Fairfax 2022

[Xerxes]

Thanks. I have forgotten that minority shareholders can short-circuit both ways:   use dividends to simulate buy-back but also the reverse to create their own dividend payout.

 

What matters for Watsa Family Office (and less so for minority shareholders) are taxes and increasing familly control.

 

 

[Viking]

In terms of capital return, Fairfax has been pretty clear what the priorities are:

1.) solid financial position

2.) grow insurance subsidiaries in hard market

3.) buy back stock

 

We also know a US$10/share dividend is coming in January.

So investors know what they are getting when they invest in Fairfax. 
—————

Personally, i like what Fairfax has been doing on the capital allocation front the past couple of years. 
1.) debt levels are a little elevated… most recent $750 million increase was used to increase stake in Allied World. Solid move.

2.) top line has been growing at 20% the past couple of years. Love it.

3.) share count has been coming down aggressively the past few years. I am VERY interested to see what they are doing with proceeds from pet insurance sale that closed the end of October. I wonder if Fairfax is buying back stock as part of its NCIB… someone is buying a bunch of stock spiking shares higher. Love it!

4.) looking forward to $10 dividend payout in January.

 

Very shareholder friendly. 

[Parsad]

6 hours ago, Thrifty3000 said:

Don’t forget FFH is the Watsa Family Office disguised as a public company.
 

FFH is the Watsas’ investment vehicle. Excess cash will stockpile and be deployed in the investment vehicle in the most tax efficient way.

 

If what’s best for the Watsas is good for you then all is well.

 

It's also the investment vehicle or key holding for many long-term employees, shareholder friends of the Watsa's, extended family of the Watsa's, the current President Peter Clarke, long-time shareholder and fund manager Francis Chou, and yours truly! 

 

I know all of the Watsa family and I could not hope for better partners.  It's why this site is called Corner of Berkshire & Fairfax and not Corner of Berkshire & Markel or Corner of Berkshire & Brookfield!  They may not always do exactly what you might want them to do, but they do try damn hard and listen to their shareholders.  Cheers!

[glider3834]

On 11/24/2022 at 6:01 PM, Viking said:

When I did my last update on Fairfax's earnings estimates for 2023 a couple of days ago, I noticed my spreadsheet had bunch of errors in it (mostly the historical information). I also: 

- added a few more years of history

- added 2022 YTD numbers (to help forecast 2022 YE)

- made a few tweaks to my 2022 & 2023 estimates 

----------

Below is a short summary of what is included in each row.

1.) underwriting profit: is just insurance and reinsurance. Not runoff and life insurance (which is captured a couple of lines down).

2.) interest and dividends: for all of Fairfax

3.) share of profit of associates: for all of Fairfax; includes associate equity, real estate and insurance holdings

4.) life insurance and runoff: just underwriting results

5.) Other: captures Fairfax's consolidated equity holdings

6.) Interest expense: for all of Fairfax

7.) Corporate overhead

8.) Net gains (losses) on investments: captures realized and unrealized gains on Fairfax's fixed income and mark to market equity holdings (including derivatives like the TRS on FFH)

10.) Non-controlling interests: primarily the parts of Allied, Odyssey and Brit that Fairfax does not own

 

I am least confident in my estimates for two buckets: Non-controlling interests and Income taxes. 

 

----------

Below is a summary of Fairfax's equity holdings broken out by size and accounting treatment.  

A.) Mark to market is captured in 8.) Net gains (losses) on investments

B.) Associates is captured in 3.) Share of profit of associates

C.) Consolidated is captured in 5.) Other (revenue - expenses)

 

 

viking I have been doing some stats on the underwriting - my question is around the 95CR estimate - what factors could affect this?

 

Fairfax's underlying combined ratio is sitting at around 89 annualised 

 

 

Higher net earned premiums have reduced the underwriting expense ratio (component of combined ratio) which is now sitting at 13.2% annualised (4Q21 adjusted for loss portfolio transfers).

