Digit

[Candyman1]

11 hours ago, nwoodman said:

Graph of monthly IRDAI figures for Digit (LHS) vs the Total Insurance Market (RHS).  Numbers are pretty volatile and how reliable they are, who knows.  Compounding curves are eyeballed, so don't put too much weight on them.  Overlaid Covid-19 cases, perhaps a minor correlation.  Spectacular growth off a low base but  we already knew that.  Will be interesting to add in another year or two down the line. The usual caveats on profitable underwriting etc. apply of course.

 

Spreadsheet attached in case you want to play around with the compiled data on a rainy afternoon 

 

IRDAI Data.xlsx 2.13 MB · 1 download

 

+1 Thanks for posting

[nwoodman]

This article provides a bit more info on the insurance sector in India on the back of the their second COVID-19 wave.  While not good news, great to see Kamesh is again their “go to” for the article.

 

https://indianexpress.com/article/business/covid-health-claims-of-rs-10703-cr-pending-before-insurers-despite-hc-irdai-directive-7444822/

 

Quote

 

According to insurers, the sharp rise in Covid claims has hit them substantially. “Yes, health claims have gone up a lot. While the number of claims went up, the average cost of a covid claim is twice the size of non-covid claims. Thus, the hit has been substantial,” said Kamesh Goyal, Chairman, Digit Insurance.

The big rise in claims even forced some insurance companies to stop issuing health policies for some periods. Many companies were even forced to go slow on issuing term policies as death claims also shot up. “I’m sitting on a 400 per cent loss in Covid claims,” said the regional manager of a public sector insurer.

[nwoodman]

Another article on Digit that provides a bit more colour on the opportunity

 

https://ajuniorvc.com/digit-insurance-lic-unicorn-india-startup-tech-general-acko/

 

 

Quote

 

On the revenues side, the pandemic proved to be a blessing in disguise for Digit. The premiums in the pandemic year grew by 60%. Digit’s explosive growth in the market can also be understood by the fact that its pre-pandemic growth in premiums was as high as 160%. 

The ratio of claims to premium which was very high in the first year has now remained stable around 65-75% over the last 3 years. 

As far as the expenses are concerned, Digit spends between 13-20% of its revenue over the past three years on operations. 

The largest category of expenses is related to branding and sales expenses. Branding expenses have hovered around 40-50% of the overall expenses over the same period. 

While the pandemic improved its revenues, this was achieved without a proportional increase in costs. The same period saw a growth in operating expenses at 26% on a year on year basis. Similar growth in revenues and costs, in the future, will surely see Digit breaking even and even turning in a profit soon. 

 

 

 

Quote

 

Digit has taken several initiatives in order to tackle the pandemic and continue on its growth trajectory. 

The company shifted focus to the non-motor segment, especially Health, as the entire automobile industry faced degrowth. 

It launched several Industry-first products such as India’s first sachet health plan for COVID which reached its maximum cap of Rs 50 Lakh in total premium set by IRDA within just 3 weeks of launch. It further launched a series of COVID insurance covers that touched the lives of over 2.5 Mn people and 24,000 institutions.

 

 

Edited August 19, 2021 by nwoodman

[nwoodman]

This piece in Bloomberg also grabbed my attention

 

An $8.8 Billion IPO Wave Sweeps Across India as Startups Soar 

 

  “If global investors have to pick an emerging market, the balance is tilting in India’s favor after the regulatory action in the China internet ecosystem,” said Pankaj Naik, executive director and co-head, digital & technology at consultancy, Avendus Capital Pvt. “India may not be as attractive as China in the broader economic sense but it’s looking like a safer bet.”

 

 

 

 

 

[glider3834]

Another smaller funding round at approx US$ 16 mil at around same valuation as last time - I suspect lot of these individual investors would want to see some sort of liquidity via an IPO at some stage - lets wait & see what happens:) 

 

https://www.investindianews.com/digit-insurance-has-raised-rs-121-crore-from-tvs-growth-fund-and-hni/

 

 

Existing investor TVS Growth Fund has led the round with an investment of Rs 56 crore. Notable individuals include Kunal Shah, Saujanya Shrivastava ( CBO, MMT), Susheel Tejuja (owner Landmark Insurance brokers), Sachin Pillai (MD & CEO Hinduja Leyland Finance), Anil Arora (CEO Ace Insurance Brokers) also participated in the round.

