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FRFHF Q2 results


shalab
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Surprised no one posted anything

 

TORONTO, Aug. 02, 2018 (GLOBE NEWSWIRE) -- Fairfax Financial Holdings Limited (TSX: FFH and FFH.U) announces net earnings of $63.1 million ($1.82 net earnings per diluted share after payment of preferred share dividends) in the second quarter of 2018 compared to net earnings of $311.6 million ($12.67 net earnings per diluted share after payment of preferred share dividends) in the second quarter of 2017, reflecting net losses rather than net gains on investments.  Book value per basic share at June 30, 2018 was $453.99 compared to $449.55 at December 31, 2017 (an increase of 3.3% adjusted for the $10 per common share dividend paid in the first quarter of 2018).

 

Looks like they are shorting some stocks again - not clear if the hedges are back

 

First six months of 2018

($ millions)

Realized

gains

(losses) Unrealized

gains

(losses) Net gains

(losses)

Net gains (losses) on:

Long equity exposures 1,083.2 26.1 1,109.3

Short equity exposures (198.8 ) 151.3 (47.5 )

Net equity exposures 884.4 177.4 1,061.8

Bonds 61.1 (210.7 ) (149.6 )

CPI-linked derivatives — (19.2 ) (19.2 )

Other (17.4 ) 0.4 (17.0 )

928.1 (52.1 ) 876.0

 

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Surprised no one posted anything

 

TORONTO, Aug. 02, 2018 (GLOBE NEWSWIRE) -- Fairfax Financial Holdings Limited (TSX: FFH and FFH.U) announces net earnings of $63.1 million ($1.82 net earnings per diluted share after payment of preferred share dividends) in the second quarter of 2018 compared to net earnings of $311.6 million ($12.67 net earnings per diluted share after payment of preferred share dividends) in the second quarter of 2017, reflecting net losses rather than net gains on investments.  Book value per basic share at June 30, 2018 was $453.99 compared to $449.55 at December 31, 2017 (an increase of 3.3% adjusted for the $10 per common share dividend paid in the first quarter of 2018).

 

Looks like they are shorting some stocks again - not clear if the hedges are back

 

First six months of 2018

($ millions)

Realized

gains

(losses) Unrealized

gains

(losses) Net gains

(losses)

Net gains (losses) on:

Long equity exposures 1,083.2 26.1 1,109.3

Short equity exposures (198.8 ) 151.3 (47.5 )

Net equity exposures 884.4 177.4 1,061.8

Bonds 61.1 (210.7 ) (149.6 )

CPI-linked derivatives — (19.2 ) (19.2 )

Other (17.4 ) 0.4 (17.0 )

928.1 (52.1 ) 876.0

 

 

I did see their results.  Thought it was not as impressive as I had hoped

 

 

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Looks like they are shorting some stocks again - not clear if the hedges are back

 

 

I don't think they ever completely stopped shorting individual names. I'd be very surprised if the index shorts are back in a big way.

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Looks like about $6bn has moved from cash into ST bonds since year end.

 

And p16 of the release shows no index shorts and a reduced notional amount of stock-specific shorts.

 

i don't get why their insurance volume has gone up , but operating income hasn't really increased.  seems like lower op margin.

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i don't get why their insurance volume has gone up , but operating income hasn't really increased.  seems like lower op margin.

 

I like the "operating margin" concept that you describe.

One quarter does not mean as much as long term trends.

 

 

So NPW increased by 44.1% and underwriting profit went up (108.4M to 115.8M) by 6,8%.

The CR went from 94.9% to 96.1%, seemingly by a small amount but the conceptual number that really counts long term is the difference from 100% underwriting, ie the difference went from 5,1% to 3,9%, a very significant difference if it represents longer term trends.

 

Reserve releases continue to be favorable on an absolute basis but are coming down on a relative basis, a trend I expect to continue at Fairfax and across the board.

 

@petec

There is disclosure about the Brit buyback. They report an 88.0% ownership in light of post quarter financial events. I reviewed past disclosures also and cannot figure out how they end up at 88.0% but they are going in steps and your valuation seems to be on the mark.

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From their quarterly report:

 

On July 5, 2018 Brit used the proceeds from a $264.6 million capital contribution from the company to purchase an 11.2% ownership interest from its minority shareholder (OMERS) for $251.8 million and to pay an accrued dividend of $12.8 million on the shares purchased. Subsequent to this transaction, the company's ownership interest in Brit was 88.0%.

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I actually liked the quarterly results -- well, I don't love the bottom-line EPS number, but that's not the most relevant.  We knew that number would bounce around a lot more with unrealized gains and losses, but the decrease in BB's share price is pretty irrelevant to how well FFH did during the quarter (because the BB decision was taken well in the past, and as I have opined previously, it's not a position that can be realistically exited.  Therefore, call it a "sunk" decision and ignore that part of the results!).

 

 

The good:

 

1) Net written is up 10% YoY.  This is quite good and gets lost in shuffle.

 

2) The CR of 96.1 is actually pretty decent.  I would have liked to have seen 95 or lower, particularly after Prem's observation that some lines were getting decent price increases after last year's cats.  But, 96.1 is pretty good, particularly in the context of 10% growth in net written.  When you dig into the numbers a wee bit, you see basically the same accident year CR being reported, but lower reserve releases in percentage terms this year.  Well, part of the lower release reserves in percentage terms is due to the fact that the denominator has grown as a result of increases in net written.  There's a saying in the P&C industry that you cannot outrun the tail because it will eventually catch up to you -- but if you systematically report favourable developments, it's a good thing when the tail eventually catches up with you!

 

3) Nice to see a decent CR from Allied.  That was a point of concern and uncertainty in previous quarters and FFH guided that poor CRs in the past were the result of one or two policies going sour.  This quarter's results might provide some support to that viewpoint.

 

4) Capital is bouncing around between cash equivalents and bonds, but the duration has obviously declined from last year.  That's a good thing, IMO.  At this stage, a brave analyst might pencil in an underwriting profit of US$500 and interest and dividends of US$500, which puts FFH on track for basic operating income of ~US$1 billion.  That's a pretty solid base for building an EPS number which would be appropriate for a higher share price.  It's also not hard to foresee the interest and dividends trend up to US$750 or US$800 as interest rates rise.  Not much execution risk there.

 

5) Nice to see the increase in the Brit position.  Perhaps another US$300m would finish the job?

 

6) Nice to see some shares re-purchased, particularly since most were probably bought back around 1.1x adjusted BV.  Let's hope that opportunistic repurchases continue.

 

 

Steady as she goes.

 

 

SJ

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