Fairfax nears deal to buy Allied World for $4.9B

[rb]

Oh my,

 

Prem is still making these macro forecasts? No lesson learned from these huge losses? He's bearish when the market is low and bullish when the market is high?

 

For the first time in 13 years, I will seriously consider reducing or eliminating my position in FFH. I can handle a lot, but this is difficult.

+1

 

In the past at least he used data and logic on the macro stuff. There was a legitimate argument for the deflation hedges back in 2010/2011/2012. Not so much for the equity hedges but still. Now he's doing macro calls by feel based not on data but on what someone who lies a lot said during a political election campaign. Then he uses the new calls to make large acquisitions. Oh boy!

[naboo]

Oh my,

 

Prem is still making these macro forecasts? No lesson learned from these huge losses? He's bearish when the market is low and bullish when the market is high?

 

For the first time in 13 years, I will seriously consider reducing or eliminating my position in FFH. I can handle a lot, but this is difficult.

 

+10

 

Even you feel that way, don't say it.

[Luckyone77]

I have been appreciating everyone's thoughts and have two questions probably due to my lack of experience:

 

1) Isn't increasing the amount of insurnace that can be written in the future at ratio~0.9 a substantial tailwind to the potential for investments moving forward? If equities are well priced right now and interest rates are rising, more insurance is a good place to be putting one's cash, right?  It sounds like many respected insurers like Markel were interested in this company recently but at a cheaper price. Even Gayner will say that if you want to continue working with a company and have their respect, you cant beat the snot out of them on a low ball price everytime. 

 

2) I also have trouble digesting Prem's public reasoning for this drastic change at FFH and it is a concern that he may be buying high right now by removing the hedges...  I hope he will say something in the annual letter about this ...  But, doesnt Prem have good reason to hold his cards close to him and not publicly state what his team thinks and what they are planning on doing right now?  After re-thinking about my own question, maybe I am just trying to justify his lack of willingness to admit to his own mistakes and should re-think my position..

 

I am interested what you guys think regarding these questions as all of these developments are new and of great interest to me.

 

1) It depends.  If the combined ratio is kept below 100%, everything works fine.  In a rising interest rate environment they can invest in bonds that pay more, but we have to consider after tax returns on these bonds and inflation.  We have not had a significant rising interest rate environment since the 1970s, early 80s.  If policy payouts rise more rapidly than interest rates then the combined ratio will turn negative. 

 

There is also the effect of rising interest rates on competition.  Prem himself had a chart where he showed that combined ratios in the industry improved when interest rates where low.  Now, your guess is as good as mine as to what the actual level of rates needs to be at which competition heats up, and combined ratios drop. 

 

And then there is the aspect of a major claims event, which seem to come in waves, and are generally unpredictable.  Granted FFH has worldwide diversity which they didn't have when Katrina and the Twin towers hit.  Buffett has had periods with his insurers when he would rather have not heard the numbers, for years at a stretch. 

 

2) Prem has never admitted his mistakes.  He is an incredibly good salesman.  Had I invested according to FFHs doctrine of the last 6 years I would have had an investment return of zero, or less.  I simply dont believe that we are going to get all the tail winds everyone expects, without a major hitch along the way.  We dont know what the achilles heel is yet but its somewhere. 

 

Markets, and popular sentiment indicate that everyone is 'happy' right now.  The wall of worry is suddenly gone.  There is a con man who will be running the US shortly.  We dont really know how this is going to play out.  I dont get why everyone is suddenly so optimistic right now.  And I have never been a perma bear, in fact, more the other way around.

 

Oh, please. A con man will be running the US? He's infinitely better than the talented phony that's been running us into the ground for the last 8 years and he enters the Presidency certainly more qualified than Obama was, and is, even to this day. Thank God amateur hour is over and the adults can assume control. There's so much low hanging fruit out there that stoking this economy won't be that hard now that Capitalist are running the show.

[EricSchleien]

"low hanging fruit"

 

my thoughts exactly.

[maxthetrade]

Here are a couple of interesting quotes from Prem regarding the rational for the purchase:

 

“The recent election . . . has a strong potential to make the business climate for growth great again,” he said. “We believe the US may see significant growth in GDP and our business in the US will benefit from any such positive development.”

 

Mr Watsa suggested that there could be more US deals in the future: “When the biggest economy in the world is on the way up we think the downside is significantly reduced and it becomes a value-oriented, stockpickers’ market. In the last few years we’ve played defence. We expect to play offence.”

