Fairfax 2023

[Jaygo]

8 minutes ago, dealraker said:

Tropical storm Tammy is headed to the US and is near certain to be a hurricane.  LOL, we are close to the end of hurricane season but it ain't locked in.

It aint over till the Victoria's Secret model sings.          Ill be here all week folks

[StubbleJumper]

9 minutes ago, dealraker said:

Tropical storm Tammy is headed to the US and is near certain to be a hurricane.  LOL, we are close to the end of hurricane season but it ain't locked in.

 

In the insurance world, lots of bad things can happen.  That's a fact of life.  But, in this particular case, I don't think that Tammy looks like she will become a bad thing:  https://www.nhc.noaa.gov/refresh/graphics_at5+shtml/115804.shtml?cone#contents

 

 

SJ

[gfp]

14 minutes ago, dealraker said:

Tropical storm Tammy is headed to the US and is near certain to be a hurricane.  LOL, we are close to the end of hurricane season but it ain't locked in.

That storm ain't headed TO the US!  It is currently heading towards the US but that ain't the same thing.

[Xerxes]

3 hours ago, Luca said:

Tbh, i cant find anything that has as good a setup for the next 2-3 years as FFH. Its not only a hedge but even a compounder id gladly buy, if a recession hits, nice, if it doesnt we are also fine. Really thinking of increasing my ridiculous close to 50% position even more because if i look at everything else i can easily see how things go at least sideways or worse and FFH wont suffer under most circumstances except extreme climate events which can blow it down temporarily. 

 

Luca

i think you might enjoy this episode. Peter Keefe talks about his top three positions (decade(s) old holdings) in about 45 min into the episode. 
 

The top three (Microsoft, Markel and American Tower) are very different holdings and different history of how he got into them. There are lots of lore on American Tower.

 

At is pertains this thread and “driving FFH to the wall comment” by @StubbleJumper, Peter’s view on Markel is interesting. Calls insurance not a very good business and that he is only there because of the management as capital allocator. 
 

 

[backtothebeach]

24 minutes ago, dealraker said:

Tropical storm Tammy is headed to the US and is near certain to be a hurricane.  LOL, we are close to the end of hurricane season but it ain't locked in.

 

Seems like Tammy will make THE TURN before it reaches the US.

 

 

[dealraker]

38 minutes ago, StubbleJumper said:

 

In the insurance world, lots of bad things can happen.  That's a fact of life.  But, in this particular case, I don't think that Tammy looks like she will become a bad thing:  https://www.nhc.noaa.gov/refresh/graphics_at5+shtml/115804.shtml?cone#contents

 

 

SJ

Looks good to me!

[longlake95]

2 minutes ago, dealraker said:

Looks good to me!

bought more FFH today. Yanet made me do it.

Edited October 20, 2023 by longlake95

[LC]

2 hours ago, backtothebeach said:

 

Seems like Tammy will make THE TURN before it reaches the US.

 

 

VSCO needs to send these weather reporters some branded clothes.

[dartmonkey]

Tammy is last week's news, or rather, it didn't really make it to mainstream news because it never looked like it had much of a chance of hitting the continental USA, as it has pointed farther and farther northeast. 

 

At this point, it is expected to stay 'way off shore, with high confidence'. At the worst, for those of us in the Eastern USA and Canada, it may give us a fair amount of rain.

 

Looking this up, it is interesting that, although this is an El Niño year meaning we expect less hurricane activity, 2023 has turned out to be a fairly active tropical storm season, Tammy being #20 this year (T being the 20th letter in the alphabet). But fortunately for us and for Fairfax, most of them, except for Idalia, stayed where they belong, well offshore.