 

 

Fairfax has reduced reserves releases to -1.9% annualised 

 

 

Over the last 4 years, catastrophes have averaged 5.5 CR points - lets round it up to 6 CR points

 

 

Putting the above together, if we assume no favourable reserve development in 2023 & underlying combined ratio holds then a combined ratio = 89 + 6 = 95 looks reasonable

 

A conservative -1% in favourable reserve development could drop that to 94.

 

The two elephants in the room are inflation & higher reinsurance rates. How will these impact the combined ratio?

 

With reinsurance rate increases expected in 2023 plus tighter terms for reinsurers - Fairfax has the potential , provided we get a normalised cat year, to write more reinsurance more profitably (lower combined ratio)  in 2023. Fitch expects reinsurer CRs to drop by 4CR points from 98 to 94 in 2023.

 

I am not sure the overall impact of higher reinsurer pricing impacts combined ratio for insurance business - if they can pass on the rate increases then impact can be mitigated.

 

How the mix of inflation combined with higher premium rates impacts reserves releases remains to be seen - we will have to wait & see. 

 

 

 

 

 

 

 

Edited November 30, 2022 by glider3834

[Viking]

2 hours ago, glider3834 said:

viking I have been doing some stats on the underwriting - my question is around the 95CR estimate - what factors could affect this?

 

Fairfax's underlying combined ratio is sitting at around 89 annualised 

 

 

Higher net earned premiums have reduced the underwriting expense ratio (component of combined ratio) which is now sitting at 13.2% annualised (4Q21 adjusted for loss portfolio transfers).

 

 

Fairfax has reduced reserves releases to -1.9% annualised 

 

 

Over the last 4 years, catastrophes have averaged 5.5 CR points - lets round it up to 6 CR points

 

 

Putting the above together, if we assume no favourable reserve development in 2023 & underlying combined ratio holds then a combined ratio = 89 + 6 = 95 looks reasonable

 

A conservative -1% in favourable reserve development could drop that to 94.

 

The two elephants in the room are inflation & higher reinsurance rates. How will these impact the combined ratio?

 

With reinsurance rate increases expected in 2023 plus tighter terms for reinsurers - Fairfax has the potential , provided we get a normalised cat year, to write more reinsurance more profitably (lower combined ratio)  in 2023. Fitch expects reinsurer CRs to drop by 4CR points from 98 to 94 in 2023.

 

I am not sure the overall impact of higher reinsurer pricing impacts combined ratio for insurance business - if they can pass on the rate increases then impact can be mitigated.

 

How the mix of inflation combined with higher premium rates impacts reserves releases remains to be seen - we will have to wait & see. 

 

@glider3834 thanks very much for pulling this together and sharing with us. You have done a great job of providing historical trends for lots of important inputs. A 95CR estimate for 2023 is what I am using currently. I don't think it is aggressive and as you point out it could easily come in at 94 in 2023. That would be sweet.

 

I have net premiums earned growing 15% in 2023 to $22.3 billion, so a 94CR would deliver about $1.34 billion in underwriting profit. I am estimating $970 million in 2022 so this would be a sizeable YOY increase (+38%). 

 

It will be interesting to see where Q4 CR comes in this year; last year Q4 came in at a CR = 88.1. This will be an important number. 

 

Some thoughts:

- one key is where catastrophes come in. And this is unknowable, of course. Taking the average for the last few years makes sense as they have been high catastrophe years. Hard market in reinsurance should really help here.

- one benefit of the hard market of the past couple of years can be seen with the fall in the expense ratio (outlined beautifully in your chart)

- hopefully reserve releases can continue to come in around 1.9 CR points on average moving forward.

- yes, the inflation trend will be important to monitor. The good news is if there is development for the industry then it will likely prolong the hard market. I would be more concerned about inflation if we were in a soft market.

