StubbleJumper

No, it's Montreal that is the shit-show. SJ

He was roundly criticized because it didn't work. It didn't save thousands of American lives. It cost many thousands of lives because it added to His complacency. I know you live in a fact-free zone, but here is some context. Ontario borders New York state. Our less-than-stellar public health department has done an okay job tracking travel-related cases. Here are the top 10 travel related sources in Ontario: United States, 184 United Kingdom, 64 Cruise, 49 Germany, 27 Spain, 26 Mexico, 23 Austria, 19 Iran, 17 France, 15 Philippines,15 The China ban is just the pablum Fox feeds the cabbage-heads to keep them happy. Ontario only identified 4 cases related to travel to China (tied for 23rd with Costa Rica). But I guess if you call it the China Virus, you don't need to understand how pandemics work. Are you surprised that Ontario has contracted more cases of Covid from its immediate neighbour than from countries half-way around the world? Some how that doesn't strike me as shocking... SJ

if an 80 year old refuses to isolate, it's his/her own choice. It's the same now: if someone goes out anyway, it's on them. You can't let your policy be dictated by the notion some might not listen. At least, for that 80 year old you have the leverage there's an actual health threat to that person, while most 20 year olds have a bigger chance of getting hit by a bus on their once-a-day walk to the supermarket than actually dying of this virus. Well the problem is not that the 80 year-old might die. I can agree fully that he pays his money and takes his chances, which is exactly what we are generally allowed to do in a free society. The problem is that before the 80 year-old gets around to dying, his family takes him to the hospital where he occupies an ICU bed and a ventilator for a couple of weeks. When you have enough 80 year-olds behaving like this, there are no ICU beds remaining for your young healthy person who does get hit by a bus. In other words, there are externalities associated with the decisions being made by the 80 year-olds. One way to internalize those externalities could be to deny healthcare services to them, but as I suggested, that's a bit of a toughie in a free society. SJ

In Quebec they have had to go one more step and hire security guards to monitor the fire doors. Visitors have been banned from seniors homes for a few weeks now. However, family members were just showing up at the old folks homes and when they were not allowed in through the main door to visit their family member, some of the residents just sneaked their visitors in by opening the fire doors. What can you do when a portion of the most vulnerable population doesn't agree with the pandemic control measures? I went to the grocery store on Tuesday, and it was packed with geezers. People who are in the 80+ age range should know better than to leave their home to go shopping or to visit family, but some seem to have different risk preferences than the epidemiologists! SJ

There's no need to insult the qualifications of epidemiologists. They are completely qualified to offer advice on how to best control the outbreak of a virus. What they are not well-equipped to do is to offer advice to the political class on how to evaluate and manage the socio-economic trade-offs that are implicit in the various outbreak management strategies. If you were an all-powerful social administrator, it is quite likely that the optimal strategy would be to identify and quarantine all of the aged and otherwise vulnerable people for a period of months, and just let the virus run more or less wild through the younger, healthy population. Some of the healthy population would require hospitalization, a few would require ICU, and there would still be some need for ventilators, but the impact on the health system would be much less pronounced. After a number of months, perhaps half of your younger, healthy population might be immune, which would drastically reduce the transmission of the virus. You could begin to gradually release some of the less vulnerable people from quarantine. If you are lucky, perhaps a vaccine or effective treatment would be developed during the months that the vulnerable population is in quarantine, which would be even better. Eventually all of the vulnerable population could be released from quarantine as the existence of a very large proportion of immune people would ensure that the health care system would not be overwhelmed. The benefits of an all-powerful social administrator are pretty evident. There is limited suppression of economic activity when you quarantine the aged and otherwise vulnerable population because that segment of the population is not a major contributor to the labour market. You are not hanging your hat on the hope that a vaccine or some other effective treatment is developed, but rather you are targetting herd immunity which hopefully is a more certain outcome. A few of the costs are that you are effectively making a portion of your population into second class citizens and there will still be some level of adverse health impacts on the healthy population from the virus (ie, some young people will die or have long-term health impacts). But, what if you live in a liberal democracy rather than a society led by an all-powerful social administrator? How would a liberal democracy effectively impose isolation on the aged and otherwise vulnerable population, while allowing the young and healthy to continue to freely live? Do you simply find some legal framework through which medical care is denied to anyone over, say, age 70 who catches Covid? So, the governors/premiers would all go on television and announce that starting in 14 days (the covid incubation time), any person over 70 who catches the virus will be ineligible for medical services and therefore the onus is on the aged and vulnerable population to self-isolate indefinitely? Effectively, the decision to self-isolate would be made at their own risk and peril? It's a pretty ugly solution for a liberal democracy, and I am not sure that I know of any constitution of any serious country that would permit such a strategy. SJ

