Fairfax Third Quarter Results

[Valuebo]

I don`t think its possible and there where at least two bank robberies in germany this year where a lot of deposit boxes where stolen, so i don`t trust that method.

Or is my name on the stock certificate? While we are at that topic, are my stocks safe when they are in an electronic brokerage and an EMP hits the whole world and kills all electronic devices? :)

 

Not to worry, you'll have bigger problems then!

[Cageyone]

Thanks for that tomgrt - after all every cloud has a silver lining!

[Alekbaylee]

1) anybody follow insurance well enough to know if we're seeing a slow hardening of rates or are the results just a lack of catastrophes?

 

Not in the business but my auto premiums didn't decrease this year (all other things being equal) and home insurance increased a bit. What's new though is that my insurance broker is now charging a 3% interest to people who choose the monthly installments option vs paying upfront (most people do I would think). Was free for the past 15 years. Not sure if this is an industry-wide trend, but clearly it's a way for insurance cos to make up for the poor interests rate available in the market right now.

[giofranchi]

I love their strategy of concentrating more on buying whole insurance businesses rather than investing in the stock market right now.

 

Especially emerging market insurance companies, where insurance penetration is still much lower than in developed countries and therefore revenue growth might be much faster and margins more satisfactory.

 

Just look at Fairfax Asia with a 74% combined ratio in Q3 2014. If it builds scale, Fairfax Asia could become an very valuable source of both float and operating earnings to Fairfax shareholders.

 

Gio

 

[ERICOPOLY]

I love their strategy of concentrating more on buying whole insurance businesses rather than investing in the stock market right now.

 

I understood it differently:

 

1)  They take retained earnings and use it to buy whole insurance businesses.

2)  They are investing a portion of the float from those businesses into the stock market.

3)  They can't use the float to invest in whole businesses due to the illiquidity

 

 

[giofranchi]

1)  They take retained earnings and use it to buy whole insurance businesses.

 

Yes, exactly! They could be using retained earnings to invest in the stock market, instead they are using them to buy whole insurance businesses. That will most probably change, but right now it seems to me a good strategy.

 

Gio

 

[rmitz]

1) anybody follow insurance well enough to know if we're seeing a slow hardening of rates or are the results just a lack of catastrophes?

 

Not in the business but my auto premiums didn't decrease this year (all other things being equal) and home insurance increased a bit. What's new though is that my insurance broker is now charging a 3% interest to people who choose the monthly installments option vs paying upfront (most people do I would think). Was free for the past 15 years. Not sure if this is an industry-wide trend, but clearly it's a way for insurance cos to make up for the poor interests rate available in the market right now.

 

Another anecdote: my home insurance went up ~15% this year due to a base adjustment / revaluation for all of Pennsylvania.  I increased my deductible to compensate, though.

[ERICOPOLY]

1)  They take retained earnings and use it to buy whole insurance businesses.

 

Yes, exactly! They could be using retained earnings to invest in the stock market, instead they are using them to buy whole insurance businesses. That will most probably change, but right now it seems to me a good strategy.

 

Gio

 

We're saying different things.  I'm saying the strategy is unchanged by the market level of stocks.  They buy the company, then buy more stocks with the float.  If market is high, they hedge.

[giofranchi]

1)  They take retained earnings and use it to buy whole insurance businesses.

 

Yes, exactly! They could be using retained earnings to invest in the stock market, instead they are using them to buy whole insurance businesses. That will most probably change, but right now it seems to me a good strategy.

 

Gio

 

We're saying different things.  I'm saying the strategy is unchanged by the market level of stocks.  They buy the company, then buy more stocks with the float.  If market is high, they hedge.

 

It might be... But:

1) it seems to me the trend of purchasing wholly owned insurance companies has accelerated in the last few years, expecially in emerging markets;

2) many seem to think FFH is much more static than I think it will turn out to be: if the P/E of the S&P500 were 10, I highly doubt they would be using earnings to buy insurance companies...

 

Gio

[ERICOPOLY]

1)  They take retained earnings and use it to buy whole insurance businesses.

 

Yes, exactly! They could be using retained earnings to invest in the stock market, instead they are using them to buy whole insurance businesses. That will most probably change, but right now it seems to me a good strategy.

 

Gio

 

We're saying different things.  I'm saying the strategy is unchanged by the market level of stocks.  They buy the company, then buy more stocks with the float.  If market is high, they hedge.

 

It might be... But:

1) it seems to me the trend of purchasing wholly owned insurance companies has accelerated in the last few years, expecially in emerging markets;

2) many seem to think FFH is much more static than I think it will turn out to be: if the P/E of the S&P500 were 10, I highly doubt they would be using earnings to buy insurance companies...

 

Gio

 

The biggest ones were the NB and ORH buyouts.  They could have been buying equities instead.  But even better is to buy these companies and also buy equities!  (with the float).

 

So I just see them doing this whether or not the markets are high or low.  Oh well, not a terribly important point to argue about.

[Crip1]

The markets are strange. Unless I missed something, it was not until the third day after a very good quarterly financial report that the market reacted with a 4% bump in price. It's almost like some screens changed reflecting the improved P/E or P/B and several folks said "Hey...look at this" and jumped on. Volume is high, but not out of this world high.

 

 

Makes no sense to me...