 

I think another important development this year has been the spiking in bond yields. This has hit the reported book value of all insurers hard. I am thinking this could extend the hard market. Most insurers will not see the benefit of higher rate in interest income for another couple of years (given the average duration for P&C insurers is close to 4 years) - and this assumes interest rates stay high for years to allow them to lock in higher rates. Add in the emerging risk of inflation running hot for the next couple of years (not saying this will happen), it makes sense to me insurers will need to be cautious and continue to get significant rate increases moving forward. The economy also continues to chug along and this should help insurers continue to push for rate increases. Putting it all together I don't think my estimate for top line growth of 15% (net premiums earned) is crazy high for 2023.

----------

There are others on this board that understand the inner workings of P&C underwriting far better than me. Perhaps they can chime in with their thoughts  

Edited November 30, 2022 by Viking

[Xerxes]

“We have purchased total return swaps with respect to 1,407,864 subordinate voting shares of Fairfax with a total market value at the time of those agreements of $484.9 million ($344.45 (Cdn$443.93) per share)”.  —-  Feb. 2021

 

At $574 USD per share today’ print, that “bet-on-myself” play is worth $808.5 million USD. A nice 66% return over two years. 

[glider3834]

2 hours ago, Xerxes said:

“We have purchased total return swaps with respect to 1,407,864 subordinate voting shares of Fairfax with a total market value at the time of those agreements of $484.9 million ($344.45 (Cdn$443.93) per share)”.  —-  Feb. 2021

 

At $574 USD per share today’ print, that “bet-on-myself” play is worth $808.5 million USD. A nice 66% return over two years. 

By my calc -  based on 30 Sep positioning

 

unrealised TRS gain (since inception) = 1.964 x (573 - 373) = $393M

 

unrealised TRS gain for 4Q = 1.964 x (573 - 457) = $227M

 

At September 30, 2022 the company continued to hold equity total return swaps on 1,964,155 Fairfax subordinate voting shares with an original notional amount of $732.5 million (Cdn$935.0 million) or approximately $372.96 (Cdn$476.03) per share

Edited November 30, 2022 by glider3834

[Xerxes]

Thanks. I didn’t realize they actually expanded the “total return swap” program 

[Luke]

I dont know if there has been a discussion about it yet: What would happen if prem watsa would die? How would impact that the fairfax thesis? are there successors planned already, like with BRK? He could very well live 20 more years but 72 is 72. Just wondering about it

[Xerxes]

1 hour ago, Luca said:

I dont know if there has been a discussion about it yet: What would happen if prem watsa would die? How would impact that the fairfax thesis? are there successors planned already, like with BRK? He could very well live 20 more years but 72 is 72. Just wondering about it

I don’t know. But I know @Parsad has suggested that FFH has a far deeper bench than say Berkshire. 
 

I am curious if that view still holds. 
 

That said, I hope Prem would live a long life and continue his amazing journey (at the helm or in the background as “paramount leader”), whichever 

[Parsad]

4 hours ago, Xerxes said:

I don’t know. But I know @Parsad has suggested that FFH has a far deeper bench than say Berkshire. 
 

I am curious if that view still holds. 
 

That said, I hope Prem would live a long life and continue his amazing journey (at the helm or in the background as “paramount leader”), whichever 

 

Yes.  That remains very true.  

 

Prem had appointed Paul Rivett as President.  After Paul left, Peter Clarke was appointed President.  Peter has been with Fairfax forever.  So if something happens to Prem, Peter Clarke would take over as CEO with Andy Barnard overseeing Insurance as he does and Wade Burton leading Hamblin-Watsa.  I would imagine Jean Cloutier would take over as President and COO...who has also been with Fairfax forever.

 

You also still have many of the old guard like Chandran overseeing India...Brian (bond guru) Bradstreet overseeing Fixed Income investments...Jennifer Allen as CFO...pretty much all of the VP's at all of the insurance subs have been in that position for 10+ years.  You have Lawrence Chin backing Wade at Hamblin-Watsa and if there ever was a pinch, Francis is a phone call away!

