This2ShallPass

To the insurance experts on the board, can you pls suggest 2-3 companies that are close to Fairfax from hurricane exposure standpoint? I'm giddy about Fairfax prospects over the next few years as well. But it's ~30% of my pf and I want to be prudent, so planning to take small otm hedge to reduce my losses in a worst case event.

I have owned it almost from the start, has been a terrible investment so far. BIAL is the crown jewel and the main reason I'm still holding. As many have pointed out, the runway for BIAL is so good and it'll be a homerun investment. Once the IPO happens, you will see a rerating (discount stays same / widens, but market value of BIAL will likely be higher than $2.5B). I'll revisit my Fairfax India holding after the Anchorage IPO. I have questions about their strategy, last year bought 2 small companies for $30M and $50M, this year trying to buy multi-billion dollar IDBI..

Are Fairfax options available in Canadian exchanges? If so, why not? Which other public insurance companies closely resemble Fairfax (from an insurance exposure to major hurricane standpoint)? I'm planning to take a small insurance () with OTM puts during hurricane season, premiums have to be right though..

Typically, closed end funds with publicly listed holding trade at a big discount. Look at Prosus, the discount didn't close for years until they decided to sell TenCent shares. There's no reason to pay the performance fees when the securities can be bought directly. Fairfax India can have a good future making investments in the $200-500M range. They have a crown jewel asset in BIAL that will keep growing. I'm questioning their strategy of late, last year they bought two small investments for $80M..not big enough to move the needle and just a distraction. Now going the other way w IDBI..

Looked at it some more - their shareholder's equity is $2.6B ($330M in cash and $500M in debt, not sure how much is drawn). The only way to be the main partner in this deal is to sell their other major investments (Sanmar and IIFL). I'm struggling to see how this makes any sense - why go after something so big? IDBI feels like more suited for parent Fairfax. Also, if the deal completes, the discount is never going to close - IDBI will be a much bigger % of Fairfax India value and not sure many will want to pay the performance fee..

IDBI current market cap ~$7.3B, with premium you're looking at ~$8B and to get a majority stake need >$4B. Can Fairfax India be the main owner with partners, they still need ~$2B right?

How will Fairfax India pay for IDBI, can they afford it?

Amazing quarter, great to see duration at 2.5 years! That's all we were asking last Q, there was no need to stop at 1.6 but glad they made it up this qtr. And locking in $3B at 3.75% for next 6 months gives more room..

I'm also curious how do you get to originate loans like this. 60% LTV loans are gravy, the default risk is so low and no one is transferring these loans to you (not cheaply at least). Also, there's no way those borrowers get a floating rate at 8%. Are majority of their loans in Ireland / UK and are the mortgage int rates much higher than US? Basically this sounds too good to be true, what am I missing?

60% on average suggests there are loans much below and some that are higher. For example, I'm sure the LTV on my mortgage is much much lower. Even if they have 20% loans at 80% LTV isn't that risky? 7.9% floating rate scares me to be honest, this is how we got the housing crisis in the first place...ppl taking floating rates and paying sky high prices for homes.

I tried looking at the last 8 years as that seemed like the inflection point. Fairfax is higher but not by much and maybe there's some international new business / inorganic growth there as well.. Gross premiums Markel (2015-22) = $4.63B to $13.2b (185% growth) Fairfax (2015-2022) = $8B to $25B (212%. 2022- Page 11 of shareholder letter without Allied, I assume this is at Fairfax share of GPW)

Going from 4.5% to 5% in 2 years is not noise. Markel went down from 5.8% to 5% in that period and most major insurers are also down..

Why is Fairfax growing when Berkshire and Markel are being cautious? E&S is Markel's main line I think, so they have more expertise there than Fairfax. We have all been ecstatic about their insane premium growth over the last few years, but is there a risk where they grew too fast? I assume not but this data point does concern me a bit..

I live in US and have a question with regards to buying stocks listed in Indian exchanges - is it better to buy these in taxable accounts? I'm planning to buy using IB, would taxes on cap gains / dividends be anyway deducted at source by India?

So, how did they do in 7 years overall vs. say a Markel who state they will not try to predict rates? I know most folks are giving them a pass, but unwilling to extend the duration even by a little in Q4 was a mistake. No need to go all-in when they already had the huge win.

Thanks @giulio. So about 6% dilution in 8 years ($100M) due to performance fees, not crazy about it but not egregious. Great post @SafetyinNumbers. Yes, this is my concern, it's like Fairfax performance fee gets a 30% boost. I didn't think about the structure providing natural incentive to close the discount, which makes sense and hopefully the directors act on it (if they're truly independent and not related / dependent on Prem / Fairfax in some fashion).

