Viking

Resolute Forest Products released stellar Q2 results (as expected). The special dividend of C$1.00/share was paid July 7. Fairfax was paid C$24.8 million (not including the Riverstone UK holdings). The management team at Resolute has done an outstanding job over the past few years. Repositioned the company. Paid down debt. Bought back significant amount of stock at depressed prices. Paid significant special dividend. Moving forward i expect more good news from Fairfax owned companies. As the economy improves in 2H the earnings of many companies will also improve and this will benefit Fairfax in many different ways: - growing dividends (regular and one time). - growing earnings flowing though to reported Fairfax earnings - higher stock prices (for those companies that are publicly traded) - opportunity for Fairfax to monetize more holdings A headwind will become a tailwind. Resolute is the example today (C$24.8 million gain coming in Q3). Stelco is earning crazy cash right now. Recipe is poised to deliver much improved results as the Canadian economy reopens. Dexterra is poised to do very well in 2H. There are lots more examples. —————————- From the RFP release: “The company repurchased 343,894 shares in the quarter, at an average price of $11.21, and it declared a special cash dividend of $1 per share of common stock, or $79 million in aggregate, which was paid on July 7 to holders of record at the close of business on June 28.” https://finance.yahoo.com/news/resolute-reports-preliminary-second-quarter-110000254.html

My guess is we may see Q2 earnings of around $20/share; so right in line with what Parsad posted above. Absent Fairfax getting much more aggressive with share buybacks i am not sure what the catalyst will be in the near term to drive the share price higher given all insurers are selling off after posting very strong Q2 results. A few things i will be looking for tomorrow: 1.) Gross premiums? Up 17% in Q1. I think growth could be higher in Q2. 2.) CR? 96% in Q1 = $149 million. Brit is the watchout. Does CR improve from Q1? 3.) Non insurance company results? Wild card; covid lock downs were a headwind in April; likely Q3 before this bucket gets going. 4.) Net gains on investments? My spreadsheet had +$470 million for Q2 and it is usually light (given it does not capture a bunch of holdings). 5.) Excess of fair value over adjusted carrying value of investments in non-insurance associates? My spreadsheet had +$200 million (incl Boat Rocker and Farmers Edge) 6.) Total debt to total capital ratio, excluding non-insurance companies? Was 30.2% in Q1. Would like to see this drop but likely will not happen until Riverstone closes. Updates: 7.) Riverstone UK sale ($750 million)/sale of 14% of Brit ($375 million) - what is the hold up? When will it close? 8.) Purchase of remaining stake in Eurolife? Amount? Transaction tied to 7.) above? 9.) FFH total return swaps - position still at 1.964 million shares? 10.) Digit valuation increase of $1.8 billion - any additional disclosure/discussion? 11.) Mosaic Capital acquisition for C$277 million - for businesses or management team? 12.) Fairfax India: update on Sanmar and Seven Islands IPO’s and Anchorage transaction. Estimate Q2 BV = $19/share Wild card: 13.) Blackberry - able to lock in US $15 price in Q2? (One can hope 14.) stock buybacks - given how low shares are trading and plans to make this a higher priority in the near term?

A couple of thoughts: 1.) Prem’s reputation: my guess is his reputation is at (or close) to an all time low in Canada right now. And rightly so. 2.) I get that Fairfax is not a company you are interested in owning; we all have our own emotional makeup/intellect/education/filters as there is no one way or ‘correct way’ to invest. However, I applaud investors who bought last year when the shares were in the toilet. Hopefully they all make a bunch of money 3.) honesty / self reflection is a rare and very valuable trait. Reminds me of Mark Twain’s old line “It Ain’t What You Don’t Know That Gets You Into Trouble. It’s What You Know for Sure That Just Ain’t So”