Pessimistic, naive empiricism. It could be that, or it could be realism. Everybody *loves* infrastructure just until the rubber hits the road. The real question that needs to be assessed is how many *shovel-ready* projects are available that could actually be initiated in the next 24 or 36 months, and are lower level governments actually sufficiently interested in those projects to cost-share them (not very much infrastructure is federally owned)? There are all kinds of numbers that get bandied about concerning purported infrastructure deficits and pent up demand. But, when reality kicks in, there really are not that many that have completed all of the required consultative processes and environmental assessments, and have adequate support from lower levels of government. Maybe this time is different?

Oh, I'm not saying that the banks shouldn't offer flexibility, particularly for landlords and SFH owners who have a decent chunk of equity in their properties -- defer the payments and term them out, and everything will be happy on the other side. That's in the bank's interest and it's in the property owners' interest. My question is what is the bank planning to tell shareholders? If you have a commercial client who doesn't make a payment without first discussing it, what is a bank supposed to do? You throw him on the arrears list! And then what is the bank supposed to do? You are supposed to increase the provision for that particular loan. And if you get a client who can't make a payment, but at least phones you up to ask for a deferment, what are you supposed to do? Well, the bank can definitely make the deferment and term them out, but then what is it supposed to do? If there are enough cases like that, the bank is supposed to increase its provision for that portfolio of debt because it knows full well that a client requesting a deferment is indicative of a higher risk of ultimately defaulting. So, are you comfortable if a bank extends an automatic 3 month deferment to all of its commercial clients and then uses that as a reason to not take a large provision increase next quarter? It's just a little white-lie to shareholders if it's ultimately in their interest right? SJ

The following article is not specifically about an FFH sub, but it is an interesting piece about a group of Canadian dentists who think they are insured against a pandemic and a British insurer that isn't so convinced. Since not all forum participants read Canadian newspapers, I am sharing the link: https://www.theglobeandmail.com/business/article-dentists-fighting-to-get-insurance-payouts-because-office-closure-seen/#comments SJ

So, if the bank automatically defers three months of loan payments, does that mean that it can pretend that everything is okay, and not crank up the provision for credit losses? Whereas, if clients approach the bank individually and ask for a deferment, or if they just fail to pay without any previous conversation, that would require pumping up both the specific and general components of PCL? Just trying to understand what game the bank is playing, and why. SJ

I mean could we ever really know if the bullet killed the man, or if he happened to die from complications of hypertension just as the bullet entered his skull? Causation can be tricky after all, and we should study it further before deciding conclusively! M. Nope, no debate at all. The bullet killed the guy. But, the question is how much quality of life the guy gave up due to the bullet? Was it a day, a month, a year, a decade of quality of life? And this is the point that Eric and I made about two weeks ago about Covid-19 mortality. If you look at the existing mortality rates of people by age, and then if you look at the Covid-19 mortality rates by age, you can observe something basic. If you are sick enough that you need medical attention and you are actually clinically diagnosed with Covid, you seem to incur about 2 or 3 years of incremental mortality risk, ignoring pre-existing co-morbidities. So, as Eric noted, if you are 40 right now and you are formally diagnosed with Covid, it's more or less like worrying about whether you'll make it to 42 in the absence of Covid. And it's roughly the same deal if you are 80. If you catch covid at 80 and it's bad enough that you are tested and formally diagnosed, your risk of dying is more or less the same as your risk of whether you make it to 82 or 83. So, no debate at all about what ends up killing the guy, but lots of room to reflect upon what exactly he "lost" due to the illness. SJ

Here is a bit of a discussion about business interruption coverage (or lack thereof): https://www.insurancejournal.com/blogs/big-i-insights/2020/03/24/562253.htm SJ

