nwoodman

True, the fact that E&S is sounding stable was music to my ears though "Given the challenges around receiving enough rate to cover losses in the admitted markets, a lot of focus is now on Specialty/E&S market opportunities." "As increasingly unpredictable weather-related CATs, and social inflation risks force commercial carriers to tighten up underwriting guidelines in the admitted markets, we expect continued strong submissions & pricing growth in the E&S market for 4Q24 and 2025, as insurers have more flexibility around setting E&S pricing and terms & conditions." It’s probably been done to death, but damn Allied World was a master stroke. KEY THEMES FOR 2025: 1. More competitive environment overall 2. Technical underwriting becoming more important 3. E&S market remaining relatively strong 4. Social inflation as ongoing challenge 5. Reserve adequacy growing in importance 6. Investment income potentially improving 7. Growth opportunities varying significantly by segment

MS out with their review of if the Insurance industry for Q3/24. Is the hard market over? Summary as follows: PERSONAL LINES: YES - TRANSITIONING OUT - Auto rate increases decelerating in Q4 2024 and into 2025 - Major carriers like Progressive & Allstate pivoting from rate-taking to growth - Competition ramping up as companies target growth in rate-adequate states - Margins expected to remain healthy but pricing power diminishing COMMERCIAL LINES: NO - BUT SOFTENING - Pricing showing "slight deceleration" in Q3 2024 - Still need rate in many areas due to social inflation pressures - Admitted market seeing increased competition - Business flowing to E&S market where pricing power remains stronger - Companies focusing on reserving discipline over aggressive growth REINSURANCE: MIXED Positive Signs: - Property cat rates expected to decline low-to-mid single digits in 2025 - Excess capital putting pressure on pricing - Return of capacity to market Still Firm: - Terms & conditions holding strong - Some potential for casualty reinsurance rate increases - Catastrophe losses still manageable at current pricing levels KEY TAKEAWAY: The report suggests we're not seeing a dramatic market turn, but rather a gradual transition varying by segment: - Personal Lines: Clearly transitioning out - Commercial Lines: Still firm but moderating - Reinsurance: Mixed with property softening while casualty remains firm The market appears to be entering a more nuanced phase where underwriting discipline and efficient capital deployment will be more important than pure pricing power. How will this affect Fairfax: While Fairfax Financial isn't directly covered in this Morgan Stanley report, we can analyze the likely impacts based on Fairfax's business mix and the report's industry insights: POTENTIAL POSITIVES: 1. Investment Income - Higher rate environment helpful for Fairfax's large investment portfolio - Report suggests variable investment returns could improve with: * Better capital markets activity * Improved private market valuations * Higher prepayment income 2. Commercial Lines Positioning - Fairfax has significant commercial specialty presence through companies like Allied World, Odyssey Group - While commercial pricing is decelerating, social inflation providing support for continued rate adequacy - E&S market (where Fairfax has strong presence) likely to remain stronger than admitted market - Focus on underwriting discipline aligns with Fairfax's historical approach 3. Global Diversification - Like peer Chubb (mentioned in report), Fairfax's international diversification provides growth opportunities - Report notes international business remains a strong growth area POTENTIAL CHALLENGES: 1. Pricing Pressure - General softening in property catastrophe reinsurance (important for Odyssey Group) - Increased competition in commercial lines - Personal lines transitioning to growth focus over rate increases 2. Investment Risks - Report notes continued challenges in real estate investments within alternatives portfolios - Fairfax has significant real estate exposure through various investments 3. Reserving Focus - Report highlights industry-wide concern about commercial casualty reserves - Increased attention to social inflation impact on long-tail business KEY TAKEAWAYS: Fairfax appears relatively well-positioned given: 1. Strong specialty/E&S presence where pricing remains more stable 2. Global diversification providing growth options 3. Investment portfolio benefiting from higher rates 4. Historical focus on underwriting discipline becoming more important as market softens INSURANCE_20241121_0502.pdf

Morgan Stanley recently initialed coverage on Go Digit. A couple of notes attached PT Rs 345 Summary of discussions with Kamesh Goyal at their Asia Pacific Summit GODIGIT_20241120_1635.pdf GODIGIT_20241111_1813.pdf

“1. Sealed Indictment: • The indictment was initially sealed and later unsealed, which is common in grand jury proceedings to protect the investigation’s integrity. 2. Federal Jurisdiction: • The involvement of federal crimes like securities fraud, wire fraud, and violations of the Foreign Corrupt Practices Act (FCPA) typically necessitates a grand jury indictment. 3. Mention of the Grand Jury: • The DOJ notes obstruction of the “grand jury” investigation as part of the charges, reinforcing that a grand jury was integral to the process.”