 

 

-Crip

[wisdom]

Could one of the reasons be that market has raised the probablity of a deflationary scenario playing out.

[valueinvesting101]

Yeah. This came out yesterday.

 

http://www.bloomberg.com/news/2014-11-03/gross-says-deflation-a-growing-possibility-threatening-wealth.html

[cwericb]

Crip I have noticed this for a while now.

 

Results were out Thursday and they were probably better than expected so it wasn’t really rocket science to come to the conclusion that the share price would pretty well have to rise.

 

But I have noticed this delay before and there seems to be a delay before the market takes notice and it often several hours if not days before Mr Market reacts.  I have seen this happen enough that this time I put my money where my mouth was and bought some more shares shortly after the market opened Friday morning for about $510 (CDN). Now on Tuesday FFH closes at $546 on a day when the TSX was down one percent.

 

That's a 7.25%  gain in just a couple of days on a reasonably stable equity. Certainly I could have picked up FFH at a lower price prior to the third quarter results and gambled that the results would be good, but this was after the results were released making this buy almost a sure thing.

 

Has anyone else noticed this?

 

eb

 

 

[steph]

When looking at p/b values for Markel and Berkshire I believe it is time for FFH to go to 1.4 -1.5 times book or between 550 -600 USD.  The last quarter confirmed that on the insurance side things are getting better and that on the investment side they are still quite good.

[WhoIsWarren]

When looking at p/b values for Markel and Berkshire I believe it is time for FFH to go to 1.4 -1.5 times book or between 550 -600 USD.

 

Is that so?

 

The last quarter confirmed that on the insurance side things are getting better

 

It did nothing of the sort.  I would take the opposite view: we won't know with any degree of confidence whether their insurance results have gotten better for another 5 years or more.  One quarter (or year-to-date).....in what was a light cat period....reveals nothing about the risks being run and how well they are being compensated for them.

 

Sorry don't mean to be a troll....and I'm long FFH and think they're great guys and all that, but steady on!

 

[steph]

I am long Berkshire, Markel & FFH and believe that they all deserve to be around 1.5 times book considering their business and track record.  BRK and MKL are more or less at that level and I just think that FFH should also be around those levels in the long run.

[StubbleJumper]

When looking at p/b values for Markel and Berkshire I believe it is time for FFH to go to 1.4 -1.5 times book or between 550 -600 USD.

 

Is that so?

 

The last quarter confirmed that on the insurance side things are getting better

 

It did nothing of the sort.  I would take the opposite view: we won't know with any degree of confidence whether their insurance results have gotten better for another 5 years or more.  One quarter (or year-to-date).....in what was a light cat period....reveals nothing about the risks being run and how well they are being compensated for them.

 

Sorry don't mean to be a troll....and I'm long FFH and think they're great guys and all that, but steady on!

 

Actually, the loss triangles have been fully satisfactory which you might interpret as some degree of confirmation that FFH's underwriting has improved.  However, like you, I wouldn't mind seeing another 5 years of disciplined UW before getting too excited.

 

SJ

[giofranchi]

However, like you, I wouldn't mind seeing another 5 years of disciplined UW before getting too excited.

 

I think we have been witnessing more than 10 years of disciplined underwriting by now, that have been basically unrecognized because of acquisitions which suffered from problems of the past.

Anyway, I agree: just keep behaving carefully and avoid becoming complacent! ;)

 

Gio

 

[ERICOPOLY]

I'd say I waited until the last hour before my Monday purchase at $511:

 

Monday.tiff

[Valuebo]

Your 2 days old capital gain is worth more than my entire portfolio, Ha!

[cwericb]

"I'd say I waited until the last hour before my Monday purchase at $511:"  - ERICOPOLY

 

Wow - 3,000 shares! Congrats! Wish I had the confidence to have jumped in with both feet (but my feet will never be as big as yours) :) However, I am still satisfied with the gain on my few additional shares.

 

But my point was, and I think you will probably agree, FFH posted good returns backing up the improvements shown in the previous quarters but the market once again seemed to be very slow to react. Also FFH seemed to have been slightly undervalued for the past month or so. It just seemed to be rather obvious that it was almost inevitable that there would be a quick jump in share price.

[giofranchi]

It just seemed to be rather obvious that it was almost inevitable that there would be a quick jump in share price.

 

Yes… Obvious… Then why when I asked if it were time to buy FFH again I got almost ridiculed??!

 

;)

 

Gio

 

[obtuse_investor]

It just seemed to be rather obvious that it was almost inevitable that there would be a quick jump in share price.

 

Yes… Obvious… Then why when I asked if it were time to buy FFH again I got almost ridiculed??!

 

;)

 

Gio

 

Because, whenever you post something like that. Part of the population is busy ridiculing you. The others are too busy getting their limit orders in line. :-)

 

[cwericb]

It just seemed to be rather obvious that it was almost inevitable that there would be a quick jump in share price.

 

Yes… Obvious… Then why when I asked if it were time to buy FFH again I got almost ridiculed??!

 

;)

 

Gio

 

Not by me Gio. I read those posts too and there seems to be a bit of anti-Fairfax out there in some quarters. So be it. Glad I stepped in again and bought a few more shares. Some people are still holding the hedges against Fairfax. I see those hedges as a plus because they offer an unsophisticated investor like myself some protection against deflation. If we don't have deflation than FFH still has their investment income and their improving insurance performance.