bluedevil

Pethealth. Bought for 100m; sells for around 240m.

This vaccine news should really help Fairfax. They have so many investments that were hammered by the virus -- Eurobank; Exxon; Thomas Cook India; Bangalore Airport; Recipe restaurant business. And so few that benefited from the virus.

Great question! I see the following potential in Fairfax in 10 years: A company that writes $35 billion in premiums a year. The company achieves this through steady organic growth of 7-8% per year. Over the last ten years, the company has built roots all over the world. It harnesses it over the next 10 years by experiencing growth in areas where insurance penetration is very low (think Digit in India); and by taking what it does well in one country already and transporting it to other countries where it is already located. Sticking with the example of Digit, once it is up and running, nothing is stopping the company from taking the all digital, simple for consumers philosophy and applying it to other countries. There are hundreds of profit dials in the insurance operation that can be spread into other markets, and I believe that is exactly what Fairfax is focused on doing. Consider the value of a well disciplined underwriting operation that profitably writes 35 billion a year in insurance! I view this opportunity as the most attractive thing about an investment in Fairfax and think the odds are quite good of the company achieving a great result on the insurance side given the work that has already been done, the very long term underwriting and reserving discipline shown when companies are in the Fairfax stable, and the track record of Andy Barnard. On the other side of the house, investments, is what will determine whether Fairfax is a tremendous investment over the next 10 years, or a decent one, or a poor one. I know the company has one big thing it is favor over the next 10 years. It is structurally set up to be successful. While many institutional money managers are constrained by all kinds of issues -- short term focus of investors, "style box" constraints, and so on -- Prem has created a structure for HWIC where it can be focused on the long term and can go anyplace in any market or any region where there is value. Now it will be up to people like Wade Burton, Lawrence Chin, Quinn McLean, and Jamie Lowry to actually make good investment decisions, as opposed to being crushed by the SP500, as has happened over the last 10 years. To me, that is a wildcard. The missing ingredient at Fairfax these days -- it seems to me -- is a superstar money manager who can be trusted to oversee a 40 billion dollar portfolio, and the other money managers, for the next 20 years. Perhaps that is Wade Burton, but I have been a shareholder for a very long time that has ready every letter and listened to every call, and I couldn't tell you much about him, his philosophy, past investments or the like. This to me is the big unknown for Fairfax going forward. I will note that some of the past uncertainties around the company should not be present going forward. Prem has moved away from shorting, which takes one risk off the table. He has also moved away from buying other insurance companies in favor or organic growth, so less risk there as well. The company in my view continues to be plagued by being cash strapped and overextended at times, but if it can get past the current hump, presumably with future acquisitions and shorting curtailed, this will be less of a recurring problem in the next 10-15 years.

One other item I would add to the list is the progress at Digit Insurance. A recent start-up, but quickly becoming material. Digit is the fastest growing general insurer in India, and will write 250m-280m in premiums this year. According to this press report, Digit is currently looking to raise capital from domestic PE firms at a valuation between $800-900m. According to the report, Fairfax has invested about $140m since 2017 in Digit, and I believe they own about half of it. So a significant appreciation in Fairfax's investment already. https://timesofindia.indiatimes.com/business/india-business/pes-value-insurance-tech-startup-digit-over-800m/articleshow/72448746.cms

There is another source of earnings from this quarter that I have not seen mentioned yet on this thread -- the performance fees from Fairfax's management of Fairfax India. Fairfax India is up somewhere in the order of $350m just this quarter, so the performance fees (20% once past a 5% annual hurdle) will be significant. I'm not certain when it will be reflected in Fairfax's results, however.

Prem addressed this on today's conference call. FFH's $60m investment is now worth $420m.

My rough math puts it closer to $38m invested by FFH with a market value of approximately $600m now. My assumptions - a crore is worth approx $150k. According to the article, FFH paid Rs 245 crore for a 68% stake in 2013 that is today valued at nearly Rs 4,000 crore at a post-IPO stake of 62.58%.