I might not explain this thought very well… but here goes. Looking at past results can be useful when looking at a company as an input to better estimate future performance / expected returns for shareholders. When not much changes at the company (business, business strategy, management, industry etc). Berkshire is perhaps a good example. There are other times when looking at past results completely messes investors up. A good example here are the big US banks around 2016-2017. Many investors looked at their performance over the previous 10 years (terrible results) and concluded they were dogs with fleas. Management teams were also a bunch of crooks (Goldman were vampire squid). The REALITY of the situation in 2016-17 was the banks were completely different animals: well capitalized, profitable, well managed. Over relying/weighting on past results caused most investors to completely miss the opportunity staring them in the face. What matters? The logic. Why did a company perform a certain way 5 years ago? Or last year? And are the 2 comparable? When a company has changed overweighting past results will lead investors to mis-forecast future results. A great example is Fairfax in 2008. They nailed CDS and made billions. This was not a repeatable event. But it resulted in investors being too optimistic about future results. And worse for investors Fairfax then got extremely bearish and proceeded to lose billions on short positions from 2013-2020. What does this ‘history’ tell us about future returns for Fairfax? On its own, way, way less than most investors might think. For me the key lesson of Fairfax’s historical returns (going back decades) is pretty simple: when they get the investing bucket right future returns for investors can be exceptionally good. When they get the investing bucket wrong future returns for investors can be terrible. There is also a second lesson for me: their insurance underwriting has improved (from weakness to mild strength). And a third lesson: this is NOT a buy and forget type stock (like Berkshire). Logic and being rational and open minded is key.

Every earnings report i have read / conference call i have listened to so far has said pretty much the same thing: the hard market is ongoing and likely to continue into 2022. Rate increases, while slowing, continue to be well in excess of loss cost trends. Focus is shifting to exposure growth. Very encouraging. Given the time it takes for written premiums to become earned it bodes well for underwriting results at P&C insurers. It should be a tailwind for the next couple of years.

Greg, Fairfax HAS caught fire over the past 9 months. It was trading at US $270 last October. And $340 Dec 31. So trading at even $413 today lots of investors have done very well with Fairfax over the past 9 months or so. Yes, the stock price has gone side ways for the last 5 months. And during that time its insurance operations and investments have done very well. So i think we can comfortably say the company is worth much more today than it was in Feb. We will find out more on Thursday. My guess is we will see another pop in the share price this year (assuming Fairfax continues to deliver solid results). At some point Mr Market will connect the dots and pick up the $20 bill lying on the ground As Buffett says, time is the friend of the wonderful business. Given what is going on under the hood right now at Fairfax i think investors can be patient. And to be able to say that about Fairfax in 2021 puts a smile on my face (However, i will be keeping an open mind on this topic.)

It appears we have a supply / demand imbalance More sellers than buyers. I am not trying to insult anyones intelligence but i think this best explains why we are seeing with the shares slowly selling off before what should be a good to very good earnings report. Lately, more investors are thinking selling shares is a better decision than buying more shares. Insurance stocks in general are weak right now and have been for months (due to low bond yields and concerns hard market price increases have peaked). Cyclical stocks have also been weak for months; and Fairfax is loaded with cyclicals (look at how Atlas has been trading the past few months). So perhaps investors are looking at Fairfax and they see headwinds on both the insurance and investing buckets and therefore want to sell the shares (perhaps locking in big gains from the past year). And with Fairfax releasing earnings in a few days (Thursday after markets close) perhaps large investors want to see actual results before committing new money. The important thing to me right now are the Q2 results of the company. In aggregate, my view is the Fairfax ‘story’ continues to get better. Hopefully, this is confirmed on Thursday. This should help stoke demand (although posting very good results did not help WRB’s share price). However, it would not surprise me to see shares trade in the current range over the next few months given what we are seeing in the overall market. The biggest near term catalyst might be stock buybacks by Fairfax. If earnings are solid perhaps Fairfax will have the cash to do a sizeable buyback. And with the stock trading at such a cheap valuation perhaps Fairfax will be more motivated to buy back shares. It will not take much of an increase in demand for shares for the price to pop. But if Fairfax is not interested/ or able buy back shares in a meaningful quantity i am not sure what the near term catalyst will be (given the current weakness in insurance and cyclical stocks). PS: Xerxes, makes sense a US listing would result in higher demand for shares

The stock prices of P&C insurers have been weak for the past 4 months or so. My guess is the weakness is due primarily to concerns the hard market in pricing is over. Well, results and commentary from WRB suggest Mr Market is wrong. Q2 was very strong. And WRB feels strong results should continue. The hard market is not dead. And future results will benefit years into the future as written premiums become earned. This suggests Q3 is shaping up to also be another strong quarter in terms of top and bottom line. From the Q2 Q&A: Mark Dwelle (RBC): …second question … in terms of competition across the industry, are you still seeing primarily rational competitive behavior, or are you seeing any signs around the edges of aggressive competition, or price limited competition like you would typically see, perhaps at peaks of a pricing cycle? Rob Berkley There is nothing that leads us to believe -- let's put workers comp aside for the moment - that the opportunities in virtually every other product line are not very meaningful today, and will be very meaningful tomorrow. We continue to see the opportunity to push rates further and quite frankly, we're seeing the standard market continue to push business out creating opportunity for the specialty market. So we remain very encouraged by and large, as it relates to the opportunities. And no, we do not think that this marketplace has peaked in any way, shape, or form - quite to the contrary.