About 110 other individual investors have also put in money this round, filings show. According to Fintrackr’s estimate, the company has been valued at $3.47 billion (post-money) after this fresh tranche. 

[nwoodman]

While small, this round actually gives me more confidence in the price discovery process.  Previously my fear was that it was a bit self referential.

Edited August 27, 2021 by nwoodman

[glider3834]

article on Digit & podcast 

 

https://ajuniorvc.com/digit-insurance-lic-unicorn-india-startup-tech-general-acko/

[glider3834]

for Jun-21 Qtr - looks like around 76% increase in net premiums earned (vs Jun-20 Qtr)

 

94% growth in GWP (QoQ) & Expenses of Mgmt to Net premium written continue to fall nicely while net incurred claims to net earned premium are 76% (see table below avg 74% in FY 2021 & 75% in FY 2020) slightly on higher side not sure if one off factors or a trend or mgmt are content to target this mid 70% level but combined ratio is the key one below.

 

Combined ratio (CR) now sitting around 107.9 up slightly QoQ, but improving on 2021 FY (CR109) & 2020 (CR117)  - see below from Digit annual report.

 

 

Edited September 8, 2021 by glider3834

[Viking]

Glider, thanks for the updates on Digit. I am surprised by Mr. Markets complete non-reaction the past 2 months to the Digit news (head scratcher for me :-). FFH stock price has gone sideways and is trading today at about the same level (US$445) as when the news on Digit revaluation first came out July 5. 
 

The gain from the Digit revaluation of about US$1.8 billion (some realized in Q2 and the remainder likely in Q3) is a large number relative to Fairfax’s total market cap of $12 billion. 
 

So why the non-reaction from Mr Market?

1.) market is efficient. And does not believe Digit is worth anything close to new valuation suggested by the capital raise and communicated by Fairfax.
2.) market is not efficient. And simply is ignoring the Digit news.

 

i am not sure there is a middle ground. The size of the transaction is simply too large. Either Digit is worth the higher number or it is not. 

—————————————-

Below is from Fairfax’s Q2 results news release: 

- https://www.fairfax.ca/news/press-releases/press-release-details/2021/Fairfax-Financial-Holdings-Limited-Financial-Results-for-the-Second-Quarter/default.aspx

 

Our investments increased significantly with net gains on investments of $1,290.2 million, primarily reflecting net gains on long equity exposures and $425.0 million on Digit compulsorily convertible preference shares. Mark-to-market movements on our non-insurance investments in associates and consolidated investments which are not reflected in our financial statements also increased in the second quarter of 2021 by approximately $338 million. As previously reported, upon closing of the Digit Insurance equity issuance in the third quarter, and upon final approval by the Indian government of its previously announced intention to increase foreign ownership limits, we anticipate recording an additional gain of approximately $1.4 billion or $46 in book value per basic share. We continue to focus on being soundly financed and ended the quarter with approximately $1.5 billion in cash and investments in the holding company," said Prem Watsa, Chairman and Chief Executive Officer.

 

Edited September 8, 2021 by Viking

[glider3834]

20 minutes ago, Viking said:

Glider, thanks for the updates on Digit. I am surprised by Mr. Markets complete non-reaction the past 2 months to the Digit news (head scratcher for me :-). FFH stock price has gone sideways and is trading today at about the same level (US$445) as when the news on Digit revaluation first came out July 5. 
 

The gain from the Digit revaluation of about US$1.8 billion (some realized in Q2 and the remainder likely in Q3) is a large number relative to Fairfax’s total market cap of $12 billion. 
 

So why the non-reaction from Mr Market?

1.) market is efficient. And does not believe Digit is worth anything close to new valuation suggested by the capital raise and communicated by Fairfax.
2.) market is not efficient. And simply is ignoring the Digit news.