Good one, happy to have some clarity on this with some filing rigour.

Management is everything for these outliers. As a passive minority investor are we better equiped to handle those risks through diversification than the professionals that are trying to build the 100 year company. It might be a “warm comfy blanket”, but for my money, I am backing sharp risk managers and sharp capital allocators and a culture over an index any day. The more sensible question is your willingness to handle the 50-70% drawdown of the general market, especially in an a “indexing world”. Caveat, Price/Value is everything.

All good, I fumble around in the dark at times on these filings so see the edit above. Can you point me in the direction of the $250m you referenced previously?

It looks like this is disclosed on Page 6 (Note 3) of the Odyssey filing Edit: This seems to be upstreaming, as Newline UK is a sub of Odyssey. Quite confusing as I thought the Chandler Family and Exponent Private Equity were still participating. However if that is no longer the case maybe the 35% and the 250m give the total amount, as other Fairfax insurance subs hold the remaining 64.9%. See Schedule Y: Odyssey Reinsurance Company: 35.06% Crum and Foster United States Fire Insurance Company: 12.68% Zenith Insurance Company: 20.30% Federated Insurance Company of Canada: 1.01% Northbridge General Insurance Corporation: 3.55% Allied World Assurance Company (Europe) dac: 3.55% Allied World Assurance Company (U.S.) Inc.: 4.06% Allied World National Assurance Company: 7.61% Allied World Insurance Company: 4.06% Allied World Specialty Insurance Company: 4.06% Allied World Surplus Lines Insurance Company: 4.06%

Gautam Adani Charged by US Over Alleged $250 Million Bribe Plot US prosecutors charged Gautam Adani, one of the world’s richest people, with participating in a scheme that involved promising to pay more than $250 million in bribes to Indian government officials to secure solar energy contracts. https://www.bloomberg.com/news/articles/2024-11-20/us-prosecutors-indict-gautam-adani-on-bribery-charges?embedded-checkout=true “Gautam Adani can be indicted in the USA because the alleged fraud and bribery scheme involved misleading American investors and financial institutions. U.S. prosecutors claim that Adani and his associates provided false information to secure investments from U.S. and international sources while engaging in bribery to obtain contracts in India. The U.S. legal system has jurisdiction over cases involving fraud that affects American investors, even if the primary activities occurred outside the country.” The Guardian article has a bit more color https://www.theguardian.com/business/2024/nov/20/gautam-adani-charged-alleged-bribes Prosecutors charged the chair of Indian conglomerate Adani Group and two other executives of a renewable energy company with securities fraud and conspiring to commit securities and wire fraud. The US attorney’s office in Brooklyn accused the executives of agreeing to pay hundreds of millions of dollars’ worth of bribes to Indian government officials between 2020 and 2024, in a bid to obtain solar energy supply contracts expected to yield $2bn in profits over 20 years. Separately, the Securities and Exchange Commission (SEC), the US’s top markets watchdog, charged Adani, 62, and two other executives over conduct it said had arisen out of a “massive bribery scheme”…… Prosecutors alleged that, on several occasions, Adani personally met with an Indian government official to advance the bribery scheme. The executives are accused of having frequently discussed efforts to further the scheme, including via a messaging app. One of the defendants, Sagar R Adani, tracked “specific details of the bribes offered and promised to government officials” on his phone, according to prosecutors. DOJ https://www.justice.gov/usao-edny/pr/billionaire-chairman-conglomerate-and-seven-other-senior-business-executives-indicted By way of reference to the Canadian institutional investor: “Also named in the indictment were Ranjit Gupta and Rupesh Agarwal, former executives of Azure Power, and Cyril Cabanes, Saurabh Agarwal, and Deepak Malhotra, former employees of Canadian institutional investor Caisse de Depot et Placement du Quebec.” 1. Indian Renewable Energy Company: • Adani Green Energy Limited (AGEL): A subsidiary of the Adani Group, AGEL is a prominent player in India’s renewable energy sector, focusing on solar and wind power projects. The company has been involved in large-scale solar energy initiatives and has raised substantial capital through international loans and bond offerings. 2. NYSE-Listed Renewable Energy Company: • Azure Power Global Limited: An independent solar power producer that was listed on the New York Stock Exchange (NYSE). Azure Power has developed and operated solar projects across India and has engaged in capital-raising activities through U.S. financial markets. 3. Canadian Institutional Investor: • Caisse de dépôt et placement du Québec (CDPQ): A Canadian institutional investor managing funds primarily for public and parapublic pension and insurance plans. CDPQ has invested in various infrastructure projects globally, including renewable energy ventures in India. Key Individuals and Their Affiliations: • Gautam S. Adani: Chairman of the Adani Group, which includes AGEL. He is a central figure in the conglomerate’s expansion into renewable energy. • Sagar R. Adani: An executive within the Adani Group, closely associated with AGEL’s operations. • Vneet S. Jaain: CEO of AGEL, overseeing the company’s renewable energy projects and strategic initiatives. • Ranjit Gupta: Former CEO of Azure Power Global Limited, responsible for leading the company’s solar power projects and expansion efforts. • Rupesh Agarwal: Former CFO of Azure Power Global Limited, involved in the company’s financial operations and capital-raising activities. • Cyril Cabanes: Former Managing Director of Infrastructure, Asia-Pacific at CDPQ, overseeing infrastructure investments, including renewable energy projects in the region. • Saurabh Agarwal: Former Managing Director of CDPQ India and Managing Director, Infrastructure for South Asia, involved in CDPQ’s investment strategies in the Indian market. • Deepak Malhotra: Former Director, Infrastructure for South Asia at CDPQ, contributing to the firm’s infrastructure investment decisions in the region.