Candyman, thanks for the reminder regarding WRB. It will be interesting to hear what they say on the call at 2pm. Net premiums written were up 27.2% (RBC was expecting 9.5%) with a CR under 90%. Very impressive. —————————— Second quarter highlights included: Net premiums written increased 27.2%. The reported combined ratio was 89.7%. The current accident year combined ratio before catastrophe losses of 2.2 loss ratio points was 87.5%. Return on equity of 15.0%. Record quarterly underwriting income of $202.2 million. Average rate increases excluding workers' compensation were approximately 9.7%. Net investment income increased 96.9% to $168.2 million. Total capital returned to shareholders was $112 million, consisting of $89 million of special dividends and $23 million of regular dividends. The Company commented: The Company reported outstanding results in the second quarter of 2021 with net premium growth in excess of 27%, a combined ratio of 89.7%, and an annualized return on equity of 15%. Rate increases continued to outpace loss costs, further solidifying our current rate adequacy. As more products achieved or exceeded our target rate levels, our attention turned to exposure growth and business expansion. We expect this growth and rate achievement will contribute to additional underwriting profits as they are fully earned.

Fairfax owns both consolidated and non consolidated insurance companies. When we discuss Fairfax and insurance we are usually talking about their consolidated companies the largest of which include Odyssey, Allied, Northbridge, Crum, Brit and Zenith. The reporting of the results of these companies is extensive and it is pretty easy for investors to connect the dots. Fairfax also has significant ownership stakes in a stable of international insurance companies where the results are non consolidated. From a reporting perspective, these holdings seem to have more in common with Fairfax’s stock holdings than their insurance holdings. Given how results are reported in Fairfax’s financial statements, these businesses also seem to fall under he radar of most investors (its kind of like they do not exist). Perhaps i am a dummy; i have a pretty hard time quarter to quarter linking results at these companies with Fairfax results. I think the simple answer is ‘their current value is captured in BV’ and ‘future good results at these companies will be reflected in an increasing BV at Fairfax’. But i like to get into the weeds. And i find it a challenge. How much of Fairfax’s total value is captured by these holdings? These insurance holdings are large, well run and look poised to do very well in the future and become more important pieces in the Fairfax puzzle. But i am wondering if they simply become hidden assets (especially GIG and Eurolife), similar to First Capital or Riverstone, where their value is largely missed by investors. Fairfax does state on page 11 of the annual report “these are long term strategic assets that we have no plan on selling.” The big 3 non consolidated insurance holdings are (Page 7, 2020 AR): 1.) Digit - 49% ownership (74% when allowed); $405 million gross premiums; 93% CR; $693 million investment portfolio - https://www.godigit.com - https://www.fairfax.ca/news/press-releases/press-release-details/2021/Fairfax-Announces-Potential-Gains-on-Its-Investment-in-Digit/default.aspx 2.) Gulf Insurance Group (GIG) - 43%; $1.4 billion; 93% CR; $991 million - http://www.gulfinsgroup.com/Home - https://www.nsinsurance.com/news/axa-gulf-insurance-group-deal/ 3.) Eurolife FFH - 50%; $512 million; 76% CR; $3.685 billion - https://www.eurolife.gr/en/gnoriste-mas/eurolife-group/ Digit is the pink elephant in the room right now that everyone seems to be ignoring. The recent fundraise will result in a $1.8 billion total gain at Fairfax later this year. GIG, with the announced AXA acquisition, is poised to grow gross premiums +60% when the transaction closes (in Q3?) and become one of the largest insurers in MENA. And Fairfax has repeatedly stated it will be increasing its stake in Eurolife (taking out OMERS). I wonder if Fairfax has simply become too complex for analysts to understand (let alone regular investors).

Greg, i think your point explains why the stock is trading at a price to BV of about 0.85. Lots of investors agree with you (and they are not interested in buying the stock). What will change things? Performance. Earn lots of money. Buy back a bunch of stock. The stock price will eventually respond. As we learned with the US big bank stocks... it sometimes takes a long time to get out of the penalty box.