 

i am not sure there is a middle ground. The size of the transaction is simply too large. Either Digit is worth the higher number or it is not. 

—————————————-

Below is from Fairfax’s Q2 results news release: 

- https://www.fairfax.ca/news/press-releases/press-release-details/2021/Fairfax-Financial-Holdings-Limited-Financial-Results-for-the-Second-Quarter/default.aspx

 

Our investments increased significantly with net gains on investments of $1,290.2 million, primarily reflecting net gains on long equity exposures and $425.0 million on Digit compulsorily convertible preference shares. Mark-to-market movements on our non-insurance investments in associates and consolidated investments which are not reflected in our financial statements also increased in the second quarter of 2021 by approximately $338 million. As previously reported, upon closing of the Digit Insurance equity issuance in the third quarter, and upon final approval by the Indian government of its previously announced intention to increase foreign ownership limits, we anticipate recording an additional gain of approximately $1.4 billion or $46 in book value per basic share. We continue to focus on being soundly financed and ended the quarter with approximately $1.5 billion in cash and investments in the holding company," said Prem Watsa, Chairman and Chief Executive Officer.

 

Yep Viking honestly its a head-scratcher for me too given the sheer size relative to Fairfax's market cap but I think the market will come around eventually:) maybe the conclusion of the deal with regulatory approval & recognition in reported financials will help act as catalysts.

 

[glider3834]

31 minutes ago, Viking said:

Glider, thanks for the updates on Digit. I am surprised by Mr. Markets complete non-reaction the past 2 months to the Digit news (head scratcher for me :-). FFH stock price has gone sideways and is trading today at about the same level (US$445) as when the news on Digit revaluation first came out July 5. 
 

The gain from the Digit revaluation of about US$1.8 billion (some realized in Q2 and the remainder likely in Q3) is a large number relative to Fairfax’s total market cap of $12 billion. 
 

So why the non-reaction from Mr Market?

1.) market is efficient. And does not believe Digit is worth anything close to new valuation suggested by the capital raise and communicated by Fairfax.
2.) market is not efficient. And simply is ignoring the Digit news.

 

i am not sure there is a middle ground. The size of the transaction is simply too large. Either Digit is worth the higher number or it is not. 

—————————————-

Below is from Fairfax’s Q2 results news release: 

- https://www.fairfax.ca/news/press-releases/press-release-details/2021/Fairfax-Financial-Holdings-Limited-Financial-Results-for-the-Second-Quarter/default.aspx

 

Our investments increased significantly with net gains on investments of $1,290.2 million, primarily reflecting net gains on long equity exposures and $425.0 million on Digit compulsorily convertible preference shares. Mark-to-market movements on our non-insurance investments in associates and consolidated investments which are not reflected in our financial statements also increased in the second quarter of 2021 by approximately $338 million. As previously reported, upon closing of the Digit Insurance equity issuance in the third quarter, and upon final approval by the Indian government of its previously announced intention to increase foreign ownership limits, we anticipate recording an additional gain of approximately $1.4 billion or $46 in book value per basic share. We continue to focus on being soundly financed and ended the quarter with approximately $1.5 billion in cash and investments in the holding company," said Prem Watsa, Chairman and Chief Executive Officer.

 

in terms of Digit valuation I have no unique insights but the last two fundraising rounds have both been at 3.5 bil level so we have had price discovery twice there now & if you look at Digit's current operating metrics (Jun21 Qtr) there doesn't appear to any let up in the pace or quality of growth (higher premiums & lower combined ratio). 

[nwoodman]

 

 

7 hours ago, glider3834 said:

Combined ratio (CR) now sitting around 107.9 up slightly QoQ, but improving on 2021 FY (CR109) & 2020 (CR117)  - see below from Digit annual report.

 

Thanks Glider, the delta in CR is very promising considering their growth.  As said many times if this company was listed on the NASDAQ as an insuretech then it would be valued much higher than even what Fairfax is claiming.  Just reading through the article you posted I found it fascinating that Fairfax was not mentioned at all, I wonder if this was by design . 

