glider3834

Northbridge is also rated as a top insurance employer in 2022 https://www.insurancebusinessmag.com/ca/best-insurance/top-insurance-employers-2022-427797.aspx#winnersListSection

@VikingI thought this was an interesting stat from C&F website which provides current employee perspective on management 'In 2022, 93% of C&F’s nearly 2,500 U.S. employees participating in the survey said the company is a great place to work - 36 percentage points higher than the average U.S. company.' https://www.cfins.com/

https://www.theglobeandmail.com/business/industry-news/energy-and-resources/article-canada-alberta-solar-farm-mytilineos/ 'One of Greece’s top industrial and power companies is launching a $1.7-billion solar-energy project in Alberta that it says will be the largest of its kind in Canada.' 'Mytilineos is backed by Toronto’s Fairfax Financial Holdings Ltd., led by Prem Watsa, which first bought into the Greek company in 2012 and has since increased its ownership to 4.7 per cent, making it the second-biggest shareholder, after Mr. Mytilineos, who owns 27 per cent. Fairfax has an option to take its ownership to 6.4 per cent.'

Just looking at this quote above from Morningstar. Based on my estimates, over last 9 years (2013-2022) - Operating Income has grown at 14% CAGR - Pre-tax operating income (before investment gains) per share has grown 15% CAGR Pre-tax Operating Income (excluding investment gains) as a percentage of Common Shareholder Equity (start of period) was 15% in 2022 (versus 7% in 2013). If we are looking at what sort of ROE or BVPS growth rate Fairfax can sustain going forward, IMHO I would look to pre-tax operating income (excluding investment gains) as a key driver. If you then consider over 50% of Fairfax's BVPS growth rate since inception has come from investment gains, it doesn't seem unreasonable to expect a positive number here when measured over longer periods. (Table below I put together from 2013 & 2022 Annual reports) Also please always do your own due diligence & don't just rely on my figures. Thanks!

sorry viking I am not sure what they mean by value is that the total build cost/gross asset value before factoring in debt etc?

@Viking so this video below has terrible sound quality but from 27-32 min mark - George outlines their investment thesis on going after ultra luxury branded segment with Grivalia Hospitality - he talked about (in my words from memory not his) - Greece attractive tourist destination (natural beauty etc) - Greece has a shortage of genuine 5 star hotels (even though hotels might call themselves 5 star they are not genuine 5 star hotels by international standards) - a lot of hotels a family owned etc - lack of brand name luxury hotels in Greece like Aman, Mandarin etc - one of reasons you would build rather than buy hotel is that for luxury hotel guests need to have space etc - so existing hotels wouldn't be suitable in most cases - construction costs have gone up a lot but there is still attractive return even after factoring higher building costs https://www.youtube.com/watch?v=lRuZ2HXam-A Also I did some digging, according to this website https://theluxurytravelexpert.com/ the Aman Resorts are rated the number 1 luxury hotel brand in the world (if you are an ordinary person like you me you probably never heard of them! :)) The Amanzoe Resort owned by Grivalia is run by Aman Resorts & is rated (by same website) the best hotel in Greece https://theluxurytravelexpert.com/2020/10/12/best-hotels-greece/ & in Europe's top 10 https://theluxurytravelexpert.com/2021/07/08/top-10-best-beach-resorts-europe/ Now with Amanzoe, Grivalia didn't build it, they bought it in 2018 at a total EV (mostly consisting of debt) of 116M euro. https://markets.ft.com/data/announce/detail?dockey=1323-13740636-74QQ05NEK6U4F5D19IU8MDVHUB From what I can tell it cost the original owner over 100M euro to build it so it looks like they bought potentially close to its build price. Its unclear what its current EBITDA & valuation would be now & also what GH has spent on the property but given Greece 5 star hotel room prices are up 110% over 2019 to 2022 period, you would think that would be likely positive driver of Amanzoe's valuation & another factor maybe behind GH push in the 5 star space. https://greekreporter.com/2022/06/30/5-star-hotel-rooms-greece-rise/