[MMM20]

I added ~10% to my already way too big position today and about ready to pound the table again to friends in the industry. No one will listen this time too 

 

Edited October 20, 2023 by MMM20

[OCLMTL]

6 minutes ago, MMM20 said:

I added ~10% to my already way too big position today and about ready to pound the table again to friends in the industry. No one will listen this time too 

 

I’m at 75% of the book and added again slightly today. As somebody referred to earlier, there a nothing in the market right now that passes the test of “is it a better risk/reward than FFH” for the next 2-3 years that I’m aware of. It’s a very aggressive stance but I think it will be, in hindsight, a great decision. TBD…

[LC]

I took small bites as I’m trying to manage position size. I’ll slowly keep buying at this level however. There’s other stuff out there which has fallen in price as well, so we can be picky.

[MMM20]

14 hours ago, OCLMTL said:

I’m at 75% of the book and added again slightly today. As somebody referred to earlier, there a nothing in the market right now that passes the test of “is it a better risk/reward than FFH” for the next 2-3 years that I’m aware of. It’s a very aggressive stance but I think it will be, in hindsight, a great decision. TBD…

I respect the full Kelly criterion sizing. I don’t have the risk tolerance for that. Anything about FFH at 75% keep you up at night? What do you think could go wrong? How do you know when to cut it down or exit?
 

I’m constantly a bit paranoid I’m missing something. “It ain’t what you don’t know that kills you…”

 

Edited October 21, 2023 by MMM20

[OCLMTL]

1 hour ago, MMM20 said:

I respect the full Kelly criterion sizing. I don’t have the risk tolerance for that. Anything about FFH at 75% keep you up at night? What do you think could go wrong? How do you know when to cut it down or exit?
 

I’m constantly a bit paranoid I’m missing something. “It ain’t what you don’t know that kills you…”

 

What makes me comfortable is the low risk of waking up overnight and the stock being down 20-30% in one day or with one earnings release, like a biotech or very high multiple stock. The margin of safety is so big due to tailwinds + low multiples. 
 

i feel like it’s also a great hedge vs my housing, I.e. my homes have certainly gone done in value in the last 18 months due to rates while FFH will benefit. At the end of the day, mathematically, it should add $130-160 per year for 2-3 years to BV, and I don’t see how current BV gets chopped by 20-30% and/or multiple going back to 0.8x. In fact, I think the most likely scenario is a $1200-1400 BV within 3 years and a 1.2x multiple which gets us to around $2K CAD. I’m a big believer in the capital markets angle that @SafetyinNumbers has been pushing. PMs, at the margin, likely won’t add to banks here, they are all OW IFC (great company and stock) and FFH will be as big as IFC in the index soon. That will lead to uncomfortable conversations between CIOs, PMs analysts, as it pertains to why they have zero weight in FFH while the stock doubled under their nose in the last 24 months. 
 

we shall see. I’ll humbly adapt positioning if I need to. 

[UK]

On 10/20/2023 at 5:51 PM, Xerxes said:

 

Luca

i think you might enjoy this episode. Peter Keefe talks about his top three positions (decade(s) old holdings) in about 45 min into the episode. 
 

The top three (Microsoft, Markel and American Tower) are very different holdings and different history of how he got into them. There are lots of lore on American Tower.

 

At is pertains this thread and “driving FFH to the wall comment” by @StubbleJumper, Peter’s view on Markel is interesting. Calls insurance not a very good business and that he is only there because of the management as capital allocator. 

 

This is a new name for me, but it is very interesting/good interview! Liked his angle on nature. The only thing missing: a question on his view re MKL vs FFH:)

 

This seems to be his 13F: https://13f.info/13f/000103347523000006-avenir-corp-q2-2023

 

Edited October 22, 2023 by UK

[gfp]

https://static.ew.wbm.infomaker.io/wp-content/uploads/sites/4/2023/10/Baden_Baden_Daily_One.pdf?utm_source=listrak&utm_medium=email&utm_term=Download+issue+one%3a+22+October&utm_campaign=Welcome+to+our+Baden-Baden+2023+Day+One+edition%3a+Sunday%2c+22+October
 

link to a free insurance industry publication with several interviews and recent color on industry expectations (from Baden Baden conference)

[MMM20]

On 1/4/2023 at 10:31 AM, MMM20 said:

 

 

Price/Book vs. BRK / MKL... don't mind me...