 

https://www.ft.com/content/da6d1b3a-c5f5-11e6-9043-7e34c07b46ef?ftcamp=traffic/partner/feed_headline/us_yahoo/auddev&yptr=yahoo

 

He sounds like a cartain manic depressive fellow I want to sell some shares to... really strange.

 

Yea - This is getting bizarre. I don't have any issues with the acquisition in and of itself, but the 180 degree turn on the U.S. markets as the result of the election with no commentary on rising rates, falling liquidity, strengthening dollar, declining corproate profits, levered corporations, and valuations that appear excessive certainly seems strange.

 

Either he really believes this bullshit or he is lying to his shareholders, I find both alternatives alarming.

Somehow this reminds me of Druckenmiller in early 2000 when he went long at exactly the wrong moment because he couldn't stand it anymore that everyone else was making money hand over fist.

 

[John Hjorth]

max,

 

To me, talking about Mr. Watsa lying to his co-shareholders seems far fetched. It has been said over and over again, that work at FFH is based on teamwork among no-egos. That implies discussions among sensible and skilled people possesing sceptical critisism in discussions, to get to the right decisions.

 

Please also do not forget that Mr. Watsa has a lot of skin in the game - together with his family - via the family holding company holding FFH.

 

Off topic:

 

Eric, there is a cake slice in your board profile in your age field  [today only?] ... I also want some! - Birthday today, Eric?

[maxthetrade]

max,

 

To me, talking about Mr. Watsa lying to his co-shareholders seems far fetched. It has been said over and over again, that work at FFH is based on teamwork among no-egos. That implies discussions among sensible and skilled people possesing sceptical critisism in discussions, to get to right decisions.

 

Please also do not forget that Mr. Watsa has a lot of skin in thegame - together with his family - via the family holding company holding FFH.

 

Off topic:

 

Eric, there is a cake slice in your board profile in your age field ... I also want some! - Birthday today, Eric?

 

Well, perhaps lying is a bit too harsh. Let's just say that he isn't telling us the real reason for his change of mind and leaves a lot of questions unadressed. What happened to high valuations, ghost cities and the housing bubble in China etc.?

 

 

[John Hjorth]

Thanks, max,

 

Your last question certainly qualify to me. Long, out or short this stock,  reading Mr. Watsa's next Shareholder Letter will be interesting.

 

Personally, I actually posted sell orders last night for all FFH.TO owned by my family and I. When I got up this morning after a nights sleep, I deleted the orders.

 

I will study this in the coming hollidays.

 

Certainly the game with this stock has changed a lot within a short time span.

 

~4.5% position right now. I have this CAD/EUR multiplier [EUR closely related to DKK, - +/-2.25%] as part the decision basis also, to the contrary of the majority of the fellow board members here.

[Daphne]

The quality of this discourse is really disappointing.  Aledging, even loosely, that Prem is lying with no proof is a descent into the discourse to which we became too accustom during the endless and mindless American political campaign.  Many of you claim to be experienced business people yet you naively admonish Prem for not revealing all his plans and manoeuvres.  How silly to imagine that shareholders will be brought into the tent in advance of deals being signed, sealed and delivered.You're right, the US election result was clearly not the only driver in liquidating the hedges and bonds.  There was a huge deal underway behind which there were non-disclosure agreements that had to be honoured.  As to owning up to mistakes, I've always found Prem and his team to be most humble about their bad moves.  Does he dwell on them? Why should he.  I for one would be very nervous about a leader who can't learn and then quickly move on.  Will this deal be perfect?  I don't think anyone at Fairfax believes that.  Are they excited...you bet and with good reason.  Will it work?  Nobody knows for sure but, what I do know is that we have the best possible team in place to make the best of it.

[Txvestor]

This is fine and partly a concern for me as well. That said, a little perspective is in order.

Unlike with the hedges and deflation swaps where there was clear downside. Whilst this may not be a spectacular acquisition, it is not at all clear to me that it is a bad one either. AWH has a large US footprint and a very good underwriting record. They mentioned in the conference call that Cardilini and Barnard went to the same school etc. so clearly there is some background in this deal. No one can reasonably argue that Andy Barnard has done a great job with the insurance operations in recent years. AWH portfolio is also not very risky, arguably more conservative than Fairfax's from what I can tell. So far it is only a word that they will be more bullish on US acquisitions going forward.

