Dazel

I would speculate from Fairfax recent activity of taking advantage of rich valuations that Blackberry would or should be sold now. Tech valuations are at nose bleed levels where Blackberry treads water. The brand (for security), their patents, their footprint and installed base in the automotive industry and cash are valuable to an acquirer now. The reason for this is the acquirer will be able to use their high multiple shares to buy Blackberry and in doing so they raise cash (Blackberry has a lot of cash per share doing nothing) and they pick up assets that are not creating any cash flow to Blackberry but will valuable to the Googles of the world. Blackberry will not pay up for acquisitions as they are too expensive. It's time to be bought be someone with large pockets. Disclosure: I have a small position in Blackberry.

http://www.moneycontrol.com/news/business/ipo-business/icici-lombard-ipo-fully-subscribed-on-final-day-2391561.html It was oversubscribed by 3 times! This says a lot about Fairfax other assets in India as they are becoming the growthengine for the world economy. There is tremendous demand for India and Fairfax is 15 years ahead....we expect Fairfax to be a go to investment for those looking for exposure to India.

I would speculate that Fairfax entire long term bond portfolio was sold into the rally of the last couple of weeks. This is not a big position but I would bet that Bradstreet would have liquidated allied's (they took over them in July)long dated bonds into the rally which will create realized capital gains this quarter and take book value higher. However, interest income will drop some more over the short term. Fairfax has bet on higher rates going forward and we may have seen a bottom in yields last week. We will see. It would be extremely beneficial to Fairfax if insurance rates rise on these storms. They have excess capital and are full of cash.

Fairfax average repurchase price under last years buy back programme was $676. I do not think we have seen or will see significant repurchases until the ICICI Lombard iPo is done this week as they will have significant cash infusion from their sale of shares at the holding company level. If we remain at these share price levels when the Fairfax Asia deal closes it is possible we will see a Dutch auction which is outside the annual repurchase program.

"In 2015 OdysseyRe did not renew a significant property quota share reinsurance contract covering risks in Florida following the cedent’s decision to retain all the risk associated with that contract. Consequently on June 1, 2015, OdysseyRe returned the remaining unearned premium associated with this contract to the cedent, which decreased each of gross premiums written and net premiums written by $17.8 in 2015. Net premiums earned associated with that contract during 2015 was $71.7 prior to cancellation. Excluding the impact of the cancellation of this contract, gross premiums written, net premiums written and net premiums earned decreased by 1.7%, 0.6% and 2.7% in 2016, principally reflecting decreases in the Latin America and London Market divisions. Net premiums written and net premiums earned in 2016 also reflected the impact of additional purchases of property catastrophe excess of loss reinsurance at favourable pricing, which is expected to significantly mitigate the impact of small to medium-sized catastrophe events on OdysseyRe’s U.S. and international operations."

https://www.vccircle.com/fairfax-backed-icici-lombard-gets-regulator-nod-for-ipo/

At onetime Berkshire was by far the biggest cat insurer in America...then rates fell for years and Warren Buffett says they have pulled out of the market because of price drops. It is likely that the insurance that is there now is in weak hands that have driven down prices. I agree for Floridians and the U.S government this could be really bad not unlike Houston. If you see prices rise to sufficient levels you will see Berkshire and others enter the market in a big way.

Fairfax discloses in 2016 Annual report that Odyssey Re did not renew a large quota share reinsurance contract on Florida property so they ceded the reinsurance shared contract for Florida on June 1 2015 as their partner wanted to take all of the risk. They had earned premiums of $71m for 2015 and had to return $17m of unearned premiums on this contract. They also disclose they wrote less higher margin Cat insurance in 2016 because premium rates were too low. If any more hurricanes make landfall anywhere Fairfax will certainly be hit..they paid out $225m last year on events you did not hear about (not including Matthew$47m or the fires in Fort Mcmurray$49m) and made excellent returns at their insurance companies. If the insurance market is to be hit and premiums rise Fairfax will most certainly benefit...this is a lot different position than they were in 10 years ago.

Fairfax wrote $1.46b of property insurance in the United States out of $9.534b in premiums in 2016. Pg89 of their 2016 annual report gives a break down of their insurance lines.

