zenith

[oldye]

pro forma: investments per share up to roughly 1100$  ;D

 

"I am in the capital allocation business. My job is to figure

out which businesses to invest in, with whom, and at what

price. I am not like a steel executive who can think only

about how to invest best in steel. I've got a bigger canvas,

simply because I have spent my life looking at companies

from Abbott Labs and going through to Zenith."

[StubbleJumper]

The lawyers are circling on the Zentih deal

 

They can stuff it!  They're not getting a penny more on this deal.  Prem is paying up already unlike the Odyssey initial offer.  Cheers!

 

I had a grand time clicking on lawyer ads served up by google here.  I love making the jackals pay for a good forum.   ;D ;D ;D

 

 

Everybody's gotta have a hobby....  ;D ;D ;D

[ubuy2wron]

The lawyers are circling on the Zentih deal

 

They can stuff it!  They're not getting a penny more on this deal.  Prem is paying up already unlike the Odyssey initial offer.  Cheers!

 

I take it you do not have a position in Zenith unlike you had in Odyssey then.    LOL ;D

[twacowfca]

What multiple of book did Fairfax pay for zenith?

[ourkid8]

http://fairfax.ca/Assets/Downloads/Press/fpr2010-02-18.pdf

 

"The merger consideration of $38.00 per share also represents a premium of 34.5% to Zenith’s book value as of December 31, 2009."

 

What multiple of book did Fairfax pay for zenith?

[twacowfca]

Thanks, ourkid8.  :)

[omagh]

In previous acquistions, Watsa obtained margin of safety by buying below book value and then executing the fix.  It worked on some acquisitions, but there were some large failures which contributed to the "seven lean years".  Buying while pricing is weak seems to be a better way to obtain the margin of safety since this Zenith asset is high quality.  Also, with Fairfax having done a sniff test on Zenith over the past decade as a large minority shareowner, they know what they're buying.

 

http://www.marketwatch.com/story/fairfaxs-zenith-deal-fuels-insurance-rate-hope-2010-02-18?reflink=MW_news_stmp

• "Widely followed market surveys indicate property and casualty rates continue to fall. But on an individual company basis -- and especially with smaller insurers -- we're seeing signs that rates are going up," Stewart Johnson, a portfolio manager at insurance-focused investment firm Philo Smith, said in an interview. "Maybe Fairfax believes rates have hit bottom and are headed up again."
  
• Workers' compensation insurance covers the cost of medical care, lost wages and rehabilitation for on-the-job injuries and provides benefits for the family of any employee killed in work-related accidents.  The workers' compensation market has been plagued by intense competition, spiraling medical costs and fraud. Prices have been falling steadily in recent years as the recession and rising unemployment reduces demand for coverage.  Zenith focuses on workers' comp markets in California and Florida, which have been more troubled than markets in other parts of the U.S. However, the company, run for decades by Stanley Zax, has a reputation for pulling back if it can't charge high enough premiums to make money.  Weak premiums have hit Zenith shares, even though the company may be avoiding future losses by rejecting lower-priced business.
  

 

"This acquisition is atypical for Watsa, who tends to buy insurers that need to be overhauled. That's not the case at Zenith. Fairfax said it is retaining the management team, and the company will continue to operate from its California headquarters."

 

Lessons learned...

 

-Crip

[omagh]

Fitch isn't fully on board.  It's the usual knock on Fairfax by the rating companies.  Even with FFH's track record of investing since 1976, the rating companies prefer to have bond coupons matched to liabilities.

 

http://www.businessweek.com/ap/financialnews/D9DVHJT00.htm

• Fitch Ratings on Friday said it has placed the ratings of Zenith National Insurance Corp. on watch for a possible downgrade because it expects the company that wants to buy Zenith to manage its investments more aggressively.
  