Although I expect FFH's results in Q4 2015 to be flat at best, hopefully the first quarter of 2016 will be rewarding: Profitable underwriting (if trends continue) Falling bond yields Falling inflation expectations Major equity declines (about 14% so far in Russell 2000) No new major equity blow ups (like Eurobank) -- at least that I know of! Interestingly, the stock price has remained flat despite all of Fairfax's big bets trending significantly in its favor so far in 2016. I bought some more stock today.

I don't think they offer only life insurance, but may have started offering that. From the website: "Eurolife ERB offers a wide range of insurance products for all your needs: savings, home, life, health, auto and business insurance."

This ZIRP induced insanity will correct sooner and later, and when it does, that will be the time to evaluate how Fairfax has handled itself. We'll see. I'm just glad the company is showing the fortitude to stick it out. If you do not share FFH's view that equity and corporate bond markets are currently EXTREMELY overvalued, I think you are probably in the wrong stock.

ap1234, In the second quarter, the fixed income portfolio lost $660 million due to rising treasury yields. That loss should be reversed completely based on yield declines this quarter. This alone should result in $30 per share book value increase. Any reason to doubt this MTM loss has reversed based on interest rates? Deflation hedges should be up given declining inflation expectations, though those are hard to price quarter to quarter. Hard to say what is happening with equity hedges vs. equity holdings b/c of limited disclosures, but my read of the statements is that they have $6.8 billion in hedges. With stock markets down about 10% this quarter so far, that's about a $680 million gain on hedges. At least $250 million will be offset by losses on Eurobank and BBRY alone, but hopefully they come out ahead on equities + hedges this quarter.

I will vote "yes" and hope this passes. I think Fairfax's ability to focus on the long-term -- unlike most companies and money managers -- is one of the fundamental reasons it has managed to increase shareholder's equity at well above market rates. This helps that and there is no real downside I see based on the protections for all shareholders and Prem's 30 year track record.

Vinod, I think it is incorrect to assume that Fairfax's CR will be 100 going forward AND interest rates will remain at very depressed levels. Both of those are independently reasonable assumptions, but together they fail, in my view, to account for the relationship between these two metrics. If interest rates remain at very depressed levels, then all P&C insurers will see their ROE's plummet as higher yielding bonds mature and the proceeds are plowed into new bonds at the reduced rates. Ultimately, this will bear itself out in lower CRs as companies, in writing business, demand higher prices to offset the lowered value of the float they are underwriting. I believe that Prem has said a 95% CR is needed by the industry at current interest levels to achieve even a single digit ROE. With Fairfax's ability, hard earned through time, to write at better rates than the industry, i think it would be very reasonable to assume some $500 million a year in underwriting profits if the low interest rates continue -- a sum that would obviously move the needle considerably in your valuation.

There seems to be a Globe and Mail article addressing this issue, but i can't access it as it is behind a wall. The teaser says "Fairfax Financial Holdings Inc. chief executive Prem Watsa says his bearish market views played a key role in a recent pension fund partnership."

Thanks Phoenix for the helpful information. Any discussion of how the pricing for the repurchases will work?

It is a surprising move based on the company's prior indications. Though it was not said in so many words, I read Prem to be saying during the Brit conference call that they may partner up with someone to contribute equity or (if they had to in order to protect investment grade ratings) then issue FFH shares. But, having issued shares and debt to fund the acquisition, I was surprised to hear that they had also brought another investor in. I hope someone poses the question at the AGM so that we get more information on the company's thinking. I can't make it to the meeting, sadly. (I also hope someone asks about the company's plans with ICICI lombard now that the Indian FDI cap has been raised to 49%.)

I believe that, in October 2013, Fairfax contributed its 80% interest in Prime Restaurants (fair value of $57m CAD) and added $100m CAD to the CARA investment. That stake appears to now be worth around $400m CAD, so it appears to have appreciated about 250% over the past 18 months. Presumably, this is driven by the doubling of CARA’s EBITDA from Cdn$47.9 million in 2013 to Cdn$83.6 million in 2014, as reported in Prem's letter.

