Fairfax 2021

[glider3834]

https://www.athina984.gr/en/2021/12/01/mitsotakis-theloyme-na-einai-i-chora-mas-kainotomos-kai-protathlitria-stin-anaptyxi/

[Gregmal]

While this may not be a welcome thought, imagine the poetic irony of the market top possibly being marked by the capitulation of a guy like Prem Watsa. Short the whole way through. Then vows never to short again. Holds his crapcos. Right as we peak? I do have some economic exposure here, and I dont necessarily think the market has peaked(or at least not the parts of the market I live in) but rather we are in a phase in which leadership transitions, but the market is a dark and sneaky psychological bitch. So the thoughts crossed my mind. 

 

And I'll just reiterate that I think this would instantly be 20% higher if Prem announced that he sold the entire equity portfolio. Or at least most of it. But Prems gonna Prem. Arrogant through and through.

[Gregmal]

If Prem is decisive, barring a major market move down, then thats all that will matter and shares will do well. If the market craps out and FFH holdings go to hell, Prem will likely be perceived as the patsy who capitulated right before the decade long bull market ended. So essentially, its a market direction wager where I think you have much better risk/reward than the average security. I also dont think we're headed for a widespread market implosion.

 

The test would be determining Prems resolve if the market goes south. Last time he told everyone the company was well capitalized and then ran into a liquidity crisis, got a bailout gift from reddit and didnt take it, and then decided to buyback FFH just as the Fed started to taper. So its an ongoing experiment. 

[drzola]

Good reread on Insurance Theory.

 

https://arxiv.org/pdf/1507.04655.pdf

[glider3834]

saw this today but I haven't read their report 

Fairfax Financial Holdings Ltd (FFH.TO): CIBC initiates coverage with "outperform" rating https://www.reuters.com/markets/stocks/tsx-futures-flat-omicron-dents-sentiment-propped-by-stronger-crude-2021-12-03/

 

 

 

[glider3834]

On 12/4/2021 at 9:28 AM, glider3834 said:

saw this today but I haven't read their report 

Fairfax Financial Holdings Ltd (FFH.TO): CIBC initiates coverage with "outperform" rating https://www.reuters.com/markets/stocks/tsx-futures-flat-omicron-dents-sentiment-propped-by-stronger-crude-2021-12-03/

 

 

 

Tidefall have posted some quotes from the CIBC report below

 

Edited December 5, 2021 by glider3834

[StubbleJumper]

5 hours ago, glider3834 said:

"Since 2005, no investor has bought the stock at a multiple below 0.8x and achieved anything less than a compounded return in the double digits.”

 

 

It's funny that Tidefall noted that.  When the SIB closes in a couple of weeks, what will FFH's book value be?   My rough estimate is that Prem is offering to buy back shares at about 0.8x.  Looks to be a good deal for continuing shareholders!

 

 

SJ

 

[Dazel]

Teradyne in motion…..

Prem joked about copying Harry Singleton….

time will tell but he may be headed this way!

[glider3834]

article on Ki & its potential to be IPO'd at some point (Interesting they note that Ki's premiums could potentially double in 2022!)

 

https://www.insuranceinsider.com/article/29ee5pw6no1rnvrtsvfgg/the-typtap-playbook-lessons-for-hiscox-brit-and-canopius

 

Brit launched Ki in November 2020 with $500mn in backing from Fairfax and Blackstone’s Tactical Opportunities fund, while its technology was developed in collaboration with Google Cloud.

The business stands out as having the fastest year-one start of any tech-enabled underwriting enterprise, and is on course to write $400mn of premiums this year. By way of comparison, Lemonade was launched in 2015 and had premiums in force of $347mn at the end of Q3.

Ki has approval from Lloyd’s to double during 2022, pointing towards potential for $800mn of top line next year.

 

But as it is scaled the early benefits of being umbrella’d by Brit will lessen, and there would be scope for Brit and Fairfax to look to crystallise value through an IPO.

 

Indeed, this path could also make sense as a liquidity event given Blackstone’s involvement, or as a means of raising additional capital to support surging growth.

 

Also worth noting, Ki won the Digital Insurance Award at the National Insurance Awards 2021, held in London in July.

https://www.britinsurance.com/news/ki-wins-digital-insurance-award

Edited December 6, 2021 by glider3834

[glider3834]

2 hours ago, glider3834 said:

Does anyone know how much of Ki is owned by Fairfax?