• Fitch said it expects Fairfax to leave Zenith's management in place, so operations shouldn't change much. But Fairfax will take over management of Zenith's investments, which have been run conservatively in the past, Fitch wrote.  Fitch wrote that it put Zenith ratings on "watch negative" because of concerns about Fairfax's "more opportunistic investment philosophy, as Fitch expects a gradual migration toward a riskier investment profile for Zenith." Fitch wrote that Zenith's investments are just 3 percent equities, with 90 percent in investment-grade bonds.  Other Fairfax subsidiaries put more of their money in stock, "and while this could potentially bode well for long-term performance, it also introduces increased volatility and risk to the balance sheet," Fitch wrote.
  

 

Looks like somebody is back into zenith

[Tommm50]

Fitch's comments are absolutely absurd. What's their agenda? They have to stand on a latter, get on tip toes, twist around 240 degrees and squint through a straw to find this as a reason for potential downgrade? More volatility in investments? Isn't that dwarfed in importance by the much larger size of the acquiring company's portfolio, exemplary investing track record, and $1 Billion in cash?

[Uccmal]

There is a history with Fitch.  FFH doesn't pay them for any ratings, and does not provide them with any relevant accounting access. 

 

The more important ratings for FFH are S&P and AM Best. 

[FFHWatcher]

Isn't it almost comical that Google Ads is advertising at the top of this Message Board by asking,

 

      "Shareholder Alert - ZNT

      Unhappy with Zenith National Deal? Call 212.363.7500 or visit

      www.zlk.com"

 

(I apologize if it was already mentioned. I haven't read all the thread)

[omagh]

Surprise! S&P and AM Best have a different opinion on Zenith/Fairfax. 

 

http://www.insurancejournal.com/news/national/2010/02/22/107526.htm

 

Neither Standard & Poor's Ratings Services nor A.M. Best are currently expecting to change their ratings on Zenith National Insurance Corp or on Toronto-based Fairfax Financial Holdings, following the announcement on Thursday, Feb. 15, that it will buy all the shares of Zenith that it does not already own in a deal worth about $1.4 billion [see IJ web site - http://www.insurancejournal.com/news/national/2010/02/18/107455.htm ].

 

S&P affirmed its 'BBB-' counterparty credit rating on Zenith and its 'A-' counterparty credit and financial strength ratings on Zenith Insurance Co. and ZNAT Insurance Co., which are the members of the Zenith Insurance Group Intercompany Pool.

 

Best commented that the financial strength rating of 'A' (Superior) and issuer credit ratings (ICR) of “a” of the operating companies of Zenith National Insurance Corp. and the ICR of “bbb” of Zenith "remain unchanged" following the announcement of the Fairfax deal.

 

Both rating agencies also stated that the outlook on all of Zenith's ratings also remains stable.

Fitch isn't fully on board.  It's the usual knock on Fairfax by the rating companies.  Even with FFH's track record of investing since 1976, the rating companies prefer to have bond coupons matched to liabilities.

 

http://www.businessweek.com/ap/financialnews/D9DVHJT00.htm

• Fitch Ratings on Friday said it has placed the ratings of Zenith National Insurance Corp. on watch for a possible downgrade because it expects the company that wants to buy Zenith to manage its investments more aggressively.
  
• Fitch said it expects Fairfax to leave Zenith's management in place, so operations shouldn't change much. But Fairfax will take over management of Zenith's investments, which have been run conservatively in the past, Fitch wrote.  Fitch wrote that it put Zenith ratings on "watch negative" because of concerns about Fairfax's "more opportunistic investment philosophy, as Fitch expects a gradual migration toward a riskier investment profile for Zenith." Fitch wrote that Zenith's investments are just 3 percent equities, with 90 percent in investment-grade bonds.  Other Fairfax subsidiaries put more of their money in stock, "and while this could potentially bode well for long-term performance, it also introduces increased volatility and risk to the balance sheet," Fitch wrote.
  

 

Looks like somebody is back into zenith

[twacowfca]

Here are two articles about the long-tail risk from catastrophic Workers Comp claims.  One is about a small insurance company that failed.  The other profiles a family with large medical bills after a horrible accident.

 

The relevance for Fairfax:  It’s good that Zenith has many decades of experience, reserving for long-tail Workers Comp claims.

 

http://www.ajc.com/business/insolvent-insurer-is-focus-319843.html

 

http://www.ajc.com/business/injured-workers-living-in-319824.html