Just having another look at this - AIG are paying a dividend out of Validus re prior to close so thats included in transaction value , but from M&A perspective this sale of Validus Re is priced at 1.4 x tangible BV & 1.1 x GPW of $2.7B in 2022 with 95 combined ratio 'Total consideration for the transaction is $2.985 billion, equal to 1.42x Validus' tangible equity of $2.1 billion to be delivered to RNR at closing, with any excess to be retained by AIG.' https://www.fitchratings.com/research/insurance/fitch-affirms-renaissanncere-ratings-following-validus-re-acquisition-announcement-outlook-stable-23-05-2023 The expected property GPW of the company will be approximately $900 million. For casualty and specialty, GPW is expected to be roughly $1.8 billion, with RenRe stating that the combined ratio will be in line with the existing portfolio, at around 95%. https://www.reinsurancene.ws/renres-gpw-poised-to-expand-by-30-to-12bn-following-validus-re-acquisition/ Worth noting too that Validus Re increased premiums by 40% in Q1'23 so that likely would be factored in too https://www.reinsurancene.ws/validus-re-premiums-up-40-significant-rate-increases-expected-in-june-aig-ceo-zaffino/ In addition, AIG will retain 95% of the development on Validus Re’s net reserves at closing, mitigating RenaissanceRe’s balance sheet risk. https://www.reinsurancene.ws/moodys-affirms-a-stable-outlook-for-renre-post-acquisition-of-aigs-validus-re/

I stand corrected thanks for the pick up!

BIAL passenger traffic 3.2M in Apr-23 vs 2.7M in 2019 (up 17%) domestic 2.86M vs 2.32M in 2019 (up 23%) international 0.35M vs 0.42M in 2019 (down 17%) https://www.aai.aero/sites/default/files/traffic-news/Apr2k23Annex3.pdf all-time record for BIAL in total passenger volume, but international still recovering post covid - running at 83% of 2019 levels international passengers are higher spending (on shopping/duty free etc) than domestic & they pay higher tariff rate, so if they can increase international passenger volume further with T2 up & running - this will be important from a margin perspective.

They recently announced looking to buy up to 10% of BIAL - so I think their strategy is to increase rather than reduce their BIAL ownership & then hopefully IPO at a more favourable valuation later on.

yes increases likelihood with a second round vote PM & ND will have an outright majority (courtesy of the bonus seats) to govern for another 4 year term and won't be forced to partner with a coalition partner that may not be on the same page. So I think that will be a positive from rating agencies viewpoint and for all investors in Greece . I am pleased for the Greek people too - they have an excellent PM who has done a lot for the country.

Grivalia Hospitality Grivalia appears to have had operating loss in Q1'23 but it looks like they are still in build out phase - they are aiming for completion on three projects According to Chryssikos, the third (three?) projects under construction will open as pilot operations very soon; Avantmar in June; the Glyfada project in early August; and the Voula Project in early 2024. but have additional ones planned, so I assume once they ramp up there would be revenue contribution there. https://www.ekathimerini.com/economy/1210801/aiming-for-wealthy-guests/ 'For the Grivalia CEO, there is a great market for 5- and 6-star resorts in Greece. Demand is high and, so far, supply is low. And the targeted cliented is high value: people with considerable disposable income who are going to spend large sums that will benefit the whole tourism ecosystem.'

yes cats were more elevated - underlying CR (ex cats) in Q1'23 was around same level as Q1'22

https://www.fairfaxindia.ca/news/press-releases/press-release-details/2023/Fairfax-India-to-Acquire-Additional-Interest-in-Bangalore-International-Airport-Limited/default.aspx

also viking I think we can say the reinsurance hard market conditions IMHO are a bigger tailwind for Fairfax's underwriting profitability than they are for Markel or WR Berkley which I believe have smaller reinsurance businesses. Take Allied World for example, its insurance business wrote an 86.2% combined ratio(CR) in 2022 but the 102% combined ratio from its reinsurance business took its overall CR to 90.9% (see below) Higher reinsurance pricing provides opportunity for Allied to bring down its reinsurance CR & derive more underwriting profit. 2022 2021

Now for Moodys & S&P - Lets wait & see

https://www.businesswire.com/news/home/20230503005889/en/AM-Best-Upgrades-Issuer-Credit-Ratings-of-Fairfax-Financial-Holdings-Limited-Its-Subsidiaries-and-Allied-World-Assurance-Company-Holdings-Ltd.

https://www.theglobeandmail.com/business/article-blackberry-exploring-potential-breakup-of-company/

If you look at overall GPW growth rate for Fairfax at 17% in 2022 versus around 15% for Markel - not too different. Fairfax is emphasising E&S with lines that have been in a hard market - if you listen to RB on WRB calls over course of 2022 he has been calling out the standard market while seeing more opportunities in E&S -so thats interesting - also if Fairfax were growing a lot in a soft market I would be concerned. IN recent quarters, Fairfax has been dialing down growth (& they talked about that at 2023 AGM) & that has been in line with moderating price increases - so appears to make sense. It does appear that property insurance is starting see more hardening conditions in recent months so that could open up more opportunity. All of Fairfax's growth in 2022 is organic - so this is not acquisition led growth where they are buying new books Berkshire grew DPW by 17.6% in E&S in 2022 - so looks more opportunistic than cautious to me and Fairfax was 26% but they are also coming off a smaller base.

