Fairfax 2021

[StubbleJumper]

38 minutes ago, Daphne said:

At the time, many had argued that share buybacks was preferable to a dividend.

 

Many still do make that argument.  The dividend is just shy of US$270m, which would be enough to repurchase a considerable slug of shares.

 

 

SJ

[cwericb]

2 hours ago, StubbleJumper said:

 

Many still do make that argument.  The dividend is just shy of US$270m, which would be enough to repurchase a considerable slug of shares.

 

 

SJ

While that seems reasonable, I doubt we will see anything change in the foreseeable future.

[FairFacts]

Its just one more 'wrinkle' in the Fairfax story. The dividend policy is set (firmly) to accommodate the founder. 

 

[cwericb]

1 hour ago, FairFacts said:

Its just one more 'wrinkle' in the Fairfax story. The dividend policy is set (firmly) to accommodate the founder. 

 

In his defense, Prem's salary from Fairfax has been set at $600,000/year for decades.  Considering that he is founder, chairman and CEO of a rather large conglomerate, his salary looks pretty paltry compared to others in that position.  The fact that he gets dividends from the shares that owns ... well, so do we.

[FairFacts]

2 hours ago, cwericb said:

In his defense, Prem's salary from Fairfax has been set at $600,000/year for decades.  Considering that he is founder, chairman and CEO of a rather large conglomerate, his salary looks pretty paltry compared to others in that position.  The fact that he gets dividends from the shares that owns ... well, so do we.

I don’t disagree but it’s a non-standard dividend policy, why not pay him a proper salary like everyone else. The dividend policy could then be ‘normalized’. As it is it’s just another ‘wrinkle’ (exception or anomaly)….

[cwericb]

45 minutes ago, FairFacts said:

I don’t disagree but it’s a non-standard dividend policy, why not pay him a proper salary like everyone else. The dividend policy could then be ‘normalized’. As it is it’s just another ‘wrinkle’ (exception or anomaly)….

I think the original theory was simply that he would share profits on the same scale as every other shareholder, although he certainly has a few more shares than I do.  I don't find much about Fairfax that does to be 'normal' though.

[Santayana]

1 hour ago, FairFacts said:

I don’t disagree but it’s a non-standard dividend policy, why not pay him a proper salary like everyone else. The dividend policy could then be ‘normalized’. As it is it’s just another ‘wrinkle’ (exception or anomaly)….

What exactly is "non-standard" or not "normalized" about their dividend policy?  

[Viking]

33 minutes ago, Santayana said:

What exactly is "non-standard" or not "normalized" about their dividend policy?  

I do not understand what the problem is with the dividend as it is currently constructed. 

- Fairfax pays a US$10/share dividend. And they have paid it consistently since it was implemented (please correct me if i am wrong).

- Yield is about 2.4%. Pretty good for today.

- It is paid all in one shot (January). That is a little different but does it matter?

- It has not been increased since being initiated. Given Fairfax’s earnings performance (minimal growth of BV) has been poor for years this is likely a good thing. Now as business performance improves in the coming years perhaps there will be demands from shareholders to start increasing the dividend in a more consistent way each year. (But my guess is most shareholders would probably favour share buybacks over a higher dividend right now). 

 

Does Prem benefit from the dividend payment? Yes. He is the largest shareholder, by far. 

Edited October 20, 2021 by Viking

[glider3834]

11 minutes ago, Viking said:

- Yield is about 2.4%. Pretty good for today

yes it is -  S&P500 div yield is around 1.4%

[petec]

The dividend policy is a credit to Prem. I’d far rather share in the payout than watch him pay himself through the nose like (IIRC) someone like Berkeley does. 

[FairFacts]

Alright, just a comment on the divi policy, not the biggest of deals.

 

Meanwhile (conspiracy theorist hat on) why is the Q3 earnings release date late????

[maxthetrade]

28 minutes ago, petec said:

The dividend policy is a credit to Prem. I’d far rather share in the payout than watch him pay himself through the nose like (IIRC) someone like Berkeley does. 

 

I dunno, I've made a lot more on WRB than FFH. I really like the rational approach at WRB to expanding the business vs. buybacks vs. dividends. That said at current prices I don't own any WRB and I added 500 @ 508.10 FFH today. If I get the chance to swap FFH @ 1.2BV for WRB @1.2-1.4BV I'd do it in a splitsecond. Personally I'd prefer to skip the dividend and do some serious repurchases at these prices, much more tax efficient.

[Viking]

29 minutes ago, FairFacts said:

Meanwhile (conspiracy theorist hat on) why is the Q3 earnings release date late????