This acquisition does not imply heavy bullishness. I think none of us like the dilution and Prem and co. are working on alternatives and reading the verbal and other queues on the call it sounded like they would keep the dilution to lower than the mentioned 28%.

[EricSchleien]

 

 

Eric, there is a cake slice in your board profile in your age field  [today only?] ... I also want some! - Birthday today, Eric?

 

Yep. Thank you!

 

I don't eat grains so no cake for me today. Just lots of really good steak.

[giofranchi]

Oh my,

 

Prem is still making these macro forecasts? No lesson learned from these huge losses? He's bearish when the market is low and bullish when the market is high?

 

For the first time in 13 years, I will seriously consider reducing or eliminating my position in FFH. I can handle a lot, but this is difficult.

 

Partner24,

 

Since 2011 these are the results:

EQUITY (cumulative): $628 million

HEDGES (cumulative): -$3112 million

BONDS (cumulative): $2950 million

CPI (cumulative): -$570 million

UNDERWRITING (cumulative): $1333 million

 

It seems to me that, if we are to blame Watsa for something, it is because FFH has been a very poor stock picker in the last 6 years: the idea of a 100% hedged stock portfolio should be that your stocks go 1%-2% higher than the stocks you have shorted. Of course you would expect to make a very meager profit overall, but still a profit... not a loss of -3112 + 628 = -$2484 million.

 

In other words, if FFH had been a good investor in stocks, and equity gains equaled losses from hedges, in the 6 years from 2011 to today FFH would have earned 2950 + 1333 - 570 = $3713 million. Starting in 2011 with an equity of $7.4 billion. Not bad!

 

Watsa has always said he was worried about a 1 in 70-80 years event that could shock the markets... Sincerely, were you sure that event was never to come? I know I was not, and I don't blame him for protecting FFH. Instead, what I would surely like to know are the reasons why they have chosen equities that performed so poorly...

 

Furthermore, those $3 billion of earnings in bonds imo were very much related to their macro views: FFH held onto long term US bonds for at least three years after Buffett started calling them the worst investment. And the reason was they thought yields could continue decreasing because of disinflation in the US and deflation in Europe. Finally, they have picked almost the best time possible to sell those bonds, just before Trump got elected. Another macro call that turned out to be right.

 

This is how I view the recent past. But, as I have said, I would prefer to talk about what lies ahead.

 

Cheers,

 

Gio

[petec]

Here are a couple of interesting quotes from Prem regarding the rational for the purchase:

 

“The recent election . . . has a strong potential to make the business climate for growth great again,” he said. “We believe the US may see significant growth in GDP and our business in the US will benefit from any such positive development.”

 

Mr Watsa suggested that there could be more US deals in the future: “When the biggest economy in the world is on the way up we think the downside is significantly reduced and it becomes a value-oriented, stockpickers’ market. In the last few years we’ve played defence. We expect to play offence.”

 

https://www.ft.com/content/da6d1b3a-c5f5-11e6-9043-7e34c07b46ef?ftcamp=traffic/partner/feed_headline/us_yahoo/auddev&yptr=yahoo

 

He sounds like a cartain manic depressive fellow I want to sell some shares to... really strange.

 

Yea - This is getting bizarre. I don't have any issues with the acquisition in and of itself, but the 180 degree turn on the U.S. markets as the result of the election with no commentary on rising rates, falling liquidity, strengthening dollar, declining corproate profits, levered corporations, and valuations that appear excessive certainly seems strange.

 

If you read what he's said carefully, he hasn't done a 180 on the US markets but on the US economy.

 

The hedges were not mainly explained in valuation (e.g. CAPE, Tobin's Q) terms.  They were explained in terms of protecting the company from another 1929-33 type selloff, which would have destroyed the company in the absence of the hedges.

 

They now feel that that kind of catastrophe has reduced in probability, because we have a quantum shift from a world in which politicians over-regulate and rely on central bankers to promote growth via leverage, to one in which (maybe) government gets out of the way and productivity drives gdp.

 

So the hedges have gone.  Doesn't mean they think the market goes up.  All they've said on that front is that it will become a stockpicker's market again.  Value starts to win again.