The shift in funding is definitely a sign of strength and signals confidence in future cash flows. Apart from the bottom line impacts, strategically there might be some upside in terms of credit ratings. Lower WACC, improved cashflow, EBITDA margins etc. All very positive Edit: It would impact their capital adequacy ratios as Prefs are Tier 1 and Debt obviously doesn’t count. So they must be seeing the change as neutral in terms of their capital adequacy threshold. I also wonder if it provides some clues in terms of their view on the pricing of debt in general and the direction of rates.

Some coverage on the debt raise for Sleep Country Sleep Country Canada Holdings Inc. is talking to investors about a potential Canadian-dollar bond sale to help finance its C$1.7 billion acquisition by Fairfax Financial Holdings Ltd. in what would be a rare leveraged buyout funded by loonie-denominated bonds, according to a person with knowledge of the matter. The Canadian mattress retailer is holding a call for fixed-income investors on Wednesday, organized by National Bank Financial Markets and Scotia Capital, Bloomberg reported earlier. The company is expected to receive at least one credit rating that's below investment grade, according to the person, who asked not to be identified discussing private matters. https://www.bloomberg.com/news/articles/2024-11-19/sleep-country-mulls-potential-bond-sale-in-rare-leveraged-buyout?srnd=phx-markets

Love these paid to wait deals

Short video of Fokion Karavias discussing the fortunate problem of excess capital. He reiterates comments from the Q3 results i.e. payout ratio raised to 50%. M&A is still on the cards but looking east (Middle East and India). Also discusses their plans to leverage their strong presence in Greece and Cyprus to act as a gateway for corporates from the ME/I to the EU. https://www.bloomberg.com/news/videos/2024-11-18/banks-in-greece-have-excess-capital-eurobank-ceo-says-video