The big challenge in evaluating Fairfax’s investment performance the past 7 or 8 years is one decision was massive and catastrophic in its effect: the shorts (index hedges and individual short positions). It cost Fairfax billions and another +$500 million in 2020. If you remove this one decision/strategy their investment results improve dramatically. It also looks to me like Fairfax has been slowly making other important changes to their investment approach the past 4 or 5 years: 1.) understanding that they (Hamblin Watsa) are not turn around experts. This has been a hard lesson to learn and it looks to me like they had to fail multiple times (spending hundreds of millions of dollars over many years) before finally figuring this out. Blackberry. Resolute. Torstar. Exco Resources. AGT. APR. Fairfax Africa. Farmers Edge. When was the last time Fairfax made a big purchase where they had to sink a couple hundred million in to keep the company going? My guess is we will see fewer of these type of investments moving forward. 2.) doubling down on partnering with strong external management teams. This theme has always been present: BDT Capital Partners/private family businesses and Kennedy Wilson/real estate being two very good long term examples. More recent examples: Digit/Kumar, Atlas/Sokol, Stelco/Kestenbaum. Helios. Mosaic Capital? 3.) admitting past mistakes and aggressively dealing with them: taking AGT private, flipping APR to Atlas and merging Fairfax Africa with Helios. 4.) broadening out the money managed by more junior members of investment team: bumping $ managed by Burton/Chin group from $1.5 to $3 billion. Driven by their solid performance with first $1.5 billion. This $ is managed in a more traditional value investing way. Total equity portfolio is about $10 billion so this is significant. Fairfax has also been very creative and opportunistic; this is not new but it is important to recognize as a skill. Eurobank’s merger with Grivallia. Dexterra reverse take over of Horizon North. Selling Easton to Rawlings for $ and ownership in Rawlings. More recently: Blackberry debentures resetting strike price to US $6. Total Return Swap with exposure to 1.9 million Fairfax shares. Farmers Edge and Boat Rocker IPO's. In broad brush strokes the focus appears to be getting each of the equity investments positioned to succeed moving forward (the parallel is the work Andy Bernard and team has done with each of the insurance companies over the past 10 years); lead by strong management, earning acceptable returns and able to fund itself (especially important during the pandemic). Lots of good work has been done the past 4-5 years and it looks to me like the portfolio of equity investments is positioned as well as it has been in the last decade to perform well moving forward. We are moving from the 'fix' stage to the 'perform' stage (looking at all the equity holdings together). Covid, of course, threw a wrench into this process. However, as global economies pick up in 2H we should see improving financial results from Fairfax’s collection of equity holdings. And where we will really start to see the benefit of how many of the equity holdings are currently positioned is the ‘Share of Profit (Loss) of Associates' line when they report quarterly results. We should start to see large positive numbers here moving forward. Growth here should more than offset any decline we will see in the 'Interest and Dividend' line moving forward. PS: I am not sure how to weave Fairfax India into this post. The group managing Fairfax India are doing an outstanding job. IIFL was separated into 4 companies. Management teams were inserted into BIAL and CSB Bank (once they got control). Privi and Fairchem restructuring has been fantastic for shareholders. Sanmar and Seven Islands IPO's look promising. Anchorage looks promising. $100 million Dutch auction. Lots to like. Eventually Mr. Market will figure it out

Parsad, i still expect Fairfax to get punished if we get a big sell off in the stock market. That is my one big worry/watchout with Fairfax (i have a concentrated position). We look like we are in a rolling correction right now. Since the pandemic hit last year the market moves seems to be hyper accelerated... my guess is we may see a big correction as soon as Sept/Oct. We just had a big correction in financial markets last year. How many new significant equity positions did Fairfax take on? Yes, they did make some very good moves but these were largely masked unfortunately by the remaining short losses. Their big move was the TRSwap on FFH and they had to resort to derivatives because they had no cash. Fairfax was very cash poor going into the pandemic and had to resort to taking on a significant amount of debt to get through. The big reason i like the Riverstone / Brit deals is they will provide Fairfax with $1 billion to move debt back to prepandemic levels. I would love to see a Blackberry sale primarily for the cash it would provide; dry powder that could be used opportunistically moving forward. Bottom line is Fairfax is still cash poor, especially if we get another big correction in financial markets (it it takes the economy down with it which i think is likely this time). If we get another big sell off in financial markets in the next 6 months where will the cash come from for Fairfax to take advantage? I don’t see the cash right now. One possibility is improved underwriting results. A second is we may see some actual monetizations (in addition to Riverstone/Brit). A third is we may see the consolidated equity holdings actually start to earn some money (in aggregate) and some should find its way into Fairfax’s hands. Fairfax has been making lots of good moves the past couple of years. One area that i hope we get further clarity on in the coming months is what the strategy is to monetize the equity positions for cash. And examples like Davos Brands and Easton were so small they do not really count. The last big example of a monetization was ICICI Lombard in 2019 (an insurance company :-). Flipping APR for Atlas shares was brilliant... not sure that it counts as an actual monetization. My guess is Fairfax WANTS to sell some equity positions; Mr Market has not bid up prices to high enough levels yet. I just hope Fairfax does not get too cute and the next correction hits before they pull the trigger(s). We will know more when they report Q2 results the end of July. Build cash (sell positions) when times are good and invest (buy) when blood is running in the streets.