As was said Houston appears to be an insurance non event because of the floods...car insurers will be hit though....they are mostly covered....There will be business disruption insurance as well. https://en.m.wikipedia.org/wiki/Hurricane_Matthew Matthew was a category 5 that hit the U.S last year (Irma is a 5) damage to Fairfax was minimal $47m mostly Odyssey Re. People have short memories as the loss of life from Matthew was huge. Fairfax writes a lot of casualty insurance and specialty and Allied appears to be all specialty, Zenith of course is workers comp. If premiums were to rise from Irma which it does not look like they will who knows...you would see Odyssey Re likely enter in a bigger way. Berkshire has not written any cat insurance in over 6 years...Geico will be hit badly though.

While the timing of my post was lucky in regards to share price rise the fundamentals behind it were not lucky. Prem told all in march that the operating companies were vastly undervalued on a book value basis. He told you all that if the shares remained undervalued he would buy them and used an example of Henry Singleton. Prem has one of the best all time records in the world as an operator and the investing world still doubts him. He just did what he said he would...and will continue to do so...he has said he would like to die at his desk so for those that think he is setting up exit plan are not listening. Berkshire is too big and sadly Mr. Buffett is actually getting old...Markel is priced richly. Where do you think all of that capital will go looking for the next Berkshire? The new Fairfax era started awhile ago with a change of focus and the new company armed with $3b plus in cash (deferred tax assets are over $700m) at year end is a game changer. I am not here to debate...take it or leave it. The next decade at Fairfax will be a different one as the company has now become a "Blue Chip". I expect the ratings agencies to be the first to react as negativity around Fairfax is extremely high. Cheers and good luck. I felt I owed to Prem and Fairfax to come to their defence here..there is no shame in doubting greatness. But it is a hell of lot more fun (and prosperous) to back one the best operators in the world over the last 30 years! Congrats on your deals Prem! We think your encore of the next decades will be heroic. Dazel

Prem being compared to Madoff... I am sure to get some more cheap shares...and I will end my time here on that. Good luck all. Dazel

That's funny.

What I really like is the negativity. "If you wait for the Robins, Spring will be over" WB

Cardboard, It's been a long time...I have agreed with your sentiment a lot over the years.. I will add to your thoughts... Remember Fairfax has had to wait out the Allied transaction and look at the possibility of it not happening, look at Allied's substantial bond portfolio as a risk (if rates were to rise), and also prepare for it to go through which had them holding a large cash reserve. There were about $100m in interest rates derivative charges in the quarter which were likely put there to hedge Allied's bond portfolio. As for structure you are correct and we anticipate Prem restructuring a lot of the now very large Fairfax. We think that includes trimming the share count at these levels...but also debt buy backs where appropriate. Allied is a high quality company so integration is almost 0. But the $14b in premiums and solid operations give Fairfax flexibility that takes them more towards the Berkshire model. You are absolutely correct in your views and we see them transitioning towards the goals...the Gravilia and APR Energy purchases in July as well as the purchases of companies through Fairfax India, Fairfax Africa are an example of putting more capital to work...now that the Allied deal is done we see them getting very busy both internally (debt and buy backs) and buying bigger position in companies they control like Berkshire did.

Bradstreet has not lost his touch he continues to greatly outperform on short and long term metrics...his record is legendary.

And it's cheap because it is hated....for all the reasons given. The market has lost faith in Prem and his teams investing skills. We have not and large part of our thesis involves Brian Bradstreet the best bond manager in the world.

It's not trading at 1.25 times book value. There is $67 above book value in the investment associates and the insurance company book values are low. It's cheap no matter how you look at it.

Fair value of investment in associates is now $1.82 billion above carrying value....expect Prem to talk about this tomorrow on the call as book value understates the company's value.... The intrinsic value of Fairfax and their earnings power going forward is much higher than the present book value because Of the massive hedge losses and poor common stock investing over the last 5 years. Prem and his team know this so we think they will start a substantial buy back program at these levels.

As Prem mentioned on a conference call earlier this year Fairfax repurchased 20% of their shares back in 1990.....He used Henry Singleton and Teledyne as an example of rising share count to grow and Singleton's legendary buy backs that retired 80% of Teledyne's shares. No one was listening.