Shares outstanding increased from 106M to 147M from 2015 to 2017. Did they issue additional shares to buy BIAL or something else? How much of the increase in shares are due to the performance fee paid to Fairfax, wondering if it'll still be a good investment if Fairfax continues to get shares (especially at such a big discount to BV)?

Good callout on how it'll impact underwriting. Maybe I'm taking a more simplistic view, it's part of doing business for Fairfax. They have to do the right thing from the investment standpoint and the insurance operations will have to work within that. When I started investing in Fairfax, I was inexperienced and drank the value investing Kool aid - buy and hold forever, more money is made sitting etc. Gave Fairfax all the leeway which in hindsight was clearly a mistake and I chalk that up to learning. I get really worried when I see some of their worst tendencies popup (dogmatically holding onto bad ideas like deflation bets, shorting etc. for a very long time) vs. doing what seems to me like the more straightforward thing. Only comfort is this time it's Brian Bradstreet, if it had happened in the equity side I would seriously consider reducing my position (fool me twice and all that). Still, no one is answering TwoCities point about the big miss in 2018 and why this time will be different. That's a $3B+(?) mistake, actually more if we consider the opportunity cost of what they could have done with that..

Yes, don't know why they couldn't even increase duration from 1.6 to 1.8. What's the downside, you miss the opportunity to make $1.7B and have to settle for $1.5B?? Locking rates (not 10 yr but more than 1.6 when you already hit the home run) provides the stability. More importantly, the certainty on income stream is what will help increase the multiple. They are always swinging for the fences, either spectacularly right or wrong. When wrong, it wipes out a decade of returns. No one is going to give them a high multiple after what they did the last 10 years. I do really hope for it as this is by #1 position by a mile.. The other head scratcher is not doing a SIB in Q4 with the pet insurance sale, what did they do with that cash?

True Viking. But, if you zoom out 5 years, then you're sitting at -20% loss (-55% relative performance vs. s&p). I did add a bunch during the covid lows and recently ~11 which helped, but still a losing position on what I believe is the right stock and I was willing to sit tight. Without the benefit of hindsight, you would have to be very lucky to have stumbled into this 6 months back and bought big at the lows. The key challenge I have is on conviction - if you find a good oppty, but haven't spent a lot of time on, then I can never swing big. Building enough conviction takes time, then I find myself sitting on stocks like Fairfax / FF India that don't move for many years..

Fully agree on these. That's why I have been holding / adding, even the last few weeks I started nibbling again ~460s.

All I know is Francis hasn't bought Fairfax in his funds. If he trusts Prem so much, then why is 35% of his main fund in Berkshire and 0% in Fairfax (http://choufunds.com/pdf/Asso 2022 Q2 Holdings.pdf). I used him as an example as he has Fairfax connections, but why haven't many value investors bought Fairfax (only one is Southeastern)?? I brought up trust as that has been discussed a lot in this board (though a while back) with regards to Prem. Trust is built on doing what you say. My concern is only based on the Pet insurance proceeds and in Q2 he clearly said buyback would be the #1 priority. The markets haven't hardened that much in Q3 for that to change. And yes, I'll choose whom to trust with my money...right now that's starting to erode.

I was thinking about a SIB Viking. I'm keeping it very simple, if you'll be earning $100/sh, your stock is at $500 and you're getting $1B..you do a buyback. Their financial position is solid. I bought Fairfax 10-12 years ago, have held it patiently through their mistakes and even added more. I'm the kind of long term shareholder they should reward at some point (in the really long term, we're all dead). Forget the market, even prominent value investors who would have scooped up this bargain are buying. Not even Francis Chou. That to me suggests there's a big trust issue. If they keep eroding that trust, even in people like me who have really believed in them, they will never have the kind of shareholder base that Berkshire or Markel has.

Thanks Viking for the great update. Earning $100/sh, stock is unloved, but still unwilling to buyback shares Like someone posted maybe they're getting ready to bid for IDBI, looking to turnaround another company and wait another 5-10 years? Is there a chance Prem is in empire building mode and trying to cement his legacy vs. doing what he said. I'm coming around to the idea that this guy is not trustable. Here's his quote from Q2 Q: "What are your thoughts as to what to do with this $1.2 billion in cash from that Pet Insurance deal?" Prem: " And so we look at obviously, buying back our stock, that'll be the number one thing that we'd look at, but not at the expense of our financial position. "

Agreed, but they also need to prioritize long term shareholders who have really trusted them and have got 0% return over 10 years during a historic bull market. And do what they say or risk losing even more trust, Prem just said in Q2 buybacks are the main priority from the sale and has been talking about Teledyne forever. I don't see a better setup to do what Singleton did then now..