Well the next couple of weeks are shaping up to be pretty important for insurers in general and Fairfax in particular. Insurance stocks have been week the past quarter; Fairfax closed at US $428 today which puts it about 10% below its recent 52 week high of $480. The stock is trading today where it was trading in late March. My guess is the weakness we are seeing in Fairfax’s stock price is negative sentiment regarding P&C insurance companies. The primary driver is likely the fall in 10 year treasury yields to 1.35%. Perhaps the market is also starting to price in the end of the hard market. An additional factor perhaps weighing on Fairfax specifically is their high equity weighting (skewed to small cap value); the Russel 2000 has been weak the past 12 weeks. FFH stock is trading at US $428; including Digit announcement my guess is BV is about $580; this puts P/BV = 0.74. So how has Fairfax been doing since the end of March? Well, Q1 earnings, released the end of April, were well above expectations coming in at US$29/share; underwriting exceeded expectations on both top and bottom lines as did investment results. My guess is Q2 will come in around $20/share with more of the same (exceed expectations). And, of course, just got the news on the Digit capital raise that will result in a monster $60 gain to BV in Q3/Q4. So since the end of March we should see close to $50/share in earnings and another $60 gain in BV coming from Digit. Bottom line is Fairfax is delivering the goods on both insurance and investments; actually, i would say Fairfax is over delivering right now. The fact the share price is not reflecting all the good news is called opportunity for patient investors. So what will be the near term catalysts that will get the share price going in the right direction? 1.) confirmation on Q2 earnings calls the hard market is not dead and still alive and well (although aging). WR Berkley Reports July 22.... 2.) Fairfax likely reports the end of July and they need to deliver another good quarter. 3.) Fairfax also has a number of pending transactions. Perhaps if a few of these actually close in the next month that will help: - big one: deleveraging: sale of remainder of Riverstone to CVC; sale of 14% of Brit to OMERS. Not sure what the hold up to this transaction is. This will provide $1 billion for Fairfax; not a small sum - smaller one: purchase of OMERS stake in Eurolife; perhaps this transaction is also tied to the one above 4.) unexpected events - Fairfax had an opportunity to monetize all/part of its Blackberry position in Q2. While unlikely it would be celebrated by shareholders if they did. - the share price has got to be driving FFH management a little batty especially with what has happened to since the Digit press release. If the hard market in insurance pricing looks to be slowing perhaps Fairfax management shifts and communicates share buybacks will be the near term priority. Perhaps similar to what Fairfax India is doing (taking out 5% of share outstanding via Dutch auction). i am also looking forward to Atlas Q2 earnings. This is such a big holding for Fairfax. Atlas and their growth prospects seems a little mis-understood by Mr Market right now. An increase in Atlas’ stock price would be another catalyst for Fairfax. Perhaps the best news for current shareholders is Fairfax management has been doing a much better job (in aggregate) the past few years. This makes it much easier to be patient and wait for Mr Market to finally show up at the party

