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A couple thoughts on the Allied World deal


bsilly
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I thought I'd start a new thread here, since the other one is long and has gone off in a few different directions.

 

1) Fairfax is both a runoff entity, and an ongoing insurance/reinsurance entity. Runoff entities seem to have marketable value somewhere around 70% book. As a result, directly comparing book value multiples for Allied & Fairfax is a bit misleading. If you back out the runoff operation from Fairfax market cap, and just look at ongoing operations, I think you find the book value multiples similar.  I do not think Fairfax is giving away much, if any, relative value by using shares as currency.

 

2) Allied has a 10 year average combined ratio of 87, Fairfax was running about 99 (as reported, not accident year) last time I checked. So the pro-forma entity would be running about 95. Allied is a much better underwriter, and that is the benefit of the deal going forward for Fairfax. It improves the overall underwriting profile and cements their transition from an industry laggard, to industry leader.

 

I like what I am seeing on the underwriting side, now if they can just get their act together (and story straight) on the investment side...

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I thought I'd start a new thread here, since the other one is long and has gone off in a few different directions.

 

1) Fairfax is both a runoff entity, and an ongoing insurance/reinsurance entity. Runoff entities seem to have marketable value somewhere around 70% book. As a result, directly comparing book value multiples for Allied & Fairfax is a bit misleading. If you back out the runoff operation from Fairfax market cap, and just look at ongoing operations, I think you find the book value multiples similar.  I do not think Fairfax is giving away much, if any, relative value by using shares as currency.

 

2) Allied has a 10 year average combined ratio of 87, Fairfax was running about 99 (as reported, not accident year) last time I checked. So the pro-forma entity would be running about 95. Allied is a much better underwriter, and that is the benefit of the deal going forward for Fairfax. It improves the overall underwriting profile and cements their transition from an industry laggard, to industry leader.

 

I like what I am seeing on the underwriting side, now if they can just get their act together (and story straight) on the investment side...

 

+1

 

Gio

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bsilly

 

The only argument against your point (a) is that FFH themselves would likely value Riverstone above 0.7x and possibly about 1x BV, since they know it backwards and have a lot of faith in it.  But broadly speaking I agree and I have no issue with them adding outstanding underwriting at a fair price.

 

P

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