 

Looks like Brit has 20 % ownership of Ki ( so Fairfax effectively owns 17.2% of Ki via Brit stake)

Brit must consolidate 100% of Ki’s results, as it has effective control of the company, even though it only has a 20% economic interest.  https://seekingalpha.com/article/4466036-fairfax-financial-holdings-limited-frfhf-ceo-prem-watsa-on-q3-2021-results-earnings-call

 

Fairfax & Blackstone also invested in a $500 million funding round in Sep-20 - I can't find if they each received additional equity in Ki? https://www.fnlondon.com/articles/blackstone-and-fairfax-inject-500m-into-lloyds-move-to-ai-20200917

 

Blackstone earlier this month joined Brit owner Fairfax in pumping $500mn into Ki in return for an undisclosed stake. 

https://www.insuranceinsider.com/article/2876owzs23x4mzeguo8ow/brits-ki-an-optimiser-rather-than-revolutionary-blackstones-abbas

Ok according to May-21 update for Ki Financial Ltd - it looks like Blackstone has around 79% of the ownership, Brit 20% (so Fairfax via Brit 17.2%) & less than 1% held by company officers. Brit have majority voting rights of 51%.

https://find-and-update.company-information.service.gov.uk/company/12594708/filing-history

 

On 23 September 2020 and 24 November 2020, Brit Limited invested US$15m and US$16m respectively into Ki Financial Limited. The Group holds 20.0% of the share capital of Ki Financial Limited and 51.0% of the voting rights. The entity is consolidated in full by the Group.

https://www.annualreports.com/HostedData/AnnualReports/PDF/LSE_BRE_2020.pdf

 

 

 

Edited December 7, 2021 by glider3834

[bluedevil]

12 hours ago, glider3834 said:

Ok according to May-21 update for Ki Financial Ltd - it looks like Blackstone has around 79% of the ownership, Brit 20% (so Fairfax via Brit 17.2%) & less than 1% held by company officers. Brit have majority voting rights of 51%.

https://find-and-update.company-information.service.gov.uk/company/12594708/filing-history

 

On 23 September 2020 and 24 November 2020, Brit Limited invested US$15m and US$16m respectively into Ki Financial Limited. The Group holds 20.0% of the share capital of Ki Financial Limited and 51.0% of the voting rights. The entity is consolidated in full by the Group.

https://www.annualreports.com/HostedData/AnnualReports/PDF/LSE_BRE_2020.pdf

 

 

 

Ki is a bit of a sad chapter to me.  The massive money injection from Blackstone was seemingly necessitated because Fairfax couldn’t fund it during pandemic and liquidity issues, so now Blackstone has most of the upside.  But hopefully the real upside is doing similar things that Ki and Digit are doing across all of Fairfax’s insurance subsidiaries. 

[MMM20]

23 minutes ago, bluedevil said:

Ki is a bit of a sad chapter to me.  The massive money injection from Blackstone was seemingly necessitated because Fairfax couldn’t fund it during pandemic and liquidity issues, so now Blackstone has most of the upside.  But hopefully the real upside is doing similar things that Ki and Digit are doing across all of Fairfax’s insurance subsidiaries. 

 

Plus I wonder if the technology ultimately gets commoditized and drives down insurance pricing across the board to the benefit of customers but not necessarily Fairfax. Too negative? Maybe they can cash in first...

[drzola]

Trupanion news.

 

Chewy Expands into Pet Insurance, Partners with Trupanion | Business Wire

[Daphne]

blue devil et al.  Your baseless conjecture is what is sad here.

 

1) while its true that Fairfax owns 17% of Ki through Brit, you seem to have missed the memo that says Blackstone with FFH financed the balance.  Though it doesn’t articulate the allocation of the split, we do know that FFH controls voting share.  So it stands to reason that the 79% was split somewhat evenly with FFH gaining to the upside through its Brit ownership. It’s ludicrous to even imagine that a sophisticated investor like Blackstone would give up control to a less than equally vested company.

2) History has shown ( Digit as an example ) that in an explosive atmosphere of specialty underwriting ffh is going to demand equity and voting control or they simply will not play. Blackstone is a perfect partner because they will be passive but have deep pockets. Ki wrote 400m in the first year and plans on $800 m in 2022. Yikes !

3) Please feel free to critcize mistakes in the past but let this one play out before we take them to the woodshed 

[StubbleJumper]

1 hour ago, Daphne said:

blue devil et al.  Your baseless conjecture is what is sad here.

 

1) while its true that Fairfax owns 17% of Ki through Brit, you seem to have missed the memo that says Blackstone with FFH financed the balance.  Though it doesn’t articulate the allocation of the split, we do know that FFH controls voting share.  So it stands to reason that the 79% was split somewhat evenly with FFH gaining to the upside through its Brit ownership. It’s ludicrous to even imagine that a sophisticated investor like Blackstone would give up control to a less than equally vested company.

2) History has shown ( Digit as an example ) that in an explosive atmosphere of specialty underwriting ffh is going to demand equity and voting control or they simply will not play. Blackstone is a perfect partner because they will be passive but have deep pockets. Ki wrote 400m in the first year and plans on $800 m in 2022. Yikes !