 

Lastly, the board of directors retains a lot of the old guard experience like David Johnston, Timothy Price, Brandon Sweitzer, while adding newer, younger capable directors like Lauren Templeton.  The Watsa Family would remain well represented with Ben and Christine on the board.  I also wouldn't be surprised to see Paul Rivett back on the FFH board some time in the future, as Nordstar is now under arbitration and will be divided.  

 

I'm far less worried about Fairfax than I would be with Berkshire.  The current team under Prem has shown years of success.  If something happens to Buffett, Charlie and Ajit...that's three guys that are completely irreplaceable.  Prem as a leader is irreplaceable, but the investment and insurance teams at Fairfax are as capable as him.  Fairfax will keep rolling as usual, just shareholder's won't have that voice and face to lean on which is mighty comforting like Buffett & Charlie. 

 

Can someone run National Indemnity like Ajit?  Can someone make acquisitions like Buffett?  Maybe they will just roll all of the excess cash flow to Ted and Todd, and let the CEO's of each sub make their own acquisitions rather than leaving it to the parent company.  It's simpler at Fairfax...everything flows through Andy to make insurance acquisitions or Wade to make investments.  Prem and eventually Peter just gives the ok.  Cheers!

 

 

[gfp]

Correct me if I am wrong, but I believe the super voting shares also lose their super voting status on Prem's death.

[Parsad]

31 minutes ago, gfp said:

Correct me if I am wrong, but I believe the super voting shares also lose their super voting status on Prem's death.

 

Not necessarily death.  If Prem is no longer CEO or Chairman, the company can have a vote to retain the super voting shares as they are.  If it is voted down, they can be diluted by share issuances.  If a vote is not held within 5 years of Prem no longer being CEO or Chairman, then that would also remove the protection of the super voting shares.  

 

https://www.fairfax.ca/news/press-releases/press-release-details/2015/Fairfax-Announces-Modifications-to-Multiple-Voting-Share-Proposal-and-Postponement-of-Special-Meeting--of-Shareholders-to-August-24-2015/default.aspx

 

Cheers!

[StubbleJumper]

52 minutes ago, Parsad said:

 

Not necessarily death.  If Prem is no longer CEO or Chairman, the company can have a vote to retain the super voting shares as they are.  If it is voted down, they can be diluted by share issuances.  If a vote is not held within 5 years of Prem no longer being CEO or Chairman, then that would also remove the protection of the super voting shares.  

 

https://www.fairfax.ca/news/press-releases/press-release-details/2015/Fairfax-Announces-Modifications-to-Multiple-Voting-Share-Proposal-and-Postponement-of-Special-Meeting--of-Shareholders-to-August-24-2015/default.aspx

 

Cheers!

 

 

If current trends continue, the super voting rights might become pretty irrelevant in a couple of years. Irrespective of whether some of us liked that change, the rationale underlying it was that the Watsa family had 41.8% of the voting power based on there being a total of ~23m shares outstanding.  Prem seemed to know that he wanted to issue additional shares and seemed to be concerned that his control of the company would be threatened.  In actual fact, the company did end up with about 28 million shares outstanding at one point.  Clearly, the Watsa family's voting power would have dropped considerably due to FFH having increased the share-count by ~20%, so Prem's concerns were well founded.

 

Fast-forward to today, and we are likely down to a little more than 23m shares outstanding due to the NCIB and SIB processes of the past few years (it was 23.4m shares on Sept 30).  So we are approximately back down to the share-count that triggered Prem to have his multiple voting shares re-weighted.  If we keep following this trend for another couple of years, perhaps FFH will be back down to 19m or 20m shares, which would provide the Watsa family with majority control *without* the benefit of the changes what were implemented in 2015.  At that point, if Prem elects to walk away from his role as either CEO or Chairman, there would be no loss of family control.

 

As I have suggested in the past, the buybacks are quite likely to continue for a few more years for the exact reason of maintaining family control.  Prem knows very well that if he passed away, shareholders would have Ben and Christine on a very short leash.  If he can get that share-count down to 19m or 20m, the kids would have 50%+ of the voting power.  The power of incentives/motivation.