The general consensus seems to be that most insurance contracts specifically exclude pandemics as an insurable peril. I would not expect business interruption claims to be very high. I had been a bit more curious about workers comp, but Zenith has a bit of an interesting update on its website: https://www.thezenith.com/wp-content/uploads/Zenith-Coronavirus-Update.pdf SJ

That makes sense. The investment in WJ isn't really material for Onex if they only have $261m at stake. If WJ puts out a cash-call, presumably all partners would end up ponying up cash or diluting their position. With a ~5% stake in WJ, a cash call wouldn't be the end of the world for Onex. SJ

Not a single word about Westjet in that letter. I must confess that I am not familiar with Westjet's ownership structure, so perhaps it's one of Onex's funds that is exposed and not the actual parent company? SJ

Not only that, but politicians and particularly health & safety politicians seem to have some difficulty understanding the populace. One example: yesterday our mayor in Denver communicates a "stay-in-place" order; the exceptions being essential industries and going out for groceries & medicine. Then he says, "oh by the way, liquor stores and recreational marijuana are not essential industries - so they will be closing tomorrow". So of course, the entire damn city floods every liquor and weed store to stock up. Lines around the block, social distancing be damned. Now I'm not sure I could design a better way to transmit a virus if I tried... Then of course 3 hours later he has to re-classify liquor/weed stores as essential industries. I mean, c'mon. The rationale I've heard from medical professionals for liquor stores staying open as "essential" is basically that they don't want alcoholics going through withdrawals straining medical resources, easier to just keep them open and not have that to worry about. Yes, and there is also a fairly well-known history in the US about what happens during alcohol prohibition. If the government insists that all of the bars close and all of the liquor stores close, how long will it take for people to start opening up underground clubs (ie, a speakeasy). Booze can always be bought tax free from certain Indian reserves, and I doubt that those stores would ever close. After sourcing the booze, the next step for an enterprising person would be to open that underground club, which would not be helpful for the social distancing effort. Better to leave the booze stores open so that people can buy their supply. SJ

There are two things that have happened over the past few weeks. The spreads have gapped out, but the risk-free has fallen like a stone: https://www.bloomberg.com/markets/rates-bonds/government-bonds/us Short-term governments have dropped from ~2.4% interest in 2019 to ~0.4% interest today, and it has occurred across all short maturities from 3 months to 2 years. Any governments that need to be rolled in 2020 will face a drastically lower rate. FFH has $8B of bonds that mature during 2020 and probably about $10b or $11b of cash equivalents. Assuming that is 75% governments, that might be a total of about $13B in governments that will take a 2% interest rate haircut during 2020, which might reduce interest income by ~$260m for the government portion of the portfolio. Assuming that there is $5B of corporates that will be rolled, you'd need to gain an extra 500 bps on the corporates you roll to just offset the lower interest rates on the governments. The math is not particularly nice for FFH on this front. SJ

1) I don't think you get #1 because FFH only has $26b of bonds and bills, and $6b of common and preferreds, at Dec 31 prices. As a P&C operator, they need to keep the lion's share of the $26b in governments, preferably short term, which currently yield less than 0.5%. The dollar yield on the equity portfolio won't change, but in percentage terms it will go up (ie, if no stocks are sold, they get the same divvies as last year). So, the math is like one of those tricky algebra problems from when we were 12 years old, but I don't think you quite get to $1B. That $26B of bonds and bills already includes $18b of governments and $8b of corporates, so how much further can that be pushed? Whatever governments you roll-over will almost certainly be rolled into considerably lower interest rates. Whatever corporates get rolled will get rolled into considerably higher interest rates. And then how many billions can you shift from governments to corporate to exploit the spread? Maybe a couple billion, max? Probably less than a couple billion. That was one of the comments I made about the AR, because it looked as if they might have already begun reaching for yield when they were not really paid for the risk. By my estimate, they have about $18B of bonds and notes in the one year or less category. Irrespective of how you work through the algebra, I'm not sure that you get $1B in dividends and interest. But it's a good stretch-goal! 2) Let's hope there is a V-shaped recovery in the equities, but that's mostly outside of FFH's control. I'd be happy to take a bit of luck, but the equity recovery or lack of recovery probably won't be indicative of good management or poor management on FFH's part. 3) Above and beyond buying Brit, Eurolife, or Allied minority stakes, I'd like to see FFH try to negotiate a better deal. They are not obliged to make those purchases, and perhaps the vendor will want to see some cash because equity markets have been horrific. This might be an opportunity to say, "Look, equities have flopped by 30%, can we talk about the buyout price? If I pile more of FFH's money into Brit/Eurolife and I don't get a discount, my shareholders will be apoplectic that I didn't use the cash to buy discounted AMEX or Visa shares instead...." No guarantee of success, but mgt should view this as an opportunity. 4) Curious about how you view Covid's impact on the CRs. Could be bad for Zenith, and perhaps there will be some business interruption insurance issues? But do you see this as a "cat" for FFH's subs? Frankly, I haven't been preoccupied by the possibility of claims, but maybe I haven't been thinking about this enough. 5) Yes, let's hope that the book can be grown significantly and profitably. Why do you think the growth in the book of business must wait until 2021? Are you of the view that there will be people who will non-renew their insurance during 2020 due to cash constraints? SJ