Well -- it took a few years -- but it seems that the legal obstacles to Fairfax increasing its stake in ICICI Lombard to 49% have finally been removed. http://www.thehansindia.com/posts/index/2015-03-18/Game-changer-for-insurance-industry-138108

Does anyone know if buying FIH from an American Roth IRA account might subject any gains to Canadian capital gains taxes?

I think you have to say that 1.7x tangible book value is a fairly rich multiple. The play seems to be that Brit will be able to (1) continue generating sizable underwriting profits and (2) HWIC will be able to do far better than 2% on the investment portfolio, given HWIC's historical return of 9% (albeit much of that record is from when substantially higher interest rates prevailed). If Fairfax can pull that off, then they could be earning $400 million a year from this $2 billion investment. But even if they earn half of that, it would still seem to be a good investment. So seems like a good deal to me. I am curious though why Apollo would sell at this price. Presumably they also have the investment management skill to earn more than 2% on Brit's investments.

Two articles of interest to FFH. I assume the "shareholders from Eurobank" includes FFH. Unfortunately, FFH is looking at a $270 million loss on its Eurobank investment, but hopefully it is a temporary trading loss. ******* http://www.reuters.com/article/2015/01/28/greece-politics-banks-idUSL6N0V752X20150128 **** http://www.theglobeandmail.com/report-on-business/international-business/eurobanks-greek-problem-felt-all-the-way-to-toronto/article22655484/

I bought a chunk of Fairfax shares yesterday at 505. Higher than I have ever bought before on a P/B basis (I have never sold!), but it seems to me there is a lot of evidence that we are entering a "risk off" environment in which Fairfax should do extremely well, given the hedges, the CPI linked derivatives, the large holdings of high-quality long-term bonds and the large cash stockpile. I was particularly motivated by how the company has positioned itself vis a vis deflation. I thought about how low inflation is now and what might happen from the "shock" of equity prices in the US and Europe returning to a more normal level, and hit the purchase button.

Net earnings of $461.2 million; combined ratio of 91.2% :) http://www.fairfax.ca/files/doc_news/2014-Q3-Press-Release-FINAL.pdf

Interesting disclosure that I don't believe has been previously disclosed: On March 31, 2014 the company, through its subsidiaries, acquired a 40.0% interest in AFGRI Limited ("AgriCo") for cash consideration of $78.5. AgriCo is a leading South African agricultural services and foods group.

There is a table printed in every Fairfax annual report with one of the columns titled, "INTRINSIC VALUE % Change in US$ Book Value per Share", the context is comparing Fairfax's intrinsic value (in other words, book value) to its stock price. First of all this clearly draws a parallel between book value and intrinsic value. Second, the end result in these two columns is very similar (19% CAGR vs. 21% CAGR as of 2013). Third, Fairfax stock has on average traded at 1.06 book value over the past 13 years. This all strongly suggests that Fairfax's intrinsic value is equal to book value. Berkshire's intrinsic value is higher because it derives most of its earnings from operating companies that generate steady earnings every year and are valued based on earnings rather than book value. But Fairfax doesn't have any such businesses. In 2013, Fairfax's book value went down by 10% while the stock went up by 18%, a difference of 28%. Today it trades at around 1.25x book value. The highest multiple it has ever traded is 1.44x (according to GuruFocus). I think that Fairfax stock is significantly overvalued, which is both a good time for them to issue shares and a good time for Fairfax shareholders to be cautious. At times, FFH's stock price has been multiples of its book value. In 1996, it surpassed 3x book value. In the 1996 AR, Prem stated: We have mentioned in the past that we are very careful about issuing shares. In our 1986 Annual Report we said, "We consider our stock as good as cash. When we issue stock, we will ensure that we get as much value as we give." While we have been very clear about the "getting" part, we consider the "giving" part to be equally important. So, while we have raised money at higher and higher stock prices in 1996, we feel our new shareholders are getting excellent long term value - otherwise we would not issue shares at these prices. Remember we said long term. In the short term, we have no idea where our shares will trade.