Anyway keep up the great work, we certainly appreciate your posts.  I wasn't even aware that Digit made their financials public.  Following your post, I was able to find them with a google search but could not for the life me find them on their website until I scrolled all the way down and there in the fine print was "public disclosures".  The way this is all laid out, plus a bunch of new micro investors,  makes me think that an IPO is in the offing sooner rather than later. 

 

 

[glider3834]

2 hours ago, nwoodman said:

 

 

 

Thanks Glider, the delta in CR is very promising considering their growth.  As said many times if this company was listed on the NASDAQ as an insuretech then it would be valued much higher than even what Fairfax is claiming.  Just reading through the article you posted I found it fascinating that Fairfax was not mentioned at all, I wonder if this was by design . 

Anyway keep up the great work, we certainly appreciate your posts.  I wasn't even aware that Digit made their financials public.  Following your post, I was able to find them with a google search but could not for the life me find them on their website until I scrolled all the way down and there in the fine print was "public disclosures".  The way this is all laid out, plus a bunch of new micro investors,  makes me think that an IPO is in the offing sooner rather than later. 

 

 

no worries nwoodman yep I was the same I had to hunt around to find those quarterly reports today  I think Prem at AGM said they don't want to IPO just yet & want to work toward a 10% market share in general non-life and are currently in 1.6-1.7% area - so I think they want to build it to a mature business at hopefully a bigger valuation. But I agree it would be a very attractive IPO given it is insurtech/high growth . There has been a muted reaction so far (buts lets see!) to revaluation of Digit which surprises me because if they were to IPO it , I suspect the Fairfax share price would probably jump with value recognition through IPO. 

[nwoodman]

29 minutes ago, glider3834 said:

I think Prem at AGM said they don't want to IPO just yet & want to work toward a 10% market share in general non-life and are currently in 1.6-1.7% area - so I think they want to build it to a mature business at hopefully a bigger valuation

I recall something similar also,  but the India IPO market is hot which must make it tempting.   Perhaps the disclosure around financials of insurance companies is an Indian thing.  If that is the case then it is pretty amazing as it provides quite a window into your soul for competitors.  On the other hand it may also speak volumes about the value of a hunting license in the Indian insurance market. 

 

I think we all agree that Prem knows via Kamesh and team, he has captured lightning in a bottle. I am sure they will get the timing of an IPO roughly right.

[FairFacts]

Indian Life Insurer IPO at potentially $109 billion......

 

https://www.yahoo.com/finance/news/india-seeks-109-billion-valuation-084211913.html

Edited September 15, 2021 by FairFacts

[Viking]

India looks very well positioned right now to attract investment $:

- Modi is pro business and is moving forward with more economic reforms

- global economic recovery from covid in 2022 should benefit EM like India

- China is making some head scratching decisions that will likely slow new $ flows from West that should benefit other regions (deterioration of China / US relationship also a factor)

 

Fairfax’s publicly traded Indian stock holdings have been on a tear the past 10 months.

 

I am looking forward to seeing what Fairfax India has planned with Anchorage. The Seven Islands IPO is also pending.
 

And of course, there is the rumoured Digit IPO in 2022  

 

Lots to like.

 

Edited September 15, 2021 by Viking

[Candyman1]

17 hours ago, Viking said:

India looks very well positioned right now to attract investment $:

- Modi is pro business and is moving forward with more economic reforms

- global economic recovery from covid in 2022 should benefit EM like India

- China is making some head scratching decisions that will likely slow new $ flows from West that should benefit other regions (deterioration of China / US relationship also a factor)

 

Fairfax’s publicly traded Indian stock holdings have been on a tear the past 10 months.

 

I am looking forward to seeing what Fairfax India has planned with Anchorage. The Seven Islands IPO is also pending.
 

And of course, there is the rumoured Digit IPO in 2022  

 

Lots to like.