How would you define "shine" during 2020? What elements would be the key characteristics? A few ideas of potential elements of a "good" year: 1) Grow the book by 10% or more, while simultaneously shaving the CR by 2%; 2) Keep the fixed income portfolio short in governments while piling some capital into corporate debt where the spreads are attractive or if warrants offered as a kicker; 3) Float a new debt issue for at least $750m to finance current year needs and Q1 2021; 4) Try to pick up the minority positions in Brit and Allied for a song during this market disruption, if they can scrape together the capital; 5) Get some cash in return for the deflation derivatives; 6) During a year that equities are in the shitter, don't throw a single penny at the "too hard pile" because there is plenty of value to be found in quality issues; Seriously, what would constitute "shine" in your book? Hopefully it doesn't involve triggering a bunch of paper gains by selling a portion of a sub so that it can be deconsolidated or by marking BIAL to market. I've given you six potential elements...do you have other ideas? SJ

Yep. Did anyone ever expect to see FFH with a 4% dividend yield? SJ At $290 USD this is late 2007 prices! Did the last 12-13 years really happen? Honestly, some days it feels like Back to the Future. Professor, fire up the DeLoreon because some bad investments and poor liquidity are coming back to roost... SJ You'll know it when they move to list on the NYSE. RIP Spiro Contogouris

This seems like a strange model to me to be honest. The total infection rate (as I keep reading) when you do nothing would be 40-60%, spread out over a number of months. Why would everybody be sick at once? Well, in a lockdown nobody would be working at all, even worse. Plus apparently large percentages of patients don't have any symptoms at all (which seems to be the problem with this virus), so will be able to work just fine. At some point it'll come to this, especially once we have treatment options. The elderly will be asked to isolate until there's a vaccine next year. If thet do get sick, they can be treated better, while the rest of us go on with our lives. Nothing else makes sense, definitely not an extended lockdown. The forty percent statistic is a basic rule of thumb. Go check out the CDC's planning documents, or review the research literature in the field and you'll see it over and over again. Also, if you play around with exponential growth for just a little bit and you'll see that it is possible. Isolating vulnerable people, social distancing, herd immunity all accomplish the same thing through different mechanisms. They are all levers to pull upon. Finding the correct mix is the challenge. You also need to remember that there will be a huge variation by location. 40% is an average. What is more likely is that entire essential service departments could be simultaneously taken out in one town, and another town might have good luck. One town could be a disaster area and the other could have no cases at all and on average maybe you only have 10% out sick at one time. Do you really want to roll the dice? People should keep in mind that 40% is a hell of a distance to haul. Take Italy as a the worst case currently out there. If you add up the new known cases over the past 7 days what do you get? It is 25,000, 30,000 over the past 7 days (today was particularly bad)? Okay, assume that the asymptomatic and mild cases are 10-for-1 to the known cases. So, if that heroic assumption is true, there were only perhaps 300,000 total new cases in Italy. Well, the population of Italy is 60 million, and 40% is 24 million. You need 80 weeks that are just like this past week to achieve herd immunity across the country. It's a hell of a miserable distance to haul to achieve herd immunity. SJ

Yep. Did anyone ever expect to see FFH with a 4% dividend yield? SJ At $290 USD this is late 2007 prices! Did the last 12-13 years really happen? Honestly, some days it feels like Back to the Future. Professor, fire up the DeLoreon because some bad investments and poor liquidity are coming back to roost... SJ