I updated my spreadsheet for Fairfax India equity holdings (to June 30) and it looks to me like Fairfax India is sitting on about $1/share in gains (pre tax) from their publicly traded positions. Book value finished Q1 at $17.98 so we should see BV close to $19 when they report Q2 results. Shares closed today at $13.05 = 0.7 x Q2 BV. It is impressive how well the publicly traded equity holdings are performing given the covid situation in India. (And it looks like the publicly traded equities are up another +$100 million 2 weeks into Q3 so BV is likely close to $20 as of July 13.) Q3 is shaping up to be a very active quarter for Fairfax India. There is the share buyback/dutch auction, two potential IPO’s (Seven Islands and Sanmar) and the Anchorage transaction. These transactions, in aggreggate, should propel BV higher yet to over $20/share). The big event that closed in Q2 was the sale of Privi for $165 million. Increasing the ownership in Fairchem to 66.7% at the end of April was well timed as it has since doubled in price. The pending transaction is the Dutch auction to repurchase $105 million in Fairfax India shares. This will remove about 5% of shares outstanding at a price significantly below BV (max paid is $15) so this will be accretive for remaining shareholders (boost BV/share by about 1%). This transaction will close in August. Fairfax India currently values their 48.5% stake in Seven Islands at $107 million. This should increase nicely post IPO as 2020 was a very good year for the tanker company. The Sanmar stake is currently valued at $338 million; i am not sure what to expect with this IPO as Sanmar has had its challenges especially during covid. The 800 pound gorilla is BIAL and the ever delayed Anchorage transaction. Perhaps Q3 will see the deal finally get done (approved by regulator). Perhaps we also get some clarity on the sale of the governments stake in BIAL. This one asset comprises about 40% of the BV of Fairfax India so it bears watching closely. And of course, the plan is to also spin Anchorage off as an IPO. This IPO will likely be a significant catalyst for Fairfax India shares - this is when we find out if BIAL is worth $1.395 billion (Fairfax India’s 54% interest). If BIAL is properly valued then Fairfax India is crazy cheap at current prices. And if Fairfax India’s stake in BIAL is actually undervalued at $1.395 well... Fairfax India shareholders can dream The really interesting thing to me about Fairfax India is all the positive catalysts to drive the share price higher are in play and plain for everyone to see. Buying back 5% of shares outstanding at well below BV. Their publicly traded equity holdings are hitting the ball out of the park (very well managed companies with a share price that is shooting higher). Two IPO’s are in the works and once completed there is a good chance Fairfax India will see its fair value estimates move higher. Completing the Anchorage transaction will then allow for the IPO to happen. Chug, chug, chug... Fairfax Equity Holdings June 30 2021.xlsx

BDT Capital Partners has been a solid performer for Fairfax over the years. Another of Fairfax’s under the radar holdings that just chugs along in anonymity. A well run, solid performing US $631 million holding (at 2020YE) that gets very little press. This is a good example of Fairfax partnering with an external asset manager with a niche focus (family run businesses) and a very good long term track record. ————————— News today BDT is taking Weber BBQ public. (Just bought a new Weber grill a couple of months ago to replace my old one that was 15 years old) - https://www.theglobeandmail.com/business/international-business/us-business/article-outdoor-grills-maker-weber-files-for-us-ipo/ ————————— From 2020AR: “We have invested in BDT Capital Partners since its inception in 2009. Founded by Byron Trott, formerly of Goldman Sachs, BDT provides family and founder-led businesses with long term capital, has raised over $18 billion across its investment funds and manages more than $6 billion of co-investments from its global limited partner investor base. We have invested $647 million, have received cash distributions of $550 million and have a remaining year end market value of $631 million. This is an outstanding return over the long term, and we are looking forward to continuing our partnership going forward. A big thank you to Byron and the BDT team for these outstanding results.”

Cigar, i agree. I like to listen to WRB and Chubb conference calls. What i heard was they were getting rate on rate increases (and rate on rate on rate in some cases... i.e. a third year of rate increases). It sounded to me like they viewed rate as more than adequate and are now looking to volume (new business) to drive future growth. They were almost appologetic over the amount of rate they have been able to get. Bottom line it looks to me like the hard market is slowing. But given the lag between written and earned we should see some pretty good results from insurance companies over the next year or two (assuming a normal cat loss years). The drivers of the current hard market remain in play: very low bond yields (low investment returns), elevated cat losses, social inflation, uncertainty over covid etc i wonder if this does not extend the hard market into 2022 with a slowing but still good pricing environment. Underwriting results for Q2 at Fairfax could be quite good. if bond yields stay at current levels (10 year at 1.35%) for many years then more and more insurance companies are going to be forced to take on more risk in their investments portfolios. Both WRB and Chubb are trading today below where they were trading back in March (with Chubb trading close to where it was back in January). This may reflect expectations that the hard market is turning. This perhaps also partly explains the weakness we have seen in Fairfax shares the past couple of months (despite the beat on Q1 earnings and Digit announcement).

