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Fairfax 2021


bearprowler6

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46 minutes ago, TwoCitiesCapital said:

 

They're not committed to buying every share tendered - they're committed to spending a specific $ amount. And you're guaranteed to get the price you tendered for OR better if you get filled.

 

They accumulation of shares starts from lowest ask up to the highest ask until the $1 billion is exhausted. To avoid punishing shareholders for bidding on the low end, all shareholders will receive the highest incremental price that exhausts the $1 billion. 

 

Fairfax is tendering for $1 billion worth of shares. Below is a hypothetical

 

700,000 shares tendered at $460

700,000 shares tendered at $470

800,000 shares tendered at $475

1,000,000 shares tendered at $500

 

In this scenario, Fairfax buying power is exhausted in the $475 level. Everyone who tendered at $460 and $470 get filled for for $475 which was the last incremental price of the tender that exhausted the cash. The people who tendered for $475 will get pro-rata allocations where ~88% of the shares get tendered for $475.

 

The remaining 12% tendered  in the $475 bucket and the 1,000,000 shares in the $500 bucket go unfilled. The benefit of bidding lower is a guaranteed fill for your entire allotment knowing that you'll get filled at that price or a better one if the offer is oversubscribed. The risk of bidding high is that you don't get filled if enough people were willing to accept a lower price. 

 

 

 

 

My understanding is all bid $460-$475 will be pro-rata, not $460-$470 will get full filled and $475 get pro-rata.

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5 minutes ago, value_hunter said:

My understanding is all bid $460-$475 will be pro-rata, not $460-$470 will get full filled and $475 get pro-rata.

 

Any reasonable investor would tender above the market , which is trading at $576 CAD = $448USD....     

 

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I'm fine with FFH continuing to slowly reduce its stake in Brit to buyback shares that these prices. Ki seems hopefully but I'm not convinced they are underwriting prudently over there. Their uw results over the long term are not good and FFH has a Lloyd's presence with Allied so less Brit and more buybacks are fine with me. 

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17 hours ago, Pedro said:

I'm fine with FFH continuing to slowly reduce its stake in Brit to buyback shares that these prices. Ki seems hopefully but I'm not convinced they are underwriting prudently over there. Their uw results over the long term are not good and FFH has a Lloyd's presence with Allied so less Brit and more buybacks are fine with me. 

I have done a little work on Brit - I have scooped the data from Brit's reported financials (again try to be careful but always double check my numbers ;))

 

It looks to me like premium rate increases (due to hard market) have improved Brit's underlying combined ratio (excluding covid loss, cat loss & reserve releases) over last 3 years.

 

image.thumb.png.d7826740a906caee0968d67c65396052.png

 

 

You can see that successive price decreases from 2014 to 2017 (as market suffered from over-capacity & excessive competition) resulted in higher underlying combined ratios. Then from 2018 to 2020, successive price increases have helped reduce Brit's underlying combined ratio from 97.4 to 92.5. A further, 10% increase in first 6mths of 2021, took the total aggregate price increases since 2018 to 30%.

 

The overall combined ratio (excluding covid losses) looks to have improved over 2018-2020 as a result of these rate increases.

 

image.thumb.png.43109630c36abd09648e1285fd58934f.png

 

 

Now lets turn to Q3 result which appeared to be disappointing.

 

Brit's combined ratio increased from 94.6 in 6mths to Jun-21 to 105.3 for 9mths to Sep-21 (103.1 excluding start up Ki) due largely to losses from Hurricane Ida of $169 mil. This appears to combination of Brit having a material exposure to North Atlantic hurricane risks and also proportionally more exposure to Louisiana in their open market property book.

 

To manage this exposure, it looks like Brit also uses excess reinsurance & on Q3 call Peter Clarke said their aggregate cat losses for year are close to their retention level so Q4 result should be better.

 

And lastly at Brit, they didn't get any benefit from their cat reinsurance program. So basically as of now, their aggregate cat losses for the year are just coming up to their the retention of their cover. So the good news is any further, any further development or losses in the fourth quarter will be minimal for Brit.

 

My take is that I think Brit is showing improvement on underwriting front as rate increases reduce their underlying combined ratio. Key to them achieving a consistent sub 100 combined ratio will be their ability to also effectively manage their cat loss risk exposure.

 

 

 

 

 

 

 

 

 

 

 

Edited by glider3834
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21 hours ago, gary17 said:

 

Any reasonable investor would tender above the market , which is trading at $576 CAD = $448USD....     

 

 

My main question is whether reasonable investors are even paying attention. And their tax situations!