 

 

SJ

Edited December 20, 2022 by StubbleJumper

[Parsad]

22 hours ago, StubbleJumper said:

 

 

If current trends continue, the super voting rights might become pretty irrelevant in a couple of years. Irrespective of whether some of us liked that change, the rationale underlying it was that the Watsa family had 41.8% of the voting power based on there being a total of ~23m shares outstanding.  Prem seemed to know that he wanted to issue additional shares and seemed to be concerned that his control of the company would be threatened.  In actual fact, the company did end up with about 28 million shares outstanding at one point.  Clearly, the Watsa family's voting power would have dropped considerably due to FFH having increased the share-count by ~20%, so Prem's concerns were well founded.

 

Fast-forward to today, and we are likely down to a little more than 23m shares outstanding due to the NCIB and SIB processes of the past few years (it was 23.4m shares on Sept 30).  So we are approximately back down to the share-count that triggered Prem to have his multiple voting shares re-weighted.  If we keep following this trend for another couple of years, perhaps FFH will be back down to 19m or 20m shares, which would provide the Watsa family with majority control *without* the benefit of the changes what were implemented in 2015.  At that point, if Prem elects to walk away from his role as either CEO or Chairman, there would be no loss of family control.

 

As I have suggested in the past, the buybacks are quite likely to continue for a few more years for the exact reason of maintaining family control.  Prem knows very well that if he passed away, shareholders would have Ben and Christine on a very short leash.  If he can get that share-count down to 19m or 20m, the kids would have 50%+ of the voting power.  The power of incentives/motivation.

 

 

SJ

 

While control is important...if control was the only thing motivating the Watsa family, they would have bought the total return swaps directly instead of through the company...he's good for it!  They knew the business was undervalued...but they bought them for the company...not themselves.  Cheers! 

[Xerxes]

17 minutes ago, Parsad said:

 

While control is important...if control was the only thing motivating the Watsa family, they would have bought the total return swaps directly instead of through the company...he's good for it!  They knew the business was undervalued...but they bought them for the company...not themselves.  Cheers! 

 

 

never thought about it this way !

 

[A_Hamilton]

23 hours ago, StubbleJumper said:

 

 

If current trends continue, the super voting rights might become pretty irrelevant in a couple of years. Irrespective of whether some of us liked that change, the rationale underlying it was that the Watsa family had 41.8% of the voting power based on there being a total of ~23m shares outstanding.  Prem seemed to know that he wanted to issue additional shares and seemed to be concerned that his control of the company would be threatened.  In actual fact, the company did end up with about 28 million shares outstanding at one point.  Clearly, the Watsa family's voting power would have dropped considerably due to FFH having increased the share-count by ~20%, so Prem's concerns were well founded.

 

Fast-forward to today, and we are likely down to a little more than 23m shares outstanding due to the NCIB and SIB processes of the past few years (it was 23.4m shares on Sept 30).  So we are approximately back down to the share-count that triggered Prem to have his multiple voting shares re-weighted.  If we keep following this trend for another couple of years, perhaps FFH will be back down to 19m or 20m shares, which would provide the Watsa family with majority control *without* the benefit of the changes what were implemented in 2015.  At that point, if Prem elects to walk away from his role as either CEO or Chairman, there would be no loss of family control.

 

As I have suggested in the past, the buybacks are quite likely to continue for a few more years for the exact reason of maintaining family control.  Prem knows very well that if he passed away, shareholders would have Ben and Christine on a very short leash.  If he can get that share-count down to 19m or 20m, the kids would have 50%+ of the voting power.  The power of incentives/motivation.

 

 

SJ

I think you'd need share count to go well below that. 

 

Based on my understanding, Prem gets 41.8% of the voting rights (max) via the multiple voting shares. 

 

That leaves the subordinate voting shares with 58.2% of the vote. Prem controls 794,000 of these giving him 43.9% of the vote. In order to get 6.1% of the incremental vote at current levels Prem would need to own another 2.3 million shares at current levels. At current that is ~$1.35 billion of stock. Even if share count comes down by a few million shares, the price per share will appreciate and the cost to take true 50%+ control will be exorbitant.

