bluedevil

With the stock lower, and the proceeds from the Poseidon sale in the door, seems like a good time for the company to close out the TRS by buying back the underlying stock held by the banks that are hedging the TRS. Seems like a natural way/time to unwind the TRS when there is some cash in the door and to capitalize on the drop in the stock price.

Yeah, to me the best part of Fairfax as an investment right now is the long-term outlook for Fairfax's insurance operations. The current machine -- which is really more like 250 different, independent businesses operating across the entire world -- has not been together for THAT long. The most indicative results are likely what we have seen over the last five years, for 2 reasons. First, many of the businesses -- such as a Crum & Forster and Brit -- were in long, long periods of being brought up to the Fairfax standard. I think all of the big businesses are there now. Second, the full impact of Andy Barnard's work probably has been felt after 2021 or so, when he'd been in the seat for a decade. When you look at the results over the last five years on the underwriting side, the results have been astonishing. Consistently profitable underwriting (even accounting for catastrophes), rock-solid reserving, AND huge organic growth. Looking forward, they have 250 pretty independent businesses ("profit centers") spread across the world, empowered to independently pounce on opportunities. It is a terrific setup for the future. Obviously, much will depend on the softness or hardness of the market, but over time I think the odds are good that these companies will continue to create extraordinary growth in the amount of Fairfax's float, while maintaining something like 95% CRs.

Agree. One of best P/C insurance operations in world. In terms of underwriting profitability, over the last 8 years, 15%-ish organic premium growth, with 95% combined ratio. Decentralized and globalized. Great and sticky management in place. Does not need acquisitions. Right incentives based on long-term philosophy/orientation. Huge growth opportunities in developing world, particularly india and ME. The performance over the last few years (specifically the industry leading expansion during the hard market) shows this is a high-performance machine. Prem says it is one of the world's leading P/C companies, and I would have to agree. In terms of investments, it has set up an ideal investment platform: Permanent capital. Ultra patient client. Zero restrictions on investments (including public/private/venture/location, etc.), except for regulatory insurance restraints. Worldwide investment platform/capability. Compare that to Markel, for example, where they essentially have one investor (who is not a spring chicken), who basically focuses on companies in the S&P 500. It is financially strong. And getting stronger. 5 billion in income is largely locked in for a few years, and by the end of that, the financial strength of the company should hopefully be rock solid. Of course, there are risks. AI disruption; long-period of low interest rates, huge catastrophes, etc. But does look cheap to me! At least i think over the next decade that the p/bv ratio will not contract and a shareholder will very likely get to fully enjoy the compounded growth in book value over that time.

This presentation is a great advertisement for the Fairfax model . Just 40 years of work later. this makes me think of a similar effort by David Einhorn. They tried and came to the realization that underwriting is really damn hard.

I think the caution on inflation is prudent. As Dalio explains, the US government spends 7 trillion each year; and brings in only five. $ 1 trillion goes to interest expense, and that is pushing up relentlessly as the government keeps spending more than it brings in. Only realistic path out seems to be to debase the dollar; which will feed inflation. I suspect that in a nutshell is why Fairfax is shy about taking duration risk, especially when they are getting paid ok to remain short.

I’m not certain the rationale behind a separate FIH still exists it was originally created when Fairfax was capital restrained and regulators limited how much of their insurance sub money they could invest in India. They saw a huge opportunity and wanted to put in more capital so did next best thing and took money from others while earning a fee and using that fee to increase their ownership over time. they have more capital flexibility now and haven’t been able to use FIH as a significant capital raising vehicle given the discount to book that has persisted

AND I heard on the call today that the duration on the fixed income portfolio is around 2.5 years, not 4 years.