3) Please feel free to critcize mistakes in the past but let this one play out before we take them to the woodshed 

 

 

Conjecture is what occurs when disclosure does not provide full clarity.  In an effort to assess a fair value for the shares,  the ongoing exercise of a shareholder is to take the data provided from disclosure and augment that with conjecture about what has not been disclosed and about what might happen in the future. It is noteworthy that you have expressed disagreement with other people's conjecture, but then offered only your own alternative conjecture as a replacement (unless what you wrote about ownership and voting ratios is fact based, but not open-source, which would be its own problem).  I must say that I prefer your version of conjecture rather than @bluedevil's because yours implies a higher intrinsic value, but it remains a point of uncertainty for us until FFH makes the situation explicitly clear.

 

I give FFH a pass on the level of disclosure for Ki because it has been not material, so far.  But, following your observation of Ki aspiring to write $800m of premium in 2022, it begs the question of when its economic contribution becomes material and merits more verbose disclosure.  Just spit-balling a bit, an outfit that writes $800m of premium might kick out $40m UW profit and perhaps another $10-20m of investment income?  Maybe that begins to be material in 2022 and we should soon see a bit more ink next year?

 

 

SJ

[Daphne]

From the Q3 Conference Call:

   "It should be noted that under Accounting Standards, Brit must consolidate 100% of Ki's results, as it has effective control of the company, even though it only has a 20% economic interest."   Peter Clarke, Fairfax COO

Note also that Fairfax and Blackstone jointly invested $500 million USD into KI directly in September of 2020. Assuming an equal split that would suggest that Fairfax owns 40% directly and 20% through Brit (diluted by OMERS partial ownership of Brit)

[glider3834]

Looking the most recent Ki share allocation/capital injection, both Fairfax (via Brit) and Blackstone appear to be contributing on a 20/80 split, so I suspect that out of the $500 mil capital commitment - $100 mil is going to be funded from Fairfax via Brit & $400 mil via Blackstone.

 

Not sure whether Fairfax can at any point have the option to contribute a higher percentage - we just don't know what the terms of the $500 mil commitment are. Also the wording of the $500 mil commitment are its coming from Fairfax & Blackstone, why not write Brit & Blackstone (or does Fairfax potentially have option to put money in from its own pockets ??)

 

Yes would be nice for Fairfax to own a greater share of Ki, but at the same time we can look at it in the context of what the world was like in Sep-20 - we had no vaccine & Blackstone would have been spoilt for choice in terms of investments. Why would they commit to invest in a promising tech start up with no revenues? They would need a decent % of the equity to compensate them for that risk.

 

For Fairfax & Brit, getting this new tech start up off the ground & scaling up quickly (with other competitors out there) would have been important. Plus Fairfax tipped in around $520 mil into Brit during 2020 to support their underwriting capital & they had to pull down on their credit facility to do this. Putting a further $400 mil into KI as well was probably a bridge too far & again in the context of Sep-20, Fairfax would have been prioritising its own capital position plus would have been spoilt for choice on investment side.

 

Anyway thats my take - but as SJ said this is just speculation because we need to get it from the source. 

 

 

 

 

 

 

Edited December 7, 2021 by glider3834

[Daphne]

Also note that total corporate transparency is an impossible expectation. There can be any number of reasons for non-disclosure ranging from regulatory to confidentiality commitments to other market impacts.

[StubbleJumper]

1 minute ago, Daphne said:

Also note that total corporate transparency is an impossible expectation. There can be any number of reasons for non-disclosure ranging from regulatory to confidentiality commitments to other market impacts.

 

Fully agree.  Unless we want to see a 1,000 page Annual Report, there needs to be thoughtful decisions made about what is disclosed and what is omitted.  We really do not want a 1,000 page AR because it would prevent us from seeing the forest for the trees.  Materiality is a primary driver of that decision about what merits ink and what doesn't.  But, as you noted, if Ki aspires to write $800m of premium in 2022, it might soon become pretty material.

 

 

SJ

[mjm]

anyone receive an offer from their brokerage for the FFH dutch auction?  nothing from Fidelity.

[Crip1]

8 hours ago, mjm said:

anyone receive an offer from their brokerage for the FFH dutch auction?  nothing from Fidelity.

Yes, from Schwab.

 

-Crip

 

[Parsad]

10 hours ago, mjm said:

anyone receive an offer from their brokerage for the FFH dutch auction?  nothing from Fidelity.

Yup, RBC, TD, Scotia and UBS.  Cheers!

[StubbleJumper]

6 hours ago, Parsad said:

Yup, RBC, TD, Scotia and UBS.  Cheers!

 

 

You hold FFH in accounts at four different brokers?  How the hell much money do you have?!!?

 

 

SJ

[MMM20]

17 hours ago, mjm said:

anyone receive an offer from their brokerage for the FFH dutch auction?  nothing from Fidelity.

 

Got mine from Fidelity today (Schwab and TD last week)

[cwericb]

RBC yesterday.