No disputing that. However, the hospitalization rate is much higher than I expected. I thought for me (in the 20-44 group) - it was going to be a bad flu. I didn't think i'd have a 1/5 to 1/7 chance of going to the hospital. Well, I would suggest a little caution on the interpretation of that. The table covers confirmed cases, and it includes the column for hospitalization. It doesn't say why people were hospitalized. There may have been a number of people that were hospitalized out of an abundance of caution or as part of a quarantine effort. What should be more concerning than the hospitalization column is the ICU column. You might be put into a hospital for a night or two "for observation" but usually you don't end up in the ICU unless you absolutely need to be there. The ICU numbers for the young who were diagnosed are pretty high. SJ

https://nypost.com/2020/03/18/in-one-day-1000-nyc-doctors-and-nurses-enlist-to-battle-coronavirus/?utm_source=reddit.com So are they selfless servants of the people, who are taking on a considerable risk to themselves out of an altruistic desire to help others? Or are they uninformed and have not pulled up the morbidity and mortality numbers? Really, this virus is one that 70+ year-old people should be desperately trying to dodge. SJ You are certainly right to be concerned for them, but remember there are ways to minimize the risks some of which I addressed in our first discussion of this topic a week ago: Hospitals will be doing their best to provide physical separation between COVID-19 patients and the rest of the hospital. In the best cases, they might be completely separate buildings and access will be strictly controlled to protect the non-COVID-19 hospital. This has been successful in the past in some cases depending upon controls being rigorously imposed. No, I go beyond that concern for the 70+ year-old age group. Really, if there is a group that should be taking to heart the recommendations surrounding social distancing, it's that group. It's not just about whether they will be working specifically with Covid patients, but it's also about how many different people they would rationally choose to interact with on a daily basis (I made the same observation about supermarket workers). From where I sit, a full-blown pandemic that gets out of control likely offers people a generic ~60% likelihood of catching the virus. If you are 20 years old, that's probably not something that should keep you awake at night. But if you are in that 70+ group that faces a potential 5% mortality rate if you catch it, maybe it's time to cut down on the number of people with whom you interact and the frequency of interactions. If I were a retired doctor or nurse and somebody asked me to come out of retirement to staff a tele-health phone line which could be done from home, I'd be fine with that. But any job involving exposure to 100 people per day? That becomes cumulatively very risky. No thanks. SJ

https://nypost.com/2020/03/18/in-one-day-1000-nyc-doctors-and-nurses-enlist-to-battle-coronavirus/?utm_source=reddit.com So are they selfless servants of the people, who are taking on a considerable risk to themselves out of an altruistic desire to help others? Or are they uninformed and have not pulled up the morbidity and mortality numbers? Really, this virus is one that 70+ year-old people should be desperately trying to dodge. SJ

Yep. Did anyone ever expect to see FFH with a 4% dividend yield? SJ FFH's dividend will be no more.....the company (at the holdco) is severely cash restrained....and that was before this drop. Anyone else suspect that Omers will look to find a way out of its plan (act of God/force de majeure) to buy into Riverstone UK for $600 million? Forget about funding the growth of the insurance subs in the so-called hard market. Highly likely that insurance premiums will not be paid. And lets not forget about the devastation across its equity book (both public and private equities): -Atlas Corp (formerly Seaspan) -Blackberry -Recipe -Eurobank -Resolute Forest -etc Let's hope that Brian Bradstreet, the real brains behind the investment team at FFH, worked his magic yet again and sold out of all fixed income positions at the optimum time although this will only help so much. Comments/thoughts? Mostly in agreement, but I would caution that the next scheduled divvy is 11 months away, so lots of things can change in that time. But, I would agree that if they were contemplating the announcement of a divvy for payment at the end of May, it would probably be best to nix it because they'd need to float a debt offering to make it happen. The nice thing about OMERS is that usually they are swimming in cash, looking for places to put it. With some deals, financing is a constraint and the Riverstone deal could fall through because of that. If OMERs finds a way to back out, it's because they have found better places to park their money (that would be understandable). The hardening market is interesting. How much capital has left the industry in the past 6 weeks? I am a little less worried about people dropping their policies than I am about the state of reinsurers, as FFH has enormous reinsurance receivables (we've been there before, dealing with the "can't pays" and the "won't pays"). SJ