Viking, definitely on AI being revolutionary. I think many companies will be nuked and many will thrive. It is one of my worry points for Fairfax - not because of anything unique about Fairfax specifically, but because my investment has grown into a large share (about a third) of my portfolio. While i think it is a highly resilient/diversified company generally, if it is one of the companies that does not adapt well to AI, then that would be bad I thought the CEO of Capital One, Richard Fairbanks, gave a good summary what companies need to do to stay on the right side of things in AI in his last SH letter. He talked about how big players like Microsoft are creating "horizontal" AI tools that cut across all industries. But: "The AI revolution will also drive a vertical revolution, transforming individual industries. But this revolution is unlikely to be driven by the big tech companies and tech suppliers. It will be driven by companies in specific industries that are able to embed AI in their business model and that have deep, proprietary data. This means building AI solutions that are deeply connected to how the company works—its products, customer experience, technology stack, data ecosystem, processes, and the way decisions are made. The winners in the vertical revolution will be companies that are built with modern technology, led by world-class tech and analytical talent, and powered by boundless proprietary data from a huge customer base in the vertical." Companies like Kinsale and Capital One have been working for years to develop the right tech stack and talent, and are seeing fruits and likely we see it at a highly accelerating rate. I have no idea what Fairfax is doing on this front, other than Ki and Digit. If they are not moving with grave urgency, that is going to catch up with them. I wish there was more discussion from Fairfax about this challenge and how they plan to meet it. One other item to flag. One of the reasons i love Fairfax is its ethical and humane behavior, and (for example) that it has never done a layoff. Prem has criticized successful tech companies for laying off employees. Query if insurance companies start to shed high numbers of employees and costs because of AI (probably not far off if you look at Ki's success), then how does Fairfax respond?

Wow, i follow Fairfax pretty closely, but i hadn’t appreciated just how much their stocks have been increasing! Thanks Viking. And Kudos to the Fairfax team - that is exceptional performance.

Viking, On the art of NOT selling, I would recommend listening to some of the talks from Chuck Akre. A now retired investor with an incredible record. His formula was finding exceptional companies with a high return on equity; buying at a price that would let him enjoy at least the same compounding experienced by the business (ie multiple would either expand or stay constant); and not selling at any price so long as the business retained its exceptional characteristics, regardless of how high the multiple went. But if he thought the business had eroded and lost its exceptional characteristics, he would sell right away. I believe he compounded at around a 15% clip for a long time, without leverage. A great thinker on investing who I learned a lot from. His talk at Google from 2017 below:

Yeah, i think if you just look at their combined ratio, the performance is still ok. But if look at the total package, Fairfax has increased premiums written (even organically) much faster, and uw has gotten tighter. Markel has grown much more slowly, but if anything its uw performance has gotten more spotty compared to peers. Not a great trajectory, and very concerning if they can't arrest it. The good news for Markel is that they (now more than in the past) seem aware of the problem and determined to clean it up. And the new insurance leader has a great track record and seems to have a clear vision for how to fix the problems (never heard a clear diagnosis from their prior leaders over the past few years).

One more thing about the Markel Brunch presentation that i think is worth calling out from a Fairfax perspective. The new structure that Markel is putting in is to try to empower approximately 60 profit centers that are focused on a unique set of customers, geographies or products and that have full accountability for their P&L. This is to empower and hold accountable frontline underwriters. This is the exact model that Andy Bernard brought to Fairfax's insurance operations when he took that over 13 years ago. Fairfax according to Prem's 2024 letter now has approximately 250 such centers. Likely an important reason for the divergence we've seen in the underwriting of the two organizations. Fairfax has gone from mediocre to great, while Markel has gone from great to mediocre because it went from this model (which it historically had) to a more centralized model.

Yeah, i hope Fairfax is moving aggressively on this front. Underwriting is so data-centric, that it seems it will be heavily disrupted by AI, and soon. Ki is a good example. Huge success for us, but the fact that it has gone from nothing to the success it has now in such a short period is a warning sign for all incumbents, including Fairfax's other companies. Markel's new insurance guy seems very bright. But it is hard for me to see how they turn things around to compete without rebooting their technology stack, which will take years. One of the things the Kinsale CEO has mentioned is that because of their advanced technology, they can give quotes to brokers much faster than competitors, and that brokers value this, resulting in higher-margin business. Something he thinks other people can't replicate for years. Hopefully Fairfax is ahead of the curve!

The Markel Brunch for 2025 just posted on Youtube. I think it is interesting to see the presentation at the beginning and the explanation of why Markel has struggled in insurance over the past few years. My boil down: 1 - Over centralization. Moving too many shared services to central functions for lower costs, which took away power from front line professionals. Makes Prem's comments about the critical importance of decentralization and maintaining that seem prescient. 2 - They are getting their lunch eaten by Kinsale Capital Group in their core US specialty business. Kinsale seems like it is disruptive, tech based company (honestly had not heard of them), and is blowing Markel away -- taking share, while having underwriting ratios that are 20 points less! For those of us with huge positions in Fairfax for the long-term, it is this second point that concerns me. Seems tech and AI -- which i didn't think of much until this year, when my tesla for all intents and purposes started to drive itself and AI models got good enough that i now use them at work every day -- will be hugely disruptive for insurance underwriting, and hard to tell how prepared for that Fairfax is outside of Ki and Digit.