[petec]

The quality of this discourse is really disappointing.  Aledging, even loosely, that Prem is lying with no proof is a descent into the discourse to which we became too accustom during the endless and mindless American political campaign.  Many of you claim to be experienced business people yet you naively admonish Prem for not revealing all his plans and manoeuvres.  How silly to imagine that shareholders will be brought into the tent in advance of deals being signed, sealed and delivered.You're right, the US election result was clearly not the only driver in liquidating the hedges and bonds.  There was a huge deal underway behind which there were non-disclosure agreements that had to be honoured.  As to owning up to mistakes, I've always found Prem and his team to be most humble about their bad moves.  Does he dwell on them? Why should he.  I for one would be very nervous about a leader who can't learn and then quickly move on.  Will this deal be perfect?  I don't think anyone at Fairfax believes that.  Are they excited...you bet and with good reason.  Will it work?  Nobody knows for sure but, what I do know is that we have the best possible team in place to make the best of it.

 

+1

 

[giofranchi]

If you read what he's said carefully, he hasn't done a 180 on the US markets but on the US economy.

 

The hedges were not mainly explained in valuation (e.g. CAPE, Tobin's Q) terms.  They were explained in terms of protecting the company from another 1929-33 type selloff, which would have destroyed the company in the absence of the hedges.

 

They now feel that that kind of catastrophe has reduced in probability, because we have a quantum shift from a world in which politicians over-regulate and rely on central bankers to promote growth via leverage, to one in which (maybe) government gets out of the way and productivity drives gdp.

 

So the hedges have gone.  Doesn't mean they think the market goes up.  All they've said on that front is that it will become a stockpicker's market again.  Value starts to win again.

 

Pete,

I agree. And basically I think the change is an healthy one and should be welcomed.

Many people though disagree. And that's why I would like to know if they see risks that I might have overlooked.

What can go wrong? How probable is it? And which will be the consequences on the whole company?

 

Cheers,

 

Gio

[Packer16]

I think people are focusing too much on the politics of the election versus the economics.  The markers have rallied about 9% since election day.  The proposals on the table include corporate tax rate declines, which would encourage domestic investment as well as reduce taxes and a large infrastructure program with a private market tilt.  The tax rate reduction alone of at least 10% increases value by at least 15%.  Then you have the incentives to repatriate & possible move intangibles assets to the US because of the lower rates.  Then you have the infrastructure spending.  These working together will have huge networking effect.  From a political perspective you had the US take Kaopectate to cleanse the system of constipation that was occurring. 

 

There are many skeptics based upon Trump rhetoric but ask yourself if Marco Rubio won the election with these proposals would your opinion change?  The skepticism is where the opportunity lies & I think the folks at Fairfax see this.  The same was true with Reagan.  Folks thought he was going to get us into a nuclear war and cause us bankruptcy & poverty with his tax cuts.  We will see but I see Prem et al. making a smart bet before the everyone realizes it.  Focus on the actions not the words.

 

Packer     

[Uccmal]

I think people are focusing too much on the politics of the election versus the economics.  The markers have rallied about 9% since election day.  The proposals on the table include corporate tax rate declines, which would encourage domestic investment as well as reduce taxes and a large infrastructure program with a private market tilt.  The tax rate reduction alone of at least 10% increases value by at least 15%.  Then you have the incentives to repatriate & possible move intangibles assets to the US because of the lower rates.  Then you have the infrastructure spending.  These working together will have huge networking effect.  From a political perspective you had the US take Kaopectate to cleanse the system of constipation that was occurring. 

 

There are many skeptics based upon Trump rhetoric but ask yourself if Marco Rubio won the election with these proposals would your opinion change?  The skepticism is where the opportunity lies & I think the folks at Fairfax see this.  The same was true with Reagan.  Folks thought he was going to get us into a nuclear war and cause us bankruptcy & poverty with his tax cuts.  We will see but I see Prem et al. making a smart bet before the everyone realizes it.  Focus on the actions not the words.

 

Packer   

 

But there haven't been any actions.  Some of the above is going to get snarled in congress, and have long lag times.  I am sticking my neck out but I figure we get a full on bear market soon.  All of the above will keep the US afloat but it will become a matter of minimizing damage rather than future growth forever more.  No one is using any data points, because there aren't any.  Fairfax is operating on a feeling. 

 

Corporate tax cuts would do a certain amount but where is the money coming from.  For most corps. it wont be a huge difference since their marginal tax rates are lower than the suggested new rates, anyway. 

 

The infrastructure program is not alive yet, and I fail to see how it would be different than subsidizing solar and alternate energy is now.  Again, government has to pony up at least some of the money. 

 

Tax repatriation holidays have happened before and their effect has been unexpectedly mild. 