viking suggested I put up a post on this subject - buyout of 12% stake from Allied minority shareholders - I won't detail all the background here but just the key points - just to qualify I am not an expert on IFRS accounting, I have cobbled this info together from filings and we are missing shareholder agreement bw minority investors & Fairfax. I guess the purpose of this post is to try and look at the mechanics of this deal and how future transactions with minority interests in Allied, Odyssey, Brit or other subs might look. So here we go 1. What did Fairfax pay for the 12% stake in Allied? Fairfax paid $650M cash to minority shareholders for their 12% stake in Allied in Sep-22, this is actually equal to the minority shareholders original investment in July 2017. Here is the calculation (12%/29.1%) x $1580M = $650M So we could infer that its likely Fairfax will need to spend $930M to acquire the remaining 17.1% stake in Allied now held by minority shareholders. Question: Can we also infer that this is the buyout price template for Odyssey & Brit minority stakes as well? 2. What was Fairfax's equity financing cost for this deal? Minority shareholders received a priority, fixed 8% annual dividend (or $126.4M on $1580M investment) from Allied. Putting 1. & 2. together - both the equity financing and buyout price are fixed. Fairfax benefit is that it retains all the upside from Allied's revenue, net income and shareholder equity growth. 3. What is the immediate cash benefit to Fairfax of this deal? By my estimate = $22.7M per annum Calculation 8% dividend paid on 12% stake = $52M less $29.3M (after-tax interest cost on senior notes used to fund deal ie $650M x 5.63% x (1-0.2) - lets assume a 20% tax rate Any further upside that Fairfax receives from this acquired 12% share of Allied over & above $52M is gravy. 4. How is fair value of consideration (including accrued dividend) of $733.5M calculated? This is equal to $650M cash paid plus $38.5M accrued dividend paid (on 12% stake for 1 Jan to 27 Sep) plus (I am estimating) $45M fair value of call option exercised. 5. Does the 12% Allied buyout impact earnings or book value? It increases Fairfax's share of Allied's operating earning & going forward EPS - common shares It reduced BVPS as the fair value of consideration (excluding accrued dividend paid) = $695M was more than $467M carrying value of 12% stake in Allied - so the difference is a $228M reduction in common shareholder equity (important point this impacts shareholders equity (specifically its a loss of retained earnings) and it doesn't run through the earnings statement). I hope I haven't given anyone a headache! lol

my sense is Fairfax has taken a full pivot by moving to lock in a lot more duration at the beginning of 1Q'23 suggesting inflation has peaked and rates to come down. If you look at chart below their timing has been driven by data - a very large cash position at beginning of 2022 with 1.2 yrs duration & hedges to protect from further increases in rates, and then with inflation peaking July 2022, they continued pushing out to 1.6 years by end of 2022 & substantially reducing their interest rate hedges & then pushing to 2 yrs and over in 1 Q 2023.

usually they just publish the meeting presentation - but agree they should record the meeting and make it available

https://www.theglobeandmail.com/investing/markets/inside-the-market/article-wednesdays-analyst-upgrades-and-downgrades-for-april-19/ * In response to its Tuesday release on the effect of IFRS 17 on common shareholders’ equity, BMO Nesbitt Burns’ Tom MacKinnon raised his Fairfax Financial Holdings Ltd. (FFH-T) target to $1,225 from $1,150, reiterating an “outperform” rating. The average is $1,169.64. “FFH is by far the biggest beneficiary amongst its Canadian P&C peers on the transition to IFRS 17 (which calls for discounting), largely because of its current conservative practice of not discounting its reserves—IFC, DFY, and TSU currently discount,” he said. “The substantial increase in interest rates is primary driver of the bigger increase at Q4/22 versus the Q4/21 guide. Unlike its Canadian peers (IFC, DFY, TSU), FFH conservatively does not currently discount its claim liabilities under IFRS 4 to reflect expected yields earned on its assets. We expect the increase in Q4/22 BVPS upon transition to IFRS 17 to be similar to the impact provided in company guidance for Q4/21, which was a 2.9-per-cent increase for IFC (already in our estimates), a 5.0-6.0-per-cent increase for DFY (already in our estimates), and a 1.0-5.0-per-cent increase for TSU, with these increases driven by the deferral of additional insurance acquisition expenses, and, in the case of DFY and TSU, a lower risk adjustment due to the change in methodology for calculating the risk adjustment on reserves. “Now on an apples-to-apples basis FFH appears even more attractive relative its Canadian peers.”

I am deleting my IFRS 17 post - need to take futher look at it

thanks viking as always for your posts & hard work agree I think in adding to existing positions, they are already familiar with is probably a lower risk approach compared to starting completely new positions also they have increased their positions in Sporting Life & Thomas Cook as well.