Last year one of the earnings release announcements came out as late as the 24th (with earnings out a week later). My guess is the announcement will come in the next few days… But hey, feel free to speculate away  

[maxthetrade]

5 minutes ago, Viking said:

But hey, feel free to speculate away  

 

Okay you asked for it, Brit screwed up royally on their european catastrophe business. I know some people who were very surprised by their exposure to the german flooding.   

[glider3834]

57 minutes ago, FairFacts said:

Alright, just a comment on the divi policy, not the biggest of deals.

 

Meanwhile (conspiracy theorist hat on) why is the Q3 earnings release date late????

Kamesh Goyal said they are waiting on regulatory approval for Digit's capital raising & expecting by end of this month - could be delaying the timing so they can basically say this is done??

[bearprowler6]

14 minutes ago, maxthetrade said:

 

Okay you asked for it, Brit screwed up royally on their european catastrophe business. I know some people who were very surprised by their exposure to the german flooding.   

Wait.....I think I am starting to get this stock....let me try to respond to the concern raised......Prem playing 4D chess anticipated the market's disappointment with Brit's exposure to the German floods and quickly arranged to sell off a piece of Brit to OMERS. So what seemed like another expensive short term financing to us mere mortals turns out to be a brilliant risk mitigation trade brilliantly executed by Prem? How did I do?

 

As a side note....I couldn't help notice the market's response to the news announced after the market close yesterday from CN Rail on the "retirement" (a real retirement...not a  Rivett / Torstar type of retirement) of the CEO! CNR/CNI up $8/share or 5%+ today! 

[Viking]

55 minutes ago, maxthetrade said:

 

Okay you asked for it, Brit screwed up royally on their european catastrophe business. I know some people who were very surprised by their exposure to the german flooding.   

I have said before that Brit is a watch-out for me. I do not understand the Lloyds platform (what its long term competitive advantages are). And Brit has underperformed most years since being acquired. The original CEO is long gone (he was also the guy who talked Fairfax into buying Bryte which has also been a chronic under-performer post acquisition). And CEO #2 just stepped down (leave) due to health reasons. This also makes me cautious when it comes to executing well something like Kai; just caution on my part. So we will see how Brit performed in Q3

 

The good news is Fairfax has owned the company for long enough that i would expect they understand what the issues are. And my guess is they will take any needed corrective actions.
 

Allied is also on my watch list. Not because i expect issues. Just want to see a longer track record of solid performance to put it in the same category as Odyssey, Northbridge and Zenith. 

Edited October 20, 2021 by Viking

[Viking]

52 minutes ago, maxthetrade said:

 

Okay you asked for it, Brit screwed up royally on their european catastrophe business. I know some people who were very surprised by their exposure to the german flooding.   

@maxthetrade has anything been published (news article?) on Brit’s exposure to German flooding?

[maxthetrade]

7 minutes ago, Viking said:

@maxthetrade has anything been published (news article?) on Brit’s exposure to German flooding?

 

Nothing that I'm aware of. I've heard some things but nothing I would bet money on. Actually I added to my FFH position today at 508.10. The stock is cheap and if management doesn't blow it completely (i.e. fails to sell the cyclicals at very  advantagous prices) we'll all  make a very decent profit on this trade.

[StubbleJumper]

33 minutes ago, Viking said:

@maxthetrade has anything been published (news article?) on Brit’s exposure to German flooding?

 

In North America, overland flooding is a very unusual thing to insure because underwriters have a devil of a time to come up with an appropriate premium for a specific piece of land.  Has Germany done a better job of flood plain mapping that would enable a competitive market in flooding insurance?  It seems to me that it's the sort of residual risk that ends up being underwritten by the taxpayer...

 

 

SJ

[StubbleJumper]

18 minutes ago, maxthetrade said:

Actually I added to my FFH position today at 508.10.

 

I don't generally announce any of my purchases or sales, but I also bought a bit three weeks ago at ~CAD$520.  It seems like a no-brainer.  

 

SJ

[Viking]

1 hour ago, maxthetrade said:

 

Nothing that I'm aware of. I've heard some things but nothing I would bet money on. Actually I added to my FFH position today at 508.10. The stock is cheap and if management doesn't blow it completely (i.e. fails to sell the cyclicals at very  advantagous prices) we'll all  make a very decent profit on this trade.

@maxthetrade and @StubbleJumper thanks for chiming in… 

 

Bottom line, Q3 will be another very interesting quarter for Fairfax:

1.) size of catastrophe losses?