Let's be clear the only reason I am here is because Fairfax is really hated....and I feel obligated to stand up for them with my capital and my voice here as I will forever be grateful for the pile of money they made me but also for the lessons of their thoughts, success and failure over the years. We have made piles of money in Bank of America and Citigroup too because we bought good companies when they were hated... This is one of those times to buy one of the best performing companies in stock market history cheap and make piles of money. I have said my piece and it is completely biased...buy it or not....I am betting that Prem gets redemption...and Fairfax outperforms Markel and Berkshire substantially over the next Five years.

Petec, I had a long winded response that I lost...do not have a lot of time...so here is the quick answer! -Lombard Canada was folded into Northbride which was the foundation of Fairfax...that growth came from Markel Canada (a small trucking insurer) that was recapitalized from $3m a year premium Company into a global powerhouse with $14b in premiums -2001 Lombard-ICICI started commercial insurance operations to become the largest commercial insurer in India...the extent of Fairfax involvement I do not know but Prem served on the board of ICICI bank from 2004-2011 (Fairfax made a Lot of money in their shares) and ICiCI-prudential board as well (they went public last year) -Fairfax involvement in raising capital and their trustworthy actions make them the go to foreign source of capital for Indian companies. -They will build a large insurance footprint in India as they have been directly involved in building out the insurance market there for over a decade....they have to sell their Lombard position to 10% to do this.... -The $5bin capital they have invested in India has a first mover advantage but it is the reputation of Prem Watsa and Fairfax that has tremendous value. they are the go to foreign company for raising capital and selling assets. -India is growing at 7% and will be source of global growth over the next decade...Prem has voiced his optimism over this and put his money where his mouth is. The Lombard-ICICI should not be viewed as an exit of insurance in India...in fact Fairfax would like a bigger piece of the pie by controlling their own operations - this does two things...the sale allows the cash to flow directly into the Holding company for buy backs and will NOT effect profitability as it is a very small piece of Fairfax global premiums -the build out of their insurance operations in India will be done with large cash reserves in the insurance companies... -Prem Watsa has evolved from the "Canadian Warren Buffett" into a global player and India will be a big piece of that as their investment of time, patience, and trust is paying off in a country where it is very difficult to gain entry. Global investors will take notice as we have because we cannot get the deals that Prem is getting (sound like Warren Buffet?). Fairfax India large share price rise this year is an indication of investors view on the growth opportunities....Fairfax India is too small an investment vehicle for the big players...they will gravitate to Fairfax as we have seen with Mason Hawkins Long Leaf Funds reentry as shareholders. -in a perfect world we will see the Lombard sale' proceeds all go into share buy backs before the investing world wakes up to this story.

I will comment on Altius as they are now a Fairfax company :)! Linealdin and others have done a fabulous job on that thread...can't add much other than Brian Dalton and his team will win in the end they are world class and it looks like Altius will buy back a lot of stock which is a very very good sign...and also I expect Fairfax to participate in other large deals along side them which will be big winners for both companies. It's a theme...good businesses with great managers.