 

This all says nothing of the board's fiduciary duties around allowing a true change in control which would be above and beyond this.

Edited December 21, 2022 by A_Hamilton

[A_Hamilton]

16 minutes ago, StubbleJumper said:

 

 

Keep it simple.  When there was 23m shares outstanding, Prem's combined voting weight from the multiple voting shares and the common shares was 41.8/100 (ie 41.8 per cent).   Now if FFH repurchases 20% of the outstanding shares (ie, 4.6m shares) and the Watsa family never sells a share, what's Prem's voting weight?  It's 41.8/80., which is a majority.

 

 

SJ

That isn't how it works.

 

The multiple voting shares cannot ever be more than 41.8% of the vote per the proxy. 

 

The difference has to be made up with subordinate voting shares which have a minimum of 58.2% of the vote.

 

 

[StubbleJumper]

5 minutes ago, A_Hamilton said:

That isn't how it works.

 

The multiple voting shares cannot ever be more than 41.8% of the vote per the proxy. 

 

The difference has to be made up with subordinate voting shares which have a minimum of 58.2% of the vote.

 

 

Yeah, and the arithmetic that I did was wrong even if the multiple voting shares had worked that way, so I deleted that post.

 

SJ

[Viking]

It is highly likely that Fairfax will buy back a significant number of shares over the next couple of years. Why?

1.) capital allocation priorities:

- The hard market in insurance is drawing to a close. Funding growth of subs will be less of a priority.

- While debt levels are elevated, the company is not over leveraged. I also expect earnings to be significant in Q4 and 2023 so this will help. So debt reduction is not necessary.

- That leaves share buybacks as the obvious choice. I expect NCIB purchases to be meaningful in Q4. I think Fairfax could take out a million shares quite easily over the next year. It could be much higher.

- We could also see Fairfax continue to take out minority shareholders in 2023. Perhaps they buy another slug of Allied. Or perhaps Brit. Or a slug of Odyssey. 
2.) cash flow should be robust. Fairfax will be earning record amounts from underwriting and interest and dividend income. An average of $600 million per quarter moving forward (pre-tax and before minority interests). 
3.) future asset monetizations - more are likely coming in 2023.

 

Trading at under US$600, stock is still crazy cheap. My guess is Fairfax will utilize the NCIB in 2023. If so, this could just keep powering the shares higher for an extended period.

Edited December 21, 2022 by Viking

[allycat18]

17 hours ago, Viking said:

It is highly likely that Fairfax will buy back a significant number of shares over the next couple of years. Why?

1.) capital allocation priorities:

- The hard market in insurance is drawing to a close. Funding growth of subs will be less of a priority.

- While debt levels are elevated, the company is not over leveraged. I also expect earnings to be significant in Q4 and 2023 so this will help. So debt reduction is not necessary.

- That leaves share buybacks as the obvious choice. I expect NCIB purchases to be meaningful in Q4. I think Fairfax could take out a million shares quite easily over the next year. It could be much higher.

- We could also see Fairfax continue to take out minority shareholders in 2023. Perhaps they buy another slug of Allied. Or perhaps Brit. Or a slug of Odyssey. 
2.) cash flow should be robust. Fairfax will be earning record amounts from underwriting and interest and dividend income. An average of $600 million per quarter moving forward (pre-tax and before minority interests). 
3.) future asset monetizations - more are likely coming in 2023.

 

Trading at under US$600, stock is still crazy cheap. My guess is Fairfax will utilize the NCIB in 2023. If so, this could just keep powering the shares higher for an extended period.

Seasons greetings Viking I always admire and value your analysis.  With buy backs where would you see the market price December 2023

 

[hardcorevalue]

Nobody knows where a stock will be 12 months.

 

I don’t think that’s how Viking is looking at it. 