@Hamburg Investor interesting topic and one that I have pondered for Berkshire as well as Fairfax. Obviously value is created when purchases are below IV, but see if the thinking below links ROE to GIVPS. Quasi maths (motherhood statements) to one side the value that has been created through the TRS/Buyback program has been phenomenal. A Charlie Munger “lollapalooza” springs to mind. Formula for Growth in Intrinsic Value Per Share (GIVPS): GIVPS Growth = ROE + BY × (IV / P) Definitions: 1. ROE (Return on Equity): • Definition: The annual return generated on shareholders’ equity. • Importance: Reflects the organic growth rate of equity if all earnings are retained. 2. BY (Buyback Yield): • Definition: The rate of shares repurchased relative to the company’s market cap. • Formula: BY = Buyback Rate / Price Paid per Share (P) • Importance: Indicates how much of the company’s equity is retired annually via buybacks, directly influencing GIVPS. 3. IV (Intrinsic Value per Share): • Definition: The estimated true economic value of a single share. • Importance: Determines whether buybacks create or destroy value, as buybacks below IV are accretive while those above are dilutive. 4. P (Price Paid per Share): • Definition: The market price at which shares are repurchased. • Importance: If P < IV, buybacks amplify intrinsic value growth; if P > IV, they dilute it. 5. Adjustment Factor: • Formula: (IV / P) • Definition: Adjusts the impact of buybacks based on the relationship between intrinsic value and price paid. • Importance: Ensures buybacks’ effect on intrinsic value per share is correctly accounted for. Why These Components Matter: • ROE represents operational performance and sets the baseline for equity growth. • Buyback Yield measures the effect of share reduction on GIVPS. • The relationship between IV and P determines whether buybacks are accretive or dilutive. GIVPS Growth = ROE + Buyback Yield × (Intrinsic Value / Price Paid)

Many thanks

Deserves its own thread! It’s triggering my PTSD

I will accept low double digit returns, given tax considerations may even accept a little lower. I figured we were at the 11%-12% CAGR point at the start of the year in terms of book and price appreciation so good thing I was content with that as an outcome. I have been willing to hold Berkshire on this basis for 15ys+ and personally think the forward prospects for Fairfax are better given exposure to . It’s got to be trading north of 1.5x’s adjusted book to even bother with a calculator these days The index add is more about answering a couple of my own thesis, so more of a curiosity than a line in the sand.

fooling around with some valuations for Eurobank. Nida Iqbar at Ms has a valuation of €2.63. Seems a bit on the conservative side to me but decent margin of safety at these prices. 1. Gordon Growth Model (GGM) Key Assumptions: - Current TBV: €2.27 - Sustainable RoTE: 15% (management's target) - CoE: 10.5% (RFR 3.5% + Beta 1.1 x ERP 6.5%) - Long-term growth: 2.5% Calculation: TBV * (RoTE - g)/(CoE - g) = €2.27 * (15% - 2.5%)/(10.5% - 2.5%) = €3.18 2. Sum-of-Parts (Geographic segments) Region | Earnings | Multiple | Value Greece: €647m x 8.5 P/E = €5,500m Bulgaria: €154m x 9.0 P/E = €1,386m Cyprus Combined: €335m x 10.0 P/E = €3,350m Other: €70m x 8.0 P/E = €560m Total Equity Value: €10,796m Shares Outstanding: 3.7bn Per Share: €2.92 3. Justified P/TBV Multiple Components: - Target RoTE: 15% - CoE: 10.5% - Growth: 2.5% - Payout ratio: 50% Justified P/TBV = (RoTE - g)/(CoE - g) * Payout = 1.35x Applied to 2025E TBV of €2.45 = €3.31 4. Dividend Discount Model (DDM) Assumptions: 2024E DPS: €0.29 (50% of €0.58 EPS) 2025E DPS: €0.31 2026E DPS: €0.33 Terminal growth: 2.5% CoE: 10.5% DDM Value: €3.05 5. Market-Based Approach Peer Group Metrics: - Average P/TBV: 0.9x - Average P/E: 7.5x - Premium justified for Eurobank: 20% (better RoTE, asset quality) Applied to: 2024E EPS of €0.58 * (7.5x * 1.2) = €5.22 Current TBV €2.27 * (0.9x * 1.2) = €2.45 Average: €3.84 Final Blended Price Target: €3.10 Weightings: - GGM: 25% (€3.18 * 0.25) - SOTP: 25% (€2.92 * 0.25) - Justified P/TBV: 20% (€3.31 * 0.20) - DDM: 15% (€3.05 * 0.15) - Market-Based: 15% (€3.84 * 0.15) Key Upside Drivers: 1. Hellenic Bank synergies (€120m by 2027) 2. RRF-driven loan growth 3. Cost of risk normalization 4. Higher dividend payout potential 5. Geographic diversification benefits Key Risks: 1. Interest rate environment 2. Greek macro risks 3. Integration execution risk 4. Competition in core markets 5. Regulatory changes The €3.10 price target implies 56% upside from current price of €1.99, justified by: - Sustainable RoTE above cost of equity - Strong capital position - Geographic diversification - Clear strategic direction - Asset quality improvement - Dividend growth potential Models to one side, Fokian Karavias and co seem like pretty savvy operators. It will be interesting to see if they can sniff out some more acquisitions.