 

So, for the incumbent government, pulling out all the stops right away will get them quick growth, perhaps.  But it will kick the can down the road, and the added deficits and deregulation will get us back to eight years ago.  And they will get unelected if there is a bear market too close to the next fed. election.

 

 

 

 

 

[maxthetrade]

If you read what he's said carefully, he hasn't done a 180 on the US markets but on the US economy.

 

The hedges were not mainly explained in valuation (e.g. CAPE, Tobin's Q) terms.  They were explained in terms of protecting the company from another 1929-33 type selloff, which would have destroyed the company in the absence of the hedges.

 

They now feel that that kind of catastrophe has reduced in probability, because we have a quantum shift from a world in which politicians over-regulate and rely on central bankers to promote growth via leverage, to one in which (maybe) government gets out of the way and productivity drives gdp.

 

So the hedges have gone.  Doesn't mean they think the market goes up.  All they've said on that front is that it will become a stockpicker's market again.  Value starts to win again.

 

Pete,

I agree. And basically I think the change is an healthy one and should be welcomed.

Many people though disagree. And that's why I would like to know if they see risks that I might have overlooked.

What can go wrong? How probable is it? And which will be the consequences on the whole company?

 

Cheers,

 

Gio

 

Well, the biggest risk in my opinion is that they could make another ill timed macro bet just at the wrong time or make a bad aquisition. I really don't get it, how can you play defense for years and now that the cycle is long in its tooth and valuations are very high go on the offense?

Other risks are that their recent string of abysmal stock picks could continue or that it turns out that underwriting isn't as good as most think now because they benefited from the very low catastophy losses in recent years.

Don't get me wrong I have a position in FFH and won't sell at current prices but their recent moves leave me uneasy. 

[rogermunibond]

Ireland will react to the US tax cut. IP, corporate holdings, asset shuffling. It'll be a race to the bottom.  Either way only lawyers and accountants win.

[giofranchi]

But there haven't been any actions.  Some of the above is going to get snarled in congress, and have long lag times.  I am sticking my neck out but I figure we get a full on bear market soon.  All of the above will keep the US afloat but it will become a matter of minimizing damage rather than future growth forever more.  No one is using any data points, because there aren't any.  Fairfax is operating on a feeling. 

 

Al,

don't you think insurance is a good business to be in during a bear market? In 2008 BRK's BVPS decreased much less than the general market because its insurance businesses saved the day.

And I don't think FFH is rushing all of a sudden into the stock market: they have taken away the equity hedges, probably because they think a pro-business government in the US might drastically reduce the chance of something very bad and very long hitting the stock market, but they still have nearly $10b of cash. And I guess they will keep the flexibility to take advantage of opportunities that might arise in the future.

Should a 30-40% correction in the stock market come, FFH stock price will surely go down with the market, but they might still be in the position to take advantage of lower prices, while their insurance companies might (hopefully) go on generating underwriting profits.

Is it such an uncomfortable/risky position to be in right now? Especially with FFH stock price that already is low?

 

Cheers,

 

Gio

[giofranchi]

I really don't get it, how can you play defense for years and now that the cycle is long in its tooth and valuations are very high go on the offense?

 

To keep investing in insurance companies, which might perform satisfactorily in a bear market and which by the way are their true circle of competence, while keeping lots of cash, is imo to play defense... Simply they are no longer playing defense against a 1 in 70-80 years event, but they are playing defense like they should be doing at the end of a regular business cycle.

That's at least my point of view on their recent moves.

 

Cheers,

 

Gio

[Shane]

I don't appreciate the dilution from this deal, however, it could be as low as 11-12% if they get the third parties involved... which is probable.

 

I remember Bruce Greenwald criticizing Burlington and several of Seth Klarman's investments, saying the rational wasn't sound and he had done his own work on the names.  I think this becomes dangerous.  In my opinion, an investment in Fairfax is a bet on Hamblin Watsa as a manager of your capital... I don't second guess the few fund managers I have.  Often I will try to figure out why they bought something, but if I don't come to the same conclusion I just wait and watch... Often these investments still work out very well despite the fact that I wouldn't have made the same decision.

 

After 5 years or so I will look back on the performance and make a call on whether I think things will improve... So far I am not convinced they have lost their mojo... but I am worried about investment performance and would be disappointed if results don't improve.

[Luckyone77]

Oh my,

 

Prem is still making these macro forecasts? No lesson learned from these huge losses? He's bearish when the market is low and bullish when the market is high?