 

 

 

So what are the odds FFH trades at a premium to MKL by, let's say, year end 2024? 

 

I hear rates are still going up

 

 

Edited October 23, 2023 by MMM20

[Crip1]

5 hours ago, MMM20 said:

 

 

 

So what are the odds FFH trades at a premium to MKL by, let's say, year end 2024? 

 

I hear rates are still going up

 

 

Well, our crystal balls are not totally clear, but as someone who holds all 3 companies, I’d be willing to bet that Fairfax grows BV at a faster rate in the next year or so than the other two. Couple that with the fact that Fairfax has a better chance of P/BV multiple expansion and one can understand why I have more FFH than I do MKL and Berkshire combined.

Back to the question…I hate that this is going to sound snippy but I minimally care if FFH trades at a premium or a discount to MKL. Multiple expansion has been debated a fair amount on this board which, in and of itself, is harmless, but I don’t really care that much. What I DO care about is execution by the company.

Fairfax is executing, and has been for a number of years. The interesting thing (to me, at least) is that they’ve morphed from a company who has to do something(s) very smart (very difficult) to a company who has to not do something stupid (difficult as well, but easier). Avoiding something stupid should allow them to grow BV by 15%/Year (thanks Viking) which is in excess of a 50% increase. If that happens, the chances are extraordinarily good that Price/Book will expand. To what extent, God only knows, but adding 3 years on top of what we’ve already seen will, doubtlessly resonate with investors, and that happens by avoiding something stupid. 
1.2x Book, 1.3x, 1.4? Who knows? But growing book at a 15% clip will result in a nice return for shareholders.
 

-Crip

[backtothebeach]

Is there no thread for WR Berkley?

 

WRB up 8% today on Q3 earnings:

 

https://seekingalpha.com/news/4023074-wr-berkley-q3-earnings-climb-on-better-investment-results-premium-growth

 

A template for Fairfax?

[Malmqky]

8 minutes ago, backtothebeach said:

Is there no thread for WR Berkley?

 

WRB up 8% today on Q3 earnings:

 

https://seekingalpha.com/news/4023074-wr-berkley-q3-earnings-climb-on-better-investment-results-premium-growth

 

A template for Fairfax?

Short term treasuries go BRRRR

 

Fairfax earnings are going to be eye opening for a lot of folks I think. Inflection point has been reached, but it’s going to be REALLY obvious in the coming few months I reckon…

[Jaygo]

Acapulco Mexico got hit very hard overnight from a cat 5. It looks like major damage from wind and surge.

 

Not sure if it has any financial effect on these insurers but it does show the hurricane season is not over for North America.

[Hoodlum]

1 hour ago, Jaygo said:

Acapulco Mexico got hit very hard overnight from a cat 5. It looks like major damage from wind and surge.

 

Not sure if it has any financial effect on these insurers but it does show the hurricane season is not over for North America.

 

The closest comparable would be Hurricane Pauline hitting Acapulco as a Category 4 Hurricane in 1997.  That hurricane caused $9.7B in damage although I don't know how much of that is covered by insurance.  My highly pie in the sky guestimate is that this could be $20B+ for the Category 5 hurricane now.  But total insured amount will likely be much less than that.

 

I don't think this will be a big insurance event although it will help contribute to an ongoing hard market.

 

I believe this is the latest in the year that we have seen a category 5 hurricane hit North America.

Edited October 25, 2023 by Hoodlum

[Hoodlum]

I hope that the residents had enough time to find cover.