[Viking]

2 hours ago, allycat18 said:

Seasons greetings Viking I always admire and value your analysis.  With buy backs where would you see the market price December 2023

@allycat18 welcome to the board. Obviously trying to predict a price on any stock 12 months out is pretty much impossible to do with any sort of certainty, especially given the current environment. Having said that, here is how i look at Fairfax. i break things into what Fairfax controls and what Fairfax doesn’t control.
 

What Fairfax’s controls: I think they will earn +$100/year on a normalized basis in 2023 (and 2024). The rub, of course, is ‘normalized’. Because we are not in a normal environment right now (middle of a bear market). We also have no idea how big catastrophe’s will be in 2023… maybe we get ‘the big one’. Assuming the market multiple stays the same, $100 seems like a reasonable increase in the stock price looking out 12 months - on a normalized basis. Now Fairfax’s multiple is low; if we get multiple expansion then that would drive the stock price higher. Three wild cards are:

1.) more large asset monetizations (i.e. something like EXCO, their net gas producer)

2.) successful IPO of Digit

3.) meaningful share buybacks - something close to 8-10% of shares outstanding

These would also drive the stock higher.
 

What Fairfax doesn’t control:

1.) the biggest risk that is see is a global recession. All central banks are now tightening (ECB becoming very hawkish). If equities sell off 20% from current levels (as Morgan Stanley expects… and they have been pretty accurate so far this year) my guess is Fairfax’s stock price will also get hit hard. 
2.) the risk of a year of even higher catastrophe losses (even higher than record levels of recent years) is real as well. This would hit all insurance stocks hard. 
3.) if the hard market in insurance comes to a quick stop in 2023 this might hit market multiples hard and cause a sell off in all insurance stocks. 

If any of these events happen then Fairfax’s stock price will likely get hit. If they all happen (as anything is possible), well…, look out below.

 

My strategy is two-fold: i have a core position of Fairfax that i plan on holding. And i have an opportunistic position in Fairfax that i will sell down on strength (i have been selling some Fairfax given its 30% move over the last 6 weeks and the renewed sell off we are seeing in the overall market - pretty everything else is getting much cheaper). 
 

Bottom line, Fairfax is very well positioned today. It has had an exceptional 2022 and the set up for 2023 looks even better.
 

In the 2020 bear market Fairfax got killed. In the current bear market Fairfax is thriving. Crazy times!

 

 

Edited December 22, 2022 by Viking

[StubbleJumper]

4 hours ago, allycat18 said:

Seasons greetings Viking I always admire and value your analysis.  With buy backs where would you see the market price December 2023

 

 

No one can say what the market price might be, but you can make an educated guess about the range in which it might trade.  To do this, start by developing a conservative estimate of book value on Dec 31, 2023:

 

Current BV:

BV on Sept 30, 2022:  US$570/sh

Deficiency of Fair value over carrying value: -$17

Adjusted BV as at Sept 30, 2022: $553

 

Add:

Conservative estimate of EPS for Q4 2022: $50

Dividend to be paid in Feb 2023: -10

Conservative estimate of EPS for 2023: $100

 

Dec 31, 2023 BV:

Adjusted BV as at Dec 31, 2023: US$693/sh

 

The market price can vary wildly, but as a baseline, you should be thinking about a range from 0.9x BV to 1.1x BV.  So call that a range from US$625 to US$760, assuming that there is nothing wild occurring in financial markets.  And, I would say that the earnings number that I plugged in for Q4, 2022 and for the whole year 2023 will end up being considerably lower than the actual outcome, so there's probably some upside there too....

 

 

SJ

[glider3834]

39 minutes ago, StubbleJumper said:

The market price can vary wildly, but as a baseline, you should be thinking about a range from 0.9x BV to 1.1x BV. 

But can we make the argument that the baseline has moved up over the last 12 mths

 

peer group avg P/B multiple has expanded from 1.2 to 1.8x (adj to remove RLI & KNSL) (however, less expansion with ex AOCI multiple to 1.6x)

 

 

Edited December 22, 2022 by glider3834