 

For the first time in 13 years, I will seriously consider reducing or eliminating my position in FFH. I can handle a lot, but this is difficult.

 

Partner24,

 

Since 2011 these are the results:

EQUITY (cumulative): $628 million

HEDGES (cumulative): -$3112 million

BONDS (cumulative): $2950 million

CPI (cumulative): -$570 million

UNDERWRITING (cumulative): $1333 million

 

It seems to me that, if we are to blame Watsa for something, it is because FFH has been a very poor stock picker in the last 6 years: the idea of a 100% hedged stock portfolio should be that your stocks go 1%-2% higher than the stocks you have shorted. Of course you would expect to make a very meager profit overall, but still a profit... not a loss of -3112 + 628 = -$2484 million.

 

In other words, if FFH had been a good investor in stocks, and equity gains equaled losses from hedges, in the 6 years from 2011 to today FFH would have earned 2950 + 1333 - 570 = $3713 million. Starting in 2011 with an equity of $7.4 billion. Not bad!

 

Watsa has always said he was worried about a 1 in 70-80 years event that could shock the markets... Sincerely, were you sure that event was never to come? I know I was not, and I don't blame him for protecting FFH. Instead, what I would surely like to know are the reasons why they have chosen equities that performed so poorly...

 

Furthermore, those $3 billion of earnings in bonds imo were very much related to their macro views: FFH held onto long term US bonds for at least three years after Buffett started calling them the worst investment. And the reason was they thought yields could continue decreasing because of disinflation in the US and deflation in Europe. Finally, they have picked almost the best time possible to sell those bonds, just before Trump got elected. Another macro call that turned out to be right.

 

This is how I view the recent past. But, as I have said, I would prefer to talk about what lies ahead.

 

Cheers,

 

Gio

 

"what I would surely like to know are the reasons why they have chosen equities that performed so poorly.."

 

That's the billion dollar question that is highly concerning and indefensible to me, Gio. The macro bets, I get. The bonds, I get. The stock picking, "Huh? You bought what? And then you doubled down and bought more of that turd when the original thesis for purchasing was no longer there". It's just the incongruence that keeps giving me pause.

[petec]

If you read what he's said carefully, he hasn't done a 180 on the US markets but on the US economy.

 

The hedges were not mainly explained in valuation (e.g. CAPE, Tobin's Q) terms.  They were explained in terms of protecting the company from another 1929-33 type selloff, which would have destroyed the company in the absence of the hedges.

 

They now feel that that kind of catastrophe has reduced in probability, because we have a quantum shift from a world in which politicians over-regulate and rely on central bankers to promote growth via leverage, to one in which (maybe) government gets out of the way and productivity drives gdp.

 

So the hedges have gone.  Doesn't mean they think the market goes up.  All they've said on that front is that it will become a stockpicker's market again.  Value starts to win again.

 

Pete,

I agree. And basically I think the change is an healthy one and should be welcomed.

Many people though disagree. And that's why I would like to know if they see risks that I might have overlooked.

What can go wrong? How probable is it? And which will be the consequences on the whole company?

 

Cheers,

 

Gio

 

I agree.  I can't see a lot of risk in a cash heavy, underwriting-profitable insurer.  Standard cat risks obviously.  But key risk now is investing.  They've limited absolute losses in the bond market and should see interest income rising.  If they can go back to winning in the equity market this thing is a great investment at this price.  If not...

[Txvestor]

Agree. This is a big reset. They may not now be appropriate for all invested. Especially for those that were using fairfax as a hedge in their portfolio.

That said it is one of the cheapest diversified insurers around, one with a decent underwriting record one can find. This acquisition does nothing to change that, and arguably cements it(considering fairfax's underwriting record prior to a few years ago).

So everything hence rests on the investment prowess or lack thereof. There's a case to be made here that Watsa and co. have lost their marbles on this. They are now 6-7yrs into a woeful investment patch. They have underperformed significantly, hedges and deflation swaps excluded. That's certainly a risk but consider that they have still grown BV despite that woeful performance. If they fire on both underwriting and investments for any length of time, this will turn out to be a very spectacular investment.

It's a tough call but definitely an inflection point. And IMHO Mr Market has priced accordingly at current levels.

For those with a negative view of the market and looking for a conservatively managed portfolio with decent underwriting and shareholder first management perhaps WTM is a consideration. It also trades barely above BV. They have piles of cash in case of a market/economic meltdown.