I think this comment from Wade Burton in the q3 earnings call gives you a good sense of the current investment approach, at least in private securities, Fairfax will be taking: invest in "dominant" players in niche areas, particularly areas that don't face a significant risk of technological disruption. This is exactly the Tom Gayner playbook for private investments. "Looking back over the last two years, we’ve made three significant long term equity investments, one in Meadow Dairy, a dominant milk ingredients company in the U.K. that is doing very well; another in Sleep Country, a dominant mattress distributor and retailer in Canada; and now a third, Peak, a dominant sporting goods company focused on hockey and lacrosse. All immediately are or will contribute to our earnings, and we believe all will continue to contribute more and more as their businesses progress." A key benefit of this approach, Tom Gayner would tell you, is the predictability of future earnings, because these niches are small enough that whiz kids in Silicon Valley are not trying to dream up how to disrupt milk ingredient manufacturing or hockey and lacrosse gear.

I really like hearing from Wade Burton on these calls. He is a great communicator. To the point, clear and informative.

Seaspan is not directly affected in a material way. Sokol said: "Our long-term charters with our -- with the major shipping companies . . today, that long-term cash flow under contract is about $30.5 billion, and we burn about $2.3 billion a year." They have 13 years of cash flow locked in. If shipping rates drop dramatically, then they can't keep renewing this pipeline at attractive rates, but they can weather a lot with that much locked in until conditions improve, then they will refresh at that time. The concern becomes if any of their customers go belly up - then it reduces their contracted number while still leaving them with the assets that they need to attempt to recontract. Sokol has worked hard at diversifying the customer base, but it is still a very concentrated group, so this a potential risk. It helps that shipping companies had hugely profitable times during covid. But obviously if there is some gigantic crash in world trade, the shipping companies will not do well and if they go bankrupt, then it will hurt Seaspan. But the world will probably have much bigger problems at that point!

Thanks for sharing that nugget. Makes me happy has a Fairfax shareholder; makes me kinda sad as a former Seaspan shareholder that did not want to sell But pretty cool to see what they have accomplished despite big challenges during this period. (Seaspan is heavily levered and had floating rate exposure during the big move in interest rates.)

Wow, Seaspan is killing it! "Our long-term charters with our -- with the major shipping companies. It was a little over $26 billion. And today, that long-term cash flow under contract is about $30.5 billion, and we burn about $2.3 billion a year." They have 13 years of cash flow locked in. That's incredible. Only risk i see is financial instability in their customer base - which is more than a theoretical issue given tariffs. But assuming no blow ups there, Seaspan seems very well positioned.

Thank you!!!

I would not. Let BIAL go public, let’s see what market says on that one; and then go from there. if you invested at beginning, at a 15% return, we should be at $40 now. I think that is more reflective of true value.

While I am a long-time fan of Tom Gaynor, I have to agree. The biggest contrast that stands out to me is what is going on in the insurance operations between FFH and MKL. I totally get that Gaynor has a different style on equity investments, and i think it is very well explained and i understand and admire it, he is always true to it, and the results have over the long-term been great. But on the insurance side, Fairfax does really seem to be operating at an entirely different level ever since they promoted Andy Barnard to oversee it all. The performance since then has been very consistent and stellar. On the Markel side, they have been talking for some period about the problems but it is hard to get a real sense of what is going on from Tom's letter, and the gentleman running it does not have a long record of success on the insurance side. And what happens to investments after Gaynor, whereas Fairfax seems to have a great succession plan in place. Not saying Markel is not a good stock for the long term, but Fairfax does seem like they are operating at a higher level for the long term.

Excellent letter, as usual. My summary: expect $150 per share in operating earnings per year for each of the next four years, and the insurance companies are kicking ass and taking names.

The prepared remarks from the current conference call team are really terrific. it used to be Prem would give some high level comments and then you would have the CFO give a blizzard of numbers that were already in the written reports. the current team is informative, concise; clear; and nails the high points

Got it, thank you. I think you are right, which is awesome. BX owns 60% and FFH owns 40% of the "true" equity BX owns a large chunk of Class C stock that can be repurchased at an 8% IRR