 

https://www.artemis.bm/news/high-probability-mexico-cat-bond-loss-will-be-50-62-5m-from-otis-plenum/

 

Quote

Moreover, what sets this hurricane apart is its rapid intensification in the last 24 hours. Indeed, hurricane Otis formed only 3 days ago, on October 22 2023, in the Eastern Pacific, close from Mexico. The storm then remained a low intensity storm (tropical storm) for the following 2 days. Only 12 hours before landfall the storm began to intensify at a very rapid rate. Within 12 hours, the storm intensified from a tropical storm into a category 5 storm, which represents the fastest intensification of a hurricane in Eastern Pacific history (according to Chicago State University).”

 

[Viking]

Below are some of my key take-aways from WR Berkley’s earnings. They have very low duration with their fixed income portfolio. As a result, interest income is spiking higher. At the same time, we are in a hard market in insurance - top line growth is very good and underwriting profit is very good. 
 

P/C insurance is in the sweet spot right now. Both investments and insurance are gushing cash. But P/C insurance is such a small segment of the overall market… few seem to be noticing. Well, WRB shares have popped higher the past 2 days so perhaps this is changing. 
 

Because of unrealized losses from bonds, despite strong EPS, book value per share has gone sideways the past 2 quarters at WRB. But WRB has very low duration on their fixed income portfolios. It will be interesting to see what reported BV/share for other insurers come in at when they report. 
 

WR Berkey Q3 results: a few key take-aways

1.) hard market continues to roll along. Top line growth actually ticked higher to 10.5%

2.) investment income is popping higher

• Book yield 4.5%
• Average duration is still short at 2.4 years.
• new money yield is 6% up from 5.4% in Q2

3.) book value per share was flat quarter over quarter

• Q3 = $26.80
• Q2 = $26.74
• Q1 = $26.45

4.) reported ROE was 19.8%

 

“Record quarterly net investment income of $271 million grew by 33.6% with the core investment portfolio increasing by 59.3%. There are two main drivers for the significant increase in the core portfolio, including the rising interest rate environment benefiting the reinvestment of fixed-maturity securities as they mature or are redeemed. And second, the increase in the size of the portfolio, due to continuous record levels of operating cash flows.”

 

“As of September 30, 2023, reflected in common stockholders equity are after-tax unrealized investment losses of $944 million an unrealized currency translation losses of $379 million. As of December 31, 2022, after tax unrealized investment losses were $893 million an unrealized currency translation losses were $372 million.”

Edited October 25, 2023 by Viking

[Viking]

Chubb reported results yesterday. Lots of the same themes as WRB… hard market is not ending. Investment income is increasing. Chubb is a well run P/C insurer; very good at the insurance side of the business. 

 

Investments

• Portfolio yield finished Q3 at 4.1%; was 3.4% a year ago.
• Average reinvestment rate is 6.2%.
• investment income was up 34% in the quarter.

—————
The question and answer below made me think of Fairfax and the international insurance platform they have patiently been building out over the past 20 years. Not just in SE Asia, but also in India.

—————

From the Chubb Q3 conference call: 

 

Alex Scott

Hi. I wanted to ask about the environment broadly in Asia, across the different countries… Where do you see the growth opportunities looking ahead?

 

Evan Greenberg

…Asia and North America are the two regions, I think that will have the greatest economic growth potential over the next decade or two.

 

And Asia, get out of China, Asia is very vibrant, very dynamic. North Asia, older population. Southeast Asia with over 700 million people, young populations, and those economies are growing more quickly and they're emerging. Look at Vietnam today. Look even where Indonesia is going today. Singapore, those markets are all -- and Thailand, those markets are so dynamic with a lot of opportunity, but it's hard work.

 

You have to really know those markets, and we've been there for decades. And we have spent the time to build and build and build capability on a local market basis. It's nothing to say you're in Asia. It's where are you in your capability in Thailand or Vietnam or any of these markets. They're distinct and you've got to have local capability, knowledge and a good command and control around underwriting. I'm very energized about what I see for this company over time in Asia. And I think it will continue to represent over time a greater share of our business.

 

Edited October 26, 2023 by Viking