 

Look at the population pyramid for India. It is not just that the overall population is expected to still grow by another 300 million people by 2055, but the current  population of India is pretty young. If the government keeps the pro business policy trend somewhat on the rails we will see significant growth in India over the next decade(s).

 

https://www.populationpyramid.net/india/2020/

 

[nwoodman]

On 9/17/2021 at 2:33 AM, Candyman1 said:

Look at the population pyramid for India. It is not just that the overall population is expected to still grow by another 300 million people by 2055, but the current  population of India is pretty young. If the government keeps the pro business policy trend somewhat on the rails we will see significant growth in India over the next decade(s).

Thanks for this.  The comparison between China and India is quite stark. Demography isn’t everything but it’s certainly not nothing.

 

 

 

[glider3834]

Just thinking about Digit valuation purely in terms of P/S (ignoring P/B or combined ratios) - I am going to use GWP to compare with ICICI Lombard

 

Looking at the Digit valuation recently US$3.5 bil (around 7.8x GWP for 2021) versus peer ICICI Lombard market cap around US$10.2 bil (around 5.2 x GWP for 2021) 

 

Digit GWP growth for 2021 around 40% versus 9.4% for ICICI

 

If we look out to 31 March 2025, lets assume Digit can continue to compound GWP at average rate of 30% over next 4 years to reach US$1.26 bil

 

Then lets apply a multiple of GWP to estimate valuation - lets say 6.5x (which is lower than recent valuation at  7.8x 2021 GWP) but which is bit higher than ICICI Lombard current level & also factors in slowdown in GWP growth rate (Note: appears Price to GWP multiples in INdia generally are higher & that ties into higher GDP growth rate, higher investment return yields available etc)

 

6.5 x US$ 1.26 bil = US $8.19bil

 

Now to get to US$1.26 bil in GWP, Digit will need to raise regulatory capital & could go the IPO route or continue to raise funding from VC - either way Fairfax's stake will get diluted but lets assume they dilute from 70% area down to 60%

 

Fairfax's stake then is worth US$4.9 bil or around US$190 per share by 31 Mar-25.

 

So making quite a few assumptions here  but lets say Fairfax could generate another US$100 in BVPS growth over next 4 years from Digit or US$25 per year (or US$650 mil) or around 4% BVPS per year.

 

Potentially then Fairfax could hit 4% out of the magic 15% BVPS growth target, just from their Digit investment over the next 4 years. Is that reasonable??

 

Or maybe they will IPO earlier & hit that valuation earlier - there have been some eye popping valuations in Insurtech listed stocks globally 

 

The big risk with India at the moment is that tech valuations pullback at some point - the flip side is that India is attracting more VC capital due to the situation in China - in a way the Country is getting  a multiple re-rating.

Edited September 24, 2021 by glider3834

[Viking]

On 9/23/2021 at 10:47 PM, glider3834 said:

Just thinking about Digit valuation purely in terms of P/S (ignoring P/B or combined ratios) - I am going to use GWP to compare with ICICI Lombard

 

Looking at the Digit valuation recently US$3.5 bil (around 7.8x GWP for 2021) versus peer ICICI Lombard market cap around US$10.2 bil (around 5.2 x GWP for 2021) 

 

Digit GWP growth for 2021 around 40% versus 9.4% for ICICI

 

If we look out to 31 March 2025, lets assume Digit can continue to compound GWP at average rate of 30% over next 4 years to reach US$1.26 bil

 

Then lets apply a multiple of GWP to estimate valuation - lets say 6.5x (which is lower than recent valuation at  7.8x 2021 GWP) but which is bit higher than ICICI Lombard current level & also factors in slowdown in GWP growth rate (Note: appears Price to GWP multiples in INdia generally are higher & that ties into higher GDP growth rate, higher investment return yields available etc)

 

6.5 x US$ 1.26 bil = US $8.19bil

 

Now to get to US$1.26 bil in GWP, Digit will need to raise regulatory capital & could go the IPO route or continue to raise funding from VC - either way Fairfax's stake will get diluted but lets assume they dilute from 70% area down to 60%

 

Fairfax's stake then is worth US$4.9 bil or around US$190 per share by 31 Mar-25.