I love it when people take the other side and challenge a thesis. When I do a deep dive and find what looks to be a good/great investment I think I have a pretty good handle on the pro's and con's. I post like crazy on certain companies to stimulate discussion. (I find writing also helps greatly to focus ones thoughts... you have to understand it to write it so that others can understand it.) And writing in some detail encourages higher level discussion/debate. This is way better than me talking to myself in my head I like to concentrate my portfolio on my best ideas. So the question i keep asking myself is 'what am i missing/why am i wrong?". Concentration and being wrong is not a good thing So I am highly motivated to understand why I might be wrong. The logic/rationale/questioning provided by those on the other side can be extremely beneficial. Fairfax, as an example, has its warts (and more than we would like) and we all need to be reminded of this from time to time.

What is great is when the community gets involved and a company is discussed/followed closely. Each person brings something different to the discussion. It might be something as simple as linking the recent news impacting the company. Someone taking the time to lay out an investment thesis. Or asking questions/discussion about a post. Or disagreeing with ideas in a post (great to hear from the other side). And over time a pretty good picture of the company emerges. And hopefully we all make some money along the way

interesting all people mentioned said we are in a bubble and pretty much everyone said they had no idea when it would pop. The dot com bubble was already epic in 1996 and it ran until 2000. And back then lots of stocks did just fine after the bubble in tech popped. My read is the key is the Fed... as long as the Fed stays very accommodative i think market averages will do well. And my guess is the Fed will be VERY accommodative for years (they have no choice). But i will remain open minded...

Pattison has had a remarkable career as a businessman and built a massive empire. Being from BC its not surprising he has invested heavily in lumber companies Canfor (51%) and more recently West Fraser; he saw the current structural supply / demand imbalance in the north American lumber market years ago. He is very strategic and makes big moves over years and decades.

Chrispy, i do find it interesting how much the price of the average stock fluctuates quite a bit month to month, quarter to quarter and year to year. Fairfax (US$) was trading Friday right where it was the end of March. My guess is Fairfax will earn about $20/share in Q2. We now also have a very large Digit gain to be booked in 2H. Looks to me like the story is much better today than March 31. Fairfax is also trading below where it was trading pre-covid. Its insurance business is in much better shape (we thought a hard market was starting in early 2020 and now we KNOW we are in the middle of a hard market) and the investment portfolio is at a much higher valuation today. The big negative is the increase in total debt. On balance, it looks to me like Fairfax is much better positioned today than it was in early 2020. ‘The story’, in Peter Lynch language, continues to get better with Fairfax. Eventually the stock will respond and patient investors will be rewarded. Fairfax currently reminds me of the fellow in Reminiscences of a Stock Operator who said sagely that the big money is made (once you have established the right position) by sitting on your hands (doing nothing) ... or something like that

The bond market looks wild to me the article states $12 trillion in bonds currently trade at a negative yield. Makes sense that some of that would shift to equities.

Glider thanks for posting the Digit news last Thursday. The news was material to Fairfax and investors were given a small window of time to make some money. Great example of the value posters on this board provide members. Well done! ——- So where does Fairfax book value sit as of today? (Edited as per Xerxes and Petec comments below) March 31 = US $497 Est Q2 earnings = $20 (ex Digit) Est June 30 BV = $520 Digit gain = $61 (once transaction closes and is approved by regulators Q3 or perhaps Q4?) BV including Digit = $580 (not sure if $61 digit gain is pre or post tax?) Stock price July 5 = CAN $560 = US $454 Price to BV = 0.78 (incl Digit transaction) Fairfax is positioned exceptionally well should economic activity continue to pick up in 2H 2021 and into 2022. The US is leading the way. Canada and Europe (think Greece) are just getting started (reopening). The worst looks to be be behind India. Fairfax owns many businesses who have been underperforming and this underperformance had been holding back reported results; as we begin Q3 my guess is what has been a headwind will now become a tailwind and Fairfax will be firing on all cylinders moving forward: 1.) hard market - perhaps driving best insurance results in its history 2.) more investments gains from its equity holdings 3.) improving results from operating companies contributing to reported earnings ————————— Atlas is the current large holding that looks most undervalued to me. Fairfax has a position currently worth about US $1.5 billion. As Mr Market comes to appreciate the top line and EPS trajectory for the next 3 years it would not surprise me to see shares trade in the high teens - this would results in a $500 million gain for Fairfax (only part of which would impact net earnings because much of it is accounted for as an Associate position). My point is despite the run up of the past 8 months there is still the potential for significant value appreciation with the equity holdings.