Hello all... I feel it is time to way in on Fairfax Financial...by far my favourite company of all time. Some will remember I was here from the start when Sanjeev started posting...once again thanks Sanjeev for this forum! We went through the lean 7 years...then we won big time in 2007 and 2008...the last lean 7 years were self inflicted wounds which at times looked like Prem and his team would be right. In fact if it were not for global central bankers they would have been right! The past however does not matter. Rear view mirror thinking is for the masses... Fairfax today is nothing like the Fairfax of old...and after some serious thought of where Prem and his team are headed we have once again been buying their shares hand and fist. Why? Despite the dismal common stock returns over the last 7 years...Brian Bradstreet remains the single greatest Bond investor in the world...a Great portion of the 10 billion in gains have come from him while he generated interest income. He is the unsung hero of the bond world (check out his track record which include the cds wins from 2007 and 2008)...he gets a pass on the inflation hedges for sure! Now he has $40b to work with. We think Prem should use him for other investments which would include massive positions in Citigroup for example...which are typically viewed as common stock. The dividend yield and cash flow at Citi and Bof A can be looked at like a bond...as can their preferred shares...Let Brian play more! A 5% yield is $2 billion now! We don't need the capital gains of the past....time to bend it like Buffett. Reality that is....Cash flow Cash Flow Cash flow.... Fairfax has become to big for Ben Graham principles...unless you are an activist. Which I am glad to say they are not....The Resolute, Torstar, And other value plays need someone to go in and create the value...that is not their game. Prem's game is buying and building companies...Lombard is a huge win...buying the rest of Orh,Nb,Zenith etc are massive home runs...runoff, Asian and global insurance operations are out of the park wins. What's Fairfax problem common stock investing!!!Who would have thought? Everything else in the company is world class. I will reiterate from the past that I am biased and grateful because Prem and his team have made me a fortune since 2003...but I believe they have learned a very humbling and hard lesson since 2009. Remember the big short? Of course you do. Steve Eisman? Blew up his fund...Mr. Burry...hope he is well, Ackman, etc....well fairfax has lost $5 billion in hedges since 2007 even with the $2b gain. So why am I looking back? Because Prem and his team have never ran a $40b portfolio in the past Fairfax thrived on capital gains. That is how they moved the needle... The new Fairfax will resemble Berkshire Hathaway....the unfotunate part is Prem did not have Charlie Munger to tell him this 7 years ago...now it is all about quality. Allied is an example of this change in strategy which scared many...Markel has kicked Fairfax ass...by following Buffett's example early. Cash is the hedge....buy when distress comes you do not have to make money on the way down...welcome corrections to buy more cash flow. They have done this extremely well in buying whole companies and this will lead them to let Brian Bradstreet buy equities with cash flow coupons.... There is value in their broken down holdings Eurobank,Blackberry etc will come back somewhat but that should not be the focus anymore...they are rounding errors compared to how much Cash flow that can be created with very good insurance operations...and simply matching the global stock indexes...they need 95 comps and a little over 5% returns on the now $40b investment portfolio to reach 15% return on equity. They will win big in India (doing great things there) and Greece will work out ok which will take the shares higher but it is the Cash flow culture that will make Fairfax future bright. We should expect Prem should tell shareholders that the shares are cheap (they are) and let shareholders know that he will buy huge amounts of stock if they remain here as warning and a heads up to existing holders. Mr. Buffett did this in 1999 this is the right thing to do even though it may take the shares higher and hurt the buy back potential...It is a class move as many have wondered on Fairfax's direction (obvious on this board!!!) they want to know that Fairfax has moved towards Berkshire Hathaway....they have already...investors just don't know it. Disclosure:I am betting that Fairfax gets it right....big time. Cheers, Dazel

I am once again interested here as judge Sweeney has unbound one finger of the plaintiff in this fight against injustice. Call it Rocky vs Drago of the famous boxing match (Rocky-movie)which pit Rocky (USA) vs Drago (With his Russian governments help filled with steroids,the newest training techniques and an entire communist system behind him). Oops except the roles are reversed? Who is capitalist and who is communist? It appears as though Rocky (is a group of investors)... Has his hands tied behind his back and hands bound except for the one finger that judge Sweeney has released with allowing the public to see 7 documents....which has given Rocky (investors) a glimmer of hope...even against Adrianne's proclamation to rocky "that he can't win". Ironically, the U.S treasury is acting like Drago and his communist cronies...beating to the tune of "I must break you!"....It is unamerican to have the governement hide the truth from the people...it is shocking that citizens outside the investment community are not screaming everywhere. Where is the transparency? Where's Ralph Nador? Where is congress? How does something so massive go unchecked? Fannie and Freddie have paid the government $250b...0 debt has been reduced!? When ms McFarland told treasury that the accounting charges (no money was ever lost) were being reduced for $50b....a 10 year old would know that the gov dividend would drop by $5b a year at Fannie! Why has the public not seen the internal projections on that from Fannie Mae that has to have been given to the government to support Ms McFarland's belief in permanent profitability...and the $50b reversal would happen soon? And the sweep comes the next week? Death spiral? Prove it. Was Freddie Mac's Cfo at the beach at this time? There is no way that they were not saying the same thing to treasury! Yet in Perry's court hearing Friday we heard that Ms McFarland was only one opinion!!!!! Are you kidding me? Monetarily this is the biggest heist of all time! Or is it? Let's see the facts... All the public should want to hear is the truth! What ever happened to that? While Judge Sweeney has to be commended for releasing 7 documents...really? What about the other 11,000 pages? How can there be justice without this for a "fair fight"? While Rocky trained honestly in an old school manner at Jackson Hole (you can't make this shit up!)...Drago cheated (steroids) in his training.... Honesty prevailed....we all know who won! Justice. Dazel.