Credit default swaps

[Daphne]

With markets depressed in Europe, does anyone know if FFH is yet in the money?

[StubbleJumper]

I don't recall having seen any reference to European CDS in FFH's recent filings.  Have I missed something?  I do recall there being CPI derivatives for a broad range of geographics, and FFH floated some Euro denominated notes, but can't recall anything else.

 

For the CDS, were you thinking of sovereign debt, or corporate?

 

 

SJ

[Daphne]

I could be wrong. It’s been a few years since I remember hearing about them and thought that was just because there was nothing to report. I could also be wrong about what they were.  Looking for a silver lining here

[StubbleJumper]

I could be wrong. It’s been a few years since I remember hearing about them and thought that was just because there was nothing to report. I could also be wrong about what they were.  Looking for a silver lining here

 

 

 

The silver lining might be the potential buybacks.  For the past year or so, we've all been chatting about whether the share price was 1.1x or 1.0x adjusted book value, and whether this might present a good opportunity for buybacks.  Well, at today's price of $US431 is clearly lower than the basic reported book, and much lower than adjusted book.  Perhaps we are around 0.9x adjusted BV as reported in Q3.  If you think this thing is worth more alive than dead, a buyback should be a no-brainer.  I just wonder whether FFH has found a way to scrape together perhaps US$1B to take full advantage of the current silliness.

 

Has anyone looked carefully at the premiums:surplus ratios of the subs to get a guesstimate of the theoretical dividend capacity?  I'm pretty sure that there's plenty of capital that could be dividended to the holdco, but if there was ever a time to scrape together some cash and deploy US$1B, it's now.  Wonder if Prem would consider suspending the FFH divvy this year and use the quarter-billion for buybacks instead?

 

 

SJ

[Daphne]

I’m not sure if the limit on buybacks is cash flow or percentage of volume. I suspect the latter

[StubbleJumper]

I’m not sure if the limit on buybacks is cash flow or percentage of volume. I suspect the latter

 

 

Yeah.  Might require a tender offer instead of just using the normal course issuer bid.

 

 

SJ

[Cigarbutt]

^From AR 2017:

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Based on the surplus and net earnings (loss) of the primary insurance and reinsurance subsidiaries as at and for the year ended December 31, 2017, the maximum dividend capacity available in 2018 at each of those subsidiaries, payable to all shareholders (including non-controlling interests) is as follows:

December 31, 2017

Allied World 688.0

OdysseyRe 324.9

Northbridge(1) 149.1

Crum & Forster 130.2

Zenith National 86.0

Brit 195.1

Total: 1,573.3

(1) Subject to prior regulatory approval.

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In Q123, ORH sent upstream 100.0 and NB 65.6.

Capital is pretty much the same and “core” NPW is up 8.5% so HUGE residual dividend capacity.

Downside to using the dividend capacity is reduced ability to benefit from a hypothetical and unexpected hard market.

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For the opening theme, the value CPI-linked derivative contracts has steadily decreased over the last few years along the declining price for deflation protection in Europe. That protection price is now back to where it was around 2008 and something like 10 x less than in 2009. Ironic.

 

[Daphne]

Ironic indeed!