Thrifty3000

Industry average P/E is 12. Prem puts the normal earnings floor around $125 per share. 12 x $125 = $1,500. I definitely wouldn’t sell for less than that.

I took the day off to play golf. Did I miss anything?

FWIW My neighbor moved all her valuables and her most beloved memorabilia into a storage unit about 3 years ago. The timing was rather fortunate because only a couple weeks later her house happened to catch on fire, at which point she panicked and traveled on foot to her boyfriend’s house some distance away - to seek his assistance during this trying time. Shortly thereafter they got in his truck and drove to her house to decide how best to handle the growing emergency. By the time they arrived some good samaritans had already called the fire department, though the call was made too late to salvage the home. After 3 years of reconstruction, my neighbor and her daughters just moved back into their fully rebuilt and refurnished, dream home - courtesy of whatever insurance company she has royally suckered. Long story short. Incurred losses are a fun little fictional adventure that play out over several years. Even if FFH estimates record losses from Milton, they’ll be able to charge record premiums for the next few years while they’re shelling out the money needed for post-Milton reconstruction.

Ok, so I do feel like I get what you’re saying about reinsurance and retrocession policies (aka reinsuring reinsurers). But, in my tiny little meat computer I have to oversimplify by making it all about replacing or repairing “structure/asset equivalents”. For example, if a boat insurer insures 10,000 boats, but pays FFH to accept risk for 2,000 boats in the event more than 20% of their insured 10,000 boats have been damaged, then I have to think about how many boats FFH is on the hook for. Yes, it’s vast oversimplification, but my monkey brain would stroke out if I didn’t oversimplify. By oversimplifying I’m basically telling myself that if a fictional super-hurricane wiped out every single home in Florida that FFH would be on the hook for roughly 90,000 residential policy equivalents for homes with values averaging $400,000. I know I’m wrong but I’m just trying broadly frame this risk, while also eliciting excellent feedback from more evolved monkeys who also contribute to this forum. (After all this typing I’m really starting to crave a banana.)

If Florida has 9 million homes and Fairfax insures approximately 1% of them then I'm going to assume FFH is insuring maybe 90,000 homes in the state. FFH just needs to be sure they're spreadin' them suckers out. Piece of cake. Haha

Some stats on home destruction/damage in Florida from a couple recent storms... Hurricane Ian: Homes Destroyed: 5,000 Homes Damaged: 30,000 Hurricane Michael: Damaged or destroyed approximately 60,000 structures If you contrast those numbers against 9 million total homes in Florida, it seems there's plenty of opportunity to spread the risk.

Milton's impact area and trajectory across Florida are shaping up pretty similarly to Hurricane Ian in 2022. Ian was very powerful, only 2 MPH short of being a category 5, and made landfall south of Tampa - heading west to east. It sounds like insurance industry losses for Ian ended up in the neighborhood of $50 billion. At the time, Fairfax estimated their Hurricane Ian losses would be in the neighborhood of $560 million. Fairfax ended up fairing rather well despite the Hurricane Ian setback.

^ he says 20 years ago he identified a west to east direct hurricane hit on Tampa bay as the top insurance risk in the country. Rounding out his top 3 risks at the time were a hit on New Orleans (prescient) and a hit on Manhattan (Sandy was close but not worst case). Says Tampa’s downtown will likely be 15 to 30 feet under water. Ouch.

Here is an interesting thesis from an insurance veteran. Sounds like Milton could be the death knell for several key insurers in Florida if losses exceed $100 billion. #hardmarket https://iansbnr.com/hurricane-milton-the-end-of-the-florida-insurance-experiment/

Good point! Thanks

According to a quick google search: - average home value in Florida: $400,000 - average annual cost of insuring a home in Florida: $11,000 (4 to 5 times higher than national average) So, it looks to me like 1 in 40 homes in Florida can be wiped out every year and the insurers will still turn a profit. There are 8 or 9 million houses in Florida, so if 100% were insured the insurance industry could afford to rebuild roughly a quarter million houses every year. (Disclaimer: All my math is back of the envelope and probably wrong.)

Okay, well, if you have to ask then you shouldn’t buy. Haha

Well, any veteran investor worth his salt would say if you have to ask then it's not okay. But, I'm pretty sure I'm not worth my salt, so I'm going to say you SHOULD invest - however, that recommendation comes with a caveat... I recommend taking a "starter position" of, say, 1% of your portfolio, or whatever amount gives you enough skin in the game to incentivize you to do the requisite research to ascertain not only a conviction buy price, but also a conviction exit price. At the very least I recommend reading Viking's thesis and maybe the last decade or so of Prem's annual letters. After you do that, then if you still CAN’T succinctly defend your conviction buy and sell prices I recommend exiting your starter position. However, if you CAN defend them then I say set your trade triggers accordingly and welcome to the FFH party. Hope this helps.

I wouldn’t be surprised if FFH breaks into the top 25 within 6 months, and the top 20 within 18 months.

In simplest “best practice” terms: 1) estimate intrinsic value 2) create a trade trigger to buy at a 40% discount to your estimate 3) create a trade trigger to sell at a 40% premium to your estimate 4) regularly update your intrinsic value estimate and your trade triggers (quarterly) 5) sit on your hands ^ this takes emotion and impulse transactions out of the equation

Great brands at a fair price. Whether mattresses, hockey sticks, banks, airports or container ships, I say the more the merrier.

Here are the corporate related elements of her plan…

Ok, but Kamala is calling for 28% corporate tax in her budget plan. So I’m curious what the risk adjustment to fair value should be.

What would be the impact to FFH earnings if US corporate taxes increase to 28% from 21% (when the Trump tax cuts expire)? Do we just reduce the US-based earnings, or is there some kind of tax treaty with Canada that changes the math?

I think Sokol would be way more valuable/effective as a board member (holding operating managers accountable for high performance). As an operator he might be too much of a culture shock. However, I also think Sokol is probably too expensive of a board member. He would probably demand millions in board compensation, which would cause all kinds of headaches with future board comp and retention.

Just wait until the world recognizes how much better Prem has done with succession planning than Buffett.

Ahem…

^ Boooo. Too conservative!!

Also, given the average P&C company trades at 12 times earnings, and Prem’s latest baseline medium-term earnings expectation of $125 per share, then I’m thinking we still have room to run.

Up 35% YTD. While the S&P 500 trails solidly behind at 18%.