The bond market is in agreement https://www.bloomberg.com/opinion/articles/2024-11-11/trump-s-market-honeymoon-won-t-last-much-longer

Good post. I was a little bit ho-hum on this one in terms of economics but quite excited about the management that it brings with it. Fairfax has a checkered history with retail but you never know when they might come across their Andy Barnard of retail. Not saying it is the Sleep Country management by any means, but your can hope. “Sleep Country Canada has been guided by a team of experienced leaders since its inception in 1994. Here’s an overview of key management figures and their tenures: • Christine Magee: Co-founded Sleep Country in 1994 and served as President. She transitioned to Chair of the Board, a position she continues to hold. • Stephen K. Gunn: Also a co-founder in 1994, Gunn has been integral to the company’s strategic direction. He has served as Executive Co-Chairman and remains actively involved. • Gordon Lownds: The third co-founder, Lownds played a significant role in the company’s early development. He retired from active management in the early 2000s. • David Friesema: Joined Sleep Country in 1995 and held various leadership roles, culminating in his appointment as CEO in 2014. Friesema announced his retirement in 2021, with his tenure concluding at the end of that year. • Stewart Schaefer: Founded Dormez-vous in 1994, which merged with Sleep Country in 2006. He served as Chief Business Development Officer before being appointed President in April 2021. Schaefer became CEO on January 1, 2022, and continues to lead the company. The acquisition of Sleep Country by Fairfax Financial Holdings in October 2024 brings this seasoned management team into Fairfax’s portfolio. This integration not only adds leadership expertise but also provides access to Sleep Country’s established retail systems, including a national network of over 300 stores and multiple e-commerce platforms. This infrastructure aligns with Fairfax’s strategy to enhance its retail operations and customer engagement across its diverse holdings.” People and systems, get this right and the Sleep Country purchase could be accretive across their wider retail portfolio.

Inventory trading may well be a consideration, it would take some of the pressure off. You just know that Fairfax will have some angle that will be enlightening

1. Forced index buying is my bet 2. No, just not renew. However, when the contract closes, unless the bank wants to keep the position, they will sell it into the market. Unless there is an additional source of demand, this could put downward pressure on the share price, so in the month the contract ends, this could be quite costly to Fairfax. There is also the real possibility that a lot of investors are using the TRS as a proxy on IV and may choose to exit as well. Leverage works both ways. I would see this as a short term blip, but the market can react in pretty funky ways at time 3. Yes, but remember that this could be seen as a significant funding source for the buybacks to date.

I think there is a very high chance. IIRC, there is a liquidity requirement for listing on the CSE, so you sell into the tender, or you have to make a market yourself. "Additionally, the board highlighted the minimum dispersal criteria applicable in the case of the main market where the company is listed, as per Regulation 379/2014 of the Cyprus Securities and Exchange Commission, which requires “at least 25 per cent of the shares proposed for listing to be held by the wider public and by at least 300 natural or legal persons”. https://cyprus-mail.com/2024/07/12/hellenic-bank-board-rejects-eurobanks-acquisition-offer-as-unfair/?t&utm_source=perplexity

It always seemed a little strange that Eurobank opted for dividends vs 100% buyback at these prices. I figured Fairfax must have preferred the cash, which may be indicative of their opportunity set . The mix moving forwards will be interesting and an amazing come back story nonetheless.