WOW! Given the size of the equity raise ($200 million) it seems likely to me that Fairfax will need to recognize Digit at a much higher valuation. The equity raise in Dec 2019 was $91 million and resulted in a revaluation ($350 million gain for Fairfax). There is close to a $2 billion gap right now = $70 / share. Below are some comments on Digit in the 2020AR. ———————- 2020AR page 8: All our operations had very good reserving, and they all had a combined ratio less than 100% except Bryte (because of COVID-19 business interruption losses) and Digit (which is still in start up mode but is growing at a very fast pace in India, beginning from scratch about three years ago). The recent budget in India will permit us to increase our ownership in Digit to 74%. 2020AR Page 8: Digit, under Kamesh Goyal’s leadership, is continuing its outstanding growth record in its fiscal year ending March 31, 2021, with gross premiums expected to grow by 40% to $400 million. Its combined ratio is expected to drop to 113% and, including investment income, it should be profitable. Amazing performance for a start-up! Digit raised $18 million in 2020 at a valuation of $1.9 billion from some private equity investors. (In our books, Digit continues to be valued based on a 100% level of $900 million.) We are very excited about Digit’s growth prospects in the years to come. Also, many of our insurance companies expect to benefit from Digit’s technological and innovation leadership. 2020AR page 12: We equity account our 49% ownership in Digit, which is carried at $42 million; in addition, we have convertible preferred shares carried at $475 million – all at the valuation of Digit on a 100% basis of $900 million. Date of initial investment: Feb 2017 Ownership: 49% Cost: $154 million Fair Value Dec 30, 2020: $596 million Compounded Annualized Return: 68.5% 2020AR page 21: In India, Digit continued to build out its capabilities, utilizing cutting edge technology to enhance its expansion in this rapidly growing market. Expected to reach $400 million in gross premiums written in less than four years, Digit, led by CEO Kamesh Goyal, is now producing a net bottom line profit, though not yet an underwriting profit. 2020AR page 65: Preferred Stock $487.7 (3) Primarily comprised of the company’s investment in compulsory convertible preferred shares of Go Digit Infoworks Services Limited (‘‘Digit’’). The company also holds a 49.0% equity interest in Digit as described in note 6. Page 71: (10) On December 23, 2019 Go Digit Infoworks Services Private Limited (‘‘Digit’’) entered into definitive agreements whereby its general insurance subsidiary Go Digit Insurance Limited (‘‘Digit Insurance’’) subsequently issued approximately $91 (6.5 billion Indian rupees) of new equity shares primarily to three Indian investors. This transaction valued Digit Insurance at approximately $858 (61.2 billion Indian rupees) and resulted in the company recording net unrealized gains on investments of $350.9 on its investment in Digit compulsory convertible preferred shares. The company also holds a 49.0% equity interest in Digit as described in note 6. Page 74: (3) On December 23, 2019 Digit entered into definitive agreements whereby its general insurance subsidiary Digit Insurance subsequently issued approximately $91 (6.5 billion Indian rupees) of new equity primarily to three Indian investors. This transaction valued Digit Insurance at approximately $858 (61.2 billion Indian rupees) and valued the company’s 49.0% equity interest in Digit at $122.3 at December 31, 2019. The company’s 49.0% equity interest in Digit is comprised of a 45.3% interest in Digit common shares and a 3.7% interest through Digit compulsory convertible preferred shares that are considered in-substance equity. Foreign direct ownership in the insurance sector in India is limited to 49.0% and as a result the remainder of the company’s investment in Digit compulsory convertible preferred shares is recorded at FVTPL as described in note 5. Page 167: Fairfax Asia also has an investment in Digit compulsory convertible preferred shares. Page 199: (12) On December 23, 2019 Go Digit Infoworks Services Private Limited (‘‘Digit’’) entered into definitive agreements whereby its general insurance subsidiary Go Digit Insurance Limited (‘‘Digit Insurance’’) subsequently issued approximately $91 (6.5 billion Indian rupees) of new equity primarily to three Indian investors. This transaction valued Digit Insurance at approximately $858 (61.2 billion Indian rupees) and resulted in the company recording net unrealized gains on investments of $350.9 on its investment in Digit compulsory convertible preferred shares.