 

So making quite a few assumptions here  but lets say Fairfax could generate another US$100 in BVPS growth over next 4 years from Digit or US$25 per year (or US$650 mil) or around 4% BVPS per year.

 

Potentially then Fairfax could hit 4% out of the magic 15% BVPS growth target, just from their Digit investment over the next 4 years. Is that reasonable??

 

Or maybe they will IPO earlier & hit that valuation earlier - there have been some eye popping valuations in Insurtech listed stocks globally 

 

The big risk with India at the moment is that tech valuations pullback at some point - the flip side is that India is attracting more VC capital due to the situation in China - in a way the Country is getting  a multiple re-rating.

Glider, Digit certainly continues to be a head scratcher for me (lack of impact of Fairfax stock price since the news came out). The only think that makes sense to me is Mr Market does not believe the higher valuation is valid. So it is ignoring it. 
 

What is interesting is the whole Indian stock market is on a tear. What is going on with Digit is not out of the ordinary. If Digit is able to execute an IPO in 2022 i think we will start to see it reflected in Fairfax shares. Bottom line, Digit continues to grow its business very  well and is just another of the many tailwinds for Fairfax.

—————————

India could surpass the UK as the world’s 5th largest stock market by 2024, Goldman says

- https://www.cnbc.com/2021/09/21/goldman-sachs-india-start-ups-ipo-report.html

 

- Indian start-ups have raised $10 billion through IPOs so far this year — more money than was raised in the last three years, Goldman Sachs said in a report dated Sept. 19.

- The pipeline for future public listings is expected to remain robust over the next two years, the investment bank said in a new report dated Sept. 19.

- Based on Goldman’s calculations, as many as 150 private firms could potentially list on the stock market over the next 36 months, adding as much as $400 billion of market value.

 

Edited September 27, 2021 by Viking

[glider3834]

28 minutes ago, Viking said:

Glider, Digit certainly continues to be a head scratcher for me (lack of impact of Fairfax stock price since the news came out). The only think that makes sense to me is Mr Market does not believe the higher valuation is valid. So it is ignoring it. 
 

What is interesting is the whole Indian stock market is on a tear. What is going on with Digit is not out of the ordinary. If Digit is able to execute an IPO in 2020 i think we will start to see it reflected in Fairfax shares. Bottom line, Digit is just another of the many tailwinds for Fairfax. 

—————————

India could surpass the UK as the world’s 5th largest stock market by 2024, Goldman says

- https://www.cnbc.com/2021/09/21/goldman-sachs-india-start-ups-ipo-report.html

 

- Indian start-ups have raised $10 billion through IPOs so far this year — more money than was raised in the last three years, Goldman Sachs said in a report dated Sept. 19.

- The pipeline for future public listings is expected to remain robust over the next two years, the investment bank said in a new report dated Sept. 19.

- Based on Goldman’s calculations, as many as 150 private firms could potentially list on the stock market over the next 36 months, adding as much as $400 billion of market value.

 

yes agree Viking - I guess patience is key 

 

 

 

[petec]

2 hours ago, Viking said:

Glider, Digit certainly continues to be a head scratcher for me (lack of impact of Fairfax stock price since the news came out). The only think that makes sense to me is Mr Market does not believe the higher valuation is valid. So it is ignoring it. 

 

I think it's simpler. Fairfax just isn't on many radar screens given the decade it has had. And while Digit might be, few people will buy FFH to own Digit because Digit isn't a big enough part of FFH and the rest of FFH is highly complex with a dodgy 10y track record. So The only people who are really aware of the value gap at this point are the diehard FFH watchers.

 

That will start to change if/when:

1) FFH posts several quarters/years of strong BVPS growth that appears on screens.

2) The P/BV gap widens further until it screens so cheap that people just have to do the work. (One ancillary issue here is that part of what makes FFH so cheap is the gap between fair value and carrying, and that doesn't appear on screens either, until assets are monetised.)

 

Meantime, we get an opportunity.