2.) top line insurance growth - still double digits? Rate vs exposure?

3.) how much longer will hard market continue for?

4.) annual update on reserving (i think this happens in Q3)?

5.) share of profit of associates: growing?
6.) Brit/CEO update?

7.) Riverstone / sale of 14% of Brit close: impact on financials (lower debt etc)?

8.) Eurolife - increase in ownership from 50 to 80% - impact on financials?

9.) Digit: is $46 gain in BV pushed out to Q4?

10.) GIG purchase of AXA closed in Sept 7; any impact on Fairfax’s financials?
11.) how do equity holdings perform inQ3? Any sales? Any new purchases?

12.) update on capital allocation moving forward? Do insurance subs have enough $ to grow on their own? Done repaying debt (i noticed another $85 million due in 2024 was repaid in Oct)? Are they ready to buy back stock in volume?

Edited October 20, 2021 by Viking

[glider3834]

3 hours ago, Viking said:

@maxthetrade and @StubbleJumper thanks for chiming in… 

 

Bottom line, Q3 will be another very interesting quarter for Fairfax:

1.) size of catastrophe losses?

2.) top line insurance growth - still double digits? Rate vs exposure?

3.) how much longer will hard market continue for?

4.) annual update on reserving (i think this happens in Q3)?

5.) share of profit of associates: growing?
6.) Brit/CEO update?

7.) Riverstone / sale of 14% of Brit close: impact on financials (lower debt etc)?

8.) Eurolife - increase in ownership from 50 to 80% - impact on financials?

9.) Digit: is $46 gain in BV pushed out to Q4?

10.) GIG purchase of AXA closed in Sept 7; any impact on Fairfax’s financials?
11.) how do equity holdings perform inQ3? Any sales? Any new purchases?

12.) update on capital allocation moving forward? Do insurance subs have enough $ to grow on their own? Done repaying debt (i noticed another $85 million due in 2024 was repaid in Oct)? Are they ready to buy back stock in volume?

good summary Viking

on 1. thats probably the main one - negative impact from Q3 catastrophes on insurance result - how much?

on 11. I am curious if any changes - apart from Atlas Corp warrants which appear to have been exercised , they don't appear to have really added any new significant equity positions up to Q2 - what about Q3? 

on 12. if the premium growth rates are still good, I suspect they will want to keep allocating capital to subs but good question viking - how much capital do the subs actually need? Because as the discount to book keeps growing I think it raises the stakes around share buybacks - if, when & how much?? 

Edited October 21, 2021 by glider3834

[maxthetrade]

WRB had another exceptional q, net premiums written increased 23.7%, CR 90.4% including cat losses... From the press release:

"Overall rate increases remained robust in nearly all lines of business, and we expect this to continue for the foreseeable future. We see expanding opportunities to write business at attractive underwriting margins, given the strong commercial property and casualty pricing environment. The increasing focus that distribution partners and clients are placing on stable markets with balance sheet strength and expertise, particularly in specialty and E&S lines, is also contributing to growth."

 

Always worth listening to the call!

 

 

[Viking]

3 hours ago, maxthetrade said:

WRB had another exceptional q, net premiums written increased 23.7%, CR 90.4% including cat losses... From the press release:

"Overall rate increases remained robust in nearly all lines of business, and we expect this to continue for the foreseeable future. We see expanding opportunities to write business at attractive underwriting margins, given the strong commercial property and casualty pricing environment. The increasing focus that distribution partners and clients are placing on stable markets with balance sheet strength and expertise, particularly in specialty and E&S lines, is also contributing to growth."

 

Always worth listening to the call!

 

 

Agreed. WRB provides great insight into what is happening in the insurance market. Here are a couple of things that stood out to me (in addition to your notes):

1.) on rate increases: ‘don’t see the trend changing’. We are now in year 3. Hello hard market! 
2.) on increases: 40% is rate and 60% is exposure

3.) on expense ratio: as higher written premiums from a year ago are now becoming higher earned premiums the expense ratio is falling (28%). 
4.) on investments: 69% is in fixed income. Duration is 2.3 years. -AA quality. Yield has been declining. Ok with lower interest income in the near term. Positioned well should inflation/interest rates move higher in future. 
5.) in addition to social inflation, now starting to talk about financial inflation as a risk. 

Final comment: ‘the stars have aligned’. Wow! 
 

My key takeaway is the hard market is continuing. We are already 3 weeks into Q4 so 2021 is looking like it will be a stellar year. 2022? We will see…

Edited October 22, 2021 by Viking