Cormark Report on Fairfax's Insurance Business

[Parsad]

Interesting analyst report regarding Fairfax's insurance businesses.  Ironically, at the same time Greenlight Re and Third Point Re are struggling!  Cheers!

 

http://dashboard.cormark.com/servlet/display.pdf?repid=jfenwick%40cormark%2Ecom_20151214130804604&userid=jlotesto%40cormark%2Ecom

[beerbaron]

A good review of the last few years. Very rosy report tough. Underwriting is better tough but I'm not sure it's accounted by Mr. Bernard's new role. I thinking a good part of it is FFH listing in Canada only and being relieved from Sarbane-Oxley, they gained more flexibility in their reporting. Over reserve in accident year and gain later results in a lower taxation in real dollars.

 

Not all their cylinders are running tough. Insurance is well but investment is average in the last few years. But who am I to question Michael Jordan on it's basketball game.

 

BeerBaron

[petec]

A good review of the last few years. Very rosy report tough. Underwriting is better tough but I'm not sure it's accounted by Mr. Bernard's new role. I thinking a good part of it is FFH listing in Canada only and being relieved from Sarbane-Oxley, they gained more flexibility in their reporting. Over reserve in accident year and gain later results in a lower taxation in real dollars.

 

Not all their cylinders are running tough. Insurance is well but investment is average in the last few years. But who am I to question Michael Jordan on it's basketball game.

 

BeerBaron

 

Could you elaborate on the SarbOx/reporting stuff?

 

Thanks

 

Pete

[beerbaron]

A good review of the last few years. Very rosy report tough. Underwriting is better tough but I'm not sure it's accounted by Mr. Bernard's new role. I thinking a good part of it is FFH listing in Canada only and being relieved from Sarbane-Oxley, they gained more flexibility in their reporting. Over reserve in accident year and gain later results in a lower taxation in real dollars.

 

Not all their cylinders are running tough. Insurance is well but investment is average in the last few years. But who am I to question Michael Jordan on it's basketball game.

 

BeerBaron

 

Could you elaborate on the SarbOx/reporting stuff?

 

Thanks

 

Pete

 

From what I understood in a W.R. Berkley interview, Sarbane Oxley made the insurance companies less flexible into how they reserve. An insurance company that does not have to comply could over/uderreseve hence reducing taxes more then they should in accident years .

 

 

Beerbaron

[bsilly]

Cheers Sanjeev,

 

A pretty solid effort, focused mostly on underwriting (the most important thing!).

 

Fairfax has made a great deal of progress over the years. Aside from underwriting, The quality of the company has improved by every measure I can think of. Reinsurance exposure, leverage, unstacking the capital structure (getting Odyssey Re out from under TIG), runofff, etc.

 

Although I do not wish for a major calamity, unfortunately I think that is what it will take to blow the excess capital out of the insurance market and get a hard market started again. Could be a while - but I am patient.

 

I feel like shorting Third Point Re just out of principal :)

 

B.

[A_Hamilton]

A good review of the last few years. Very rosy report tough. Underwriting is better tough but I'm not sure it's accounted by Mr. Bernard's new role. I thinking a good part of it is FFH listing in Canada only and being relieved from Sarbane-Oxley, they gained more flexibility in their reporting. Over reserve in accident year and gain later results in a lower taxation in real dollars.

 

Not all their cylinders are running tough. Insurance is well but investment is average in the last few years. But who am I to question Michael Jordan on it's basketball game.

 

BeerBaron

 

Could you elaborate on the SarbOx/reporting stuff?

 

Thanks

 

Pete

 

From what I understood in a W.R. Berkley interview, Sarbane Oxley made the insurance companies less flexible into how they reserve. An insurance company that does not have to comply could over/uderreseve hence reducing taxes more then they should in accident years .

 

 

Beerbaron

 

I think the bigger issue is they switched to IFRS accounting. In IFRS you are allowed to put in a reserve buffer that is just asking to be used as a redundancy cookie jar.

[petec]

A good review of the last few years. Very rosy report tough. Underwriting is better tough but I'm not sure it's accounted by Mr. Bernard's new role. I thinking a good part of it is FFH listing in Canada only and being relieved from Sarbane-Oxley, they gained more flexibility in their reporting. Over reserve in accident year and gain later results in a lower taxation in real dollars.

 

Not all their cylinders are running tough. Insurance is well but investment is average in the last few years. But who am I to question Michael Jordan on it's basketball game.

 

BeerBaron

 

Could you elaborate on the SarbOx/reporting stuff?

 

Thanks

 

Pete

 

From what I understood in a W.R. Berkley interview, Sarbane Oxley made the insurance companies less flexible into how they reserve. An insurance company that does not have to comply could over/uderreseve hence reducing taxes more then they should in accident years .

 

 

Beerbaron

 

I think the bigger issue is they switched to IFRS accounting. In IFRS you are allowed to put in a reserve buffer that is just asking to be used as a redundancy cookie jar.

 

Do you view that as a good thing or a bad thing?  My view is anything that encourages management to sock away some reserves in the good years is a good thing (as opposed to maximising profits in the good years and then finding it was all a mirage!).

 

 

[A_Hamilton]

A good review of the last few years. Very rosy report tough. Underwriting is better tough but I'm not sure it's accounted by Mr. Bernard's new role. I thinking a good part of it is FFH listing in Canada only and being relieved from Sarbane-Oxley, they gained more flexibility in their reporting. Over reserve in accident year and gain later results in a lower taxation in real dollars.

 

Not all their cylinders are running tough. Insurance is well but investment is average in the last few years. But who am I to question Michael Jordan on it's basketball game.

 

BeerBaron

 

Could you elaborate on the SarbOx/reporting stuff?

 

Thanks

 

Pete

 

From what I understood in a W.R. Berkley interview, Sarbane Oxley made the insurance companies less flexible into how they reserve. An insurance company that does not have to comply could over/uderreseve hence reducing taxes more then they should in accident years .

 

 

Beerbaron

 

I think the bigger issue is they switched to IFRS accounting. In IFRS you are allowed to put in a reserve buffer that is just asking to be used as a redundancy cookie jar.

 

Do you view that as a good thing or a bad thing?  My view is anything that encourages management to sock away some reserves in the good years is a good thing (as opposed to maximising profits in the good years and then finding it was all a mirage!).

 

Yes, "issue" is probably the wrong word. I'm fine with exceptionally conservative reserving at an insurer. The notional values are too large to do anything but error as close to the line of intentional redundancies as the auditors and actuaries will allow.