masseyrock

Posted on their website: http://www.fairfax.ca/files/doc_presentations/2013AGMWebsiteCopy_v001_u6w5x6.pdf

This will be a great reference thread. I have a couple to start: 1. Why don't more specialty insurance companies build out the investing side of the equation? Marrying smart, conservative underwriting with low volatility, preservation of capital focused investing is a proven and powerful compounding machine. I believe Lancashire had a value manager run some capital for a few quarters but abandoned it. Instead of returning that capital to shareholders when management isn't finding asymmetrical underwriting opportunities, why not use the inherent leverage in the insurance model to generate better returns than the shareholder can? 2. Is there any good reference piece on common attributes of insurance companies that ultimately failed? Obviously bad underwriting and inadequate reserves but what were common red flags leading up to it? Due to survivorship, I can follow the ones that have done it well but I haven't followed the insurance industry long enough to identify the train wrecks before they happen.

I agree, Parsad. If I'm following you, from the Asset Quality chart on pg. 27, BIR has provisioned for 46% of the EU15b in impaired loans with another EU6b "past due but not yet impaired". Provisioning the 6b at the same 46% rate = ~3b in additional provisions - or another 40%+ hit to book value. This doesn't tie with Prem's comments on how far their book was already marked down and was nearly bullet proof. Here is the other part I don't get. How can they have EU8b in book value which is only 5% of assets and <10% of net loans, yet Tier 1 capital ratio of 14% (page 23)? Pardon my ignorance, but I guess I need to be educated on how RWA is calculated. How can 157b in assets be adjusted down to 61b in the RWA calculation especially when 105b of those assets are in loans?