[nwoodman]

Totally agree, who the hell other than Fairfax fan boys know about Digit in the wider market, a couple of select PE players.  In this small circle, the marks are not all that convincing but I am not saying they are way off. I would hazard a guess that they may even be conservative if let loose on an IPO mad Indian market at the moment. 

 

Digit will likely prove to be around 25% of “the Prem is a genius” or “Prem turns around Fairfax “ narrative at some point in the future but only after a few years and some other more mainstream investments that prove winners Eurobank (for the newcomers) and Atlas, and then the TRS.  Even if the TRS takes a few years, the carrying cost is likely no more than OMERS, who knows maybe it is OMERS (9%  funding guaranteed )
 

We are all here because we are value investors, and while we are here to make money I for one am also intrigued to see just how long regression to the mean actually occurs.  I am betting no longer than 2024 and that the sum of the parts is growing at least 11% over the longer term.  Not a high bar by any means.

 

  While we are all delighted that things are working out with a few of the investments and that there are green shoots all over the place, these seeds were sown at least 3 years ago.   Many of these looked like they had withered on the vine even before Covid, so you can’t blame the market for being fascinated by shinier things.
 

11% CAGR kind of sucks if you bought and held but the long term opportunity cost after accounting for tax is likely acceptable.  ie not completely wrong.  The more I look at this Insurance/Float model you realise it is just not that exciting any more.  Having said that your return is based on the price you pay and your returns suck if you drink the “Berkshire model” Kool Aid and over pay, you will not be bailed out by superior economics.  You will do OK if you buy at a discount or better yet a deep discount which is where we are at with FFH
 

I think everyone that has been in and out of FFH over the last 10-15 years knows that they are far from a 15% long term compounder. However from this point in time to get back to FV I think it will likely give you 20% CAGR for a few years.  Nuts in this environment, but that’s the market for you. 
 

This will be extrapolated just as this period of “under performance” seems exaggerated.  Agree with all though, that there are possibly structural and even mild cultural changes that may improve the odds of them not trading at such a large discount for long.

Kkeep up the great work in terms of turning over the value rocks.  It makes for interesting reading.  However I must admit I am more interested In signs of misallocation at this stage that might halt or give pause to regression to the mean. 

[petec]

1 hour ago, nwoodman said:

The more I look at this Insurance/Float model you realise it is just not that exciting any more.

 

Interestingly Apollo, Blackstone, KKR, Brookfield et al would seem to disagree and are moving into insurance fast. I know it is not exactly the same model, but there are strong similarities, and I think two things stand out:

 

1) The model doesn't work with bonds any more, so you need to be able to manufacture investments, especially on the fixed income side. That's where I think the PE houses have an advantage over the traditional players, and I think FFH could have done a better job of getting into private credit etc. I think that's what the Westaim deal was meant to be about but Arena never seemed to take off. The $2bn recently given to Kennedy Wilson is another move in this direction.

 

2) BAM et al clearly believe interest rates are more likely to rise than fall in the long run, which does lovely things to both float income and the value of long tail liabilities.

[nwoodman]

52 minutes ago, petec said:

Interestingly Apollo, Blackstone, KKR, Brookfield et al would seem to disagree and are moving into insurance fast.

That's a shame, there goes our hard market without a CAT or two to act as a wake up call.  On a brighter note, I was recently thinking about what US5-10bn or so in float in the Indian market might be worth with CRs of 100 in the not too distant future.  Assuming the capital allocation machine is working.  

 

Anyway the observation was more born out of what I have seen as a lumpy but long run average returns out of the likes of MKL, BRK and FFH.  They seem to  be 10-12% CAGR machines. My take is don't get starry eyed about the potential for significant returns buy with a healthy discount, nothing new in that.  I think it applies particularly to FFH at the moment that is trading at a considerable discount.  It goes without saying that as long as they don't blow up, a 10% return in a 2% borrowing world is more than acceptable....in fact that is an asset that is positively geared.

 

 

 

 

 

 

Edited September 27, 2021 by nwoodman