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Better than zero .... "The decision represents a significant shift from September’s forecasts, when the FOMC was evenly split on the need for any rate hikes in 2022. The new projections also show an additional three rate hikes as appropriate in 2023, with two more in 2024—bringing the fed funds rate to 2.1% by the end of 2024."

 

As of Q3 FFH had 18.4 billion in cash and short dated. Not sure how much of that is denominated in USD.

Edited by Candyman1
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  • 2 weeks later...

Hi all! 

 

First off wanted to say thank you for all of the great discussion on this board. I have learned a lot just reading along and appreciate all the efforts you all give to this.

 

Wondering if there has been any news on Digit? On the Q3 earning release - FFH stated they expected the common share placement to occur in the fourth quarter (i.e. by Dec 31) after which they recognize $1.1BB in additional book value gains. Was hoping they were able to sneak that into this year - as it will further push up book value. 

 

Has anyone heard anything with respect to this?

 

- newtovalue

 

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2 hours ago, newtovalue said:

Hi all! 

 

First off wanted to say thank you for all of the great discussion on this board. I have learned a lot just reading along and appreciate all the efforts you all give to this.

 

Wondering if there has been any news on Digit? On the Q3 earning release - FFH stated they expected the common share placement to occur in the fourth quarter (i.e. by Dec 31) after which they recognize $1.1BB in additional book value gains. Was hoping they were able to sneak that into this year - as it will further push up book value. 

 

Has anyone heard anything with respect to this?

 

- newtovalue

 

They are waiting for Indian regulators to finalize the regulations I understand. One would think FFH management has a good feel as to what is happening, but again, they are dealing with regulators. All persons I know that work for the US government only talk to me about how many more years before they get to retire. Not the most motivated bunch. I assume it will happen somewhere in 2022. Still, I hope it happens earlier as it might open the way for a Digit IPO. Anyway, now that I lowered expectations, FFH will probably announce the execution of the Digit transaction tomorrow morning. 😃 

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Whether Digit gets booked in Q4 or Q1, it will be a large paper gain which will juice the EPS number.  @Daphne has also suggested that FFH might book a gain of ~US$450m on the Odyssey transaction, and that one did definitely close in Q4.  So, whether it all comes in Q4 or whether it appears in the next couple of consecutive quarters, there will be considerable paper gains appearing in the EPS numbers in the near future.

 

It'll make the EPS, ROE and BV numbers look considerably better, but once again it will be important to look at the quarterly earnings with a discerning eye as quality of earnings will be a bit questionable.  The creation of value from both of those transactions occurred a few years ago, not in Q4.  That creation of value is definitely of credit to management over the past 5 years or so, but it doesn't really reflect on what they actually did in 2021.

 

 

SJ

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51 minutes ago, StubbleJumper said:

Whether Digit gets booked in Q4 or Q1, it will be a large paper gain which will juice the EPS number.  @Daphne has also suggested that FFH might book a gain of ~US$450m on the Odyssey transaction, and that one did definitely close in Q4.  So, whether it all comes in Q4 or whether it appears in the next couple of consecutive quarters, there will be considerable paper gains appearing in the EPS numbers in the near future.

 

It'll make the EPS, ROE and BV numbers look considerably better, but once again it will be important to look at the quarterly earnings with a discerning eye as quality of earnings will be a bit questionable.  The creation of value from both of those transactions occurred a few years ago, not in Q4.  That creation of value is definitely of credit to management over the past 5 years or so, but it doesn't really reflect on what they actually did in 2021.

 

 

SJ

The Odyssey transaction was in a new security, not for common stock held. Could that mean that the transaction will not incur a capital gain or an increase in common shareholders' equity ?  

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8 minutes ago, returnonmycapital said:

The Odyssey transaction was in a new security, not for common stock held. Could that mean that the transaction will not incur a capital gain or an increase in common shareholders' equity ?  

 

We don't know for sure but I would bet that there is no book value write-up.

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On 12/31/2021 at 7:43 AM, returnonmycapital said:

The Odyssey transaction was in a new security, not for common stock held. Could that mean that the transaction will not incur a capital gain or an increase in common shareholders' equity ?  

We don't have all details here but why couldn't it be similar to Brit - issue a new class of common stock?

 

With Brit, it looks like OMERS has the A shares & Fairfax has the B shares & the A shares have certain priority in respect of dividends

 

On IFRS impact

https://ifrscommunity.com/knowledge-base/ifrs-10-consolidated-financial-statements/

Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are equity transactions

 

So I think we could see a potential BV gain here (see my earlier post suggesting potential accounting impact) to reflect the excess of $900 mil cash proceeds over carrying cost of 9.99% interest in Odyssey

 

Again this is just my hunch, could be wrong but we will find out for sure next month

 

 

 

 

 

 

 

 

 

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