than exposure. The more interesting thing to me is what can go right. No analysts are predicting reserve releases to grow very quickly over the next few years but that seems likely to me which means underwriting profit could beat expectations by a wide margin.

I know most here are long term so my flow explanations for short term moves may be annoying but I think FFH was weak today along with other P&C names because institutions were rotating into more economically sensitive names like banks, Brookfield etc… Just another opportunity to add for those that are looking to establish a position. It’s also easier to sell FFH this time of year as the stock tends to underperform XFN from June 30-Oct 31 b/c of hurricane season. I think this year can be an exception b/c of the exceptional Q2 that seems to be coming and a potential add to the RBC Focus List and the elusive S&PTSX 60. FFH has only outperformed XFN twice in the past 10 years during this period.

Just filling in the blanks from the article that the buyer also bought the underlying real estate from Eurobank which was presumably the partner in a sale leaseback. I’m making some assumptions for sure. Not that it matters much.

Yes but also potentially dividends. They clearly did a sale leaseback on the real estate as well.

Just because they have likely taken out more dividends than their original cost basis and potentially earnings since acquisition but you are correct if they have reinvested a lot of capital than it would be higher.

It looks like based on the purchase price, it was probably marked at zero.

@Daphne is spot on. This is on the Fairfax India website.