Q3 results

[Cigarbutt]

2 hours ago, SafetyinNumbers said:

I assume reserves also follow a similar chart pattern as above so would it be reasonable to expect that Fairfax always has a lot of reserves they can and do release in Q3 of every year given the normally high CAT activity? 

Historically, like most, they tend to look at reserve adequacy typically and especially in Q3 and Q4 and adjust accordingly (by releasing/decreasing reserves set aside if favorable or by increasing reserves if unfavorable).

Makes sense?

[SafetyinNumbers]

1 hour ago, Cigarbutt said:

Historically, like most, they tend to look at reserve adequacy typically and especially in Q3 and Q4 and adjust accordingly (by releasing/decreasing reserves set aside if favorable or by increasing reserves if unfavorable).

Makes sense?

Is it fair to assume claims in the quarter has a significant impact on their assessment of reserve adequacy? Based on IFRS17, the reserves seemed to be designated to a time period and then discounted back. Based on the triangles, ~25% of reserves are paid out in the next year so there is a lot of turnover expected (this is probably higher under IFRS17). 

[Cigarbutt]

8 hours ago, SafetyinNumbers said:

Is it fair to assume claims in the quarter has a significant impact on their assessment of reserve adequacy? Based on IFRS17, the reserves seemed to be designated to a time period and then discounted back. Based on the triangles, ~25% of reserves are paid out in the next year so there is a lot of turnover expected (this is probably higher under IFRS17). 

i think you're right, the 'assessment' at this time of year happens because of a catastrophe-prone quarter, as part of end of year traditional evaluation of trends and also fits within some kind of cycle in itself:

https://www.swissre.com/institute/research/sigma-research/Economic-Insights/reserving-higher-uncertainty.html

[SafetyinNumbers]

3 hours ago, Cigarbutt said:

i think you're right, the 'assessment' at this time of year happens because of a catastrophe-prone quarter, as part of end of year traditional evaluation of trends and also fits within some kind of cycle in itself:

https://www.swissre.com/institute/research/sigma-research/Economic-Insights/reserving-higher-uncertainty.html

Thanks for the insight and the link! Last Q3 and the switch to IFRS17 really made me think about “reserve management” more holistically. It makes sense that Fairfax would reserve more aggressively than peers because of their incentive structures and tax deferral advantages. Last Q3, outside of CAT, the combined ratio was 85% which seemed like a flex. They have recently highlighted on conference calls that even with a significant CAT event, underwriting profit should be able to offset it which I don’t think most analysts have appreciated.

 

 

[gfp]

https://www.globenewswire.com/news-release/2023/11/02/2772905/0/en/Fairfax-Financial-Holdings-Limited-Financial-Results-for-the-Third-Quarter.html

 

"Book value per basic share at September 30, 2023 was $876.55"

 

"We achieved an underwriting profit of $291.6 million on an undiscounted basis and a consolidated combined ratio of 95.0% for the quarter, reflecting significantly lower catastrophe losses and excellent current accident year underwriting margins. Gross premiums written grew by 5.0% and net premiums written grew by 4.8%, primarily reflecting new business and continued incremental rate increases in certain lines of business."

 

"At September 30, 2023 the company's insurance and reinsurance companies held portfolio investments of $56.8 billion (excluding Fairfax India's portfolio of $2.0 billion), of which $6.4 billion was in cash and short term investments representing 11.2% of those portfolio investments. During the first nine months of 2023 the company used cash and net proceeds from sales and maturities of U.S. treasury and other government short term investments and short-dated U.S. treasuries to purchase $5.8 billion of U.S. treasuries with maturities between 3 to 5 years and $2.4 billion of U.S. treasuries with maturities between 5 to 7 years, and to make net purchases of $2.1 billion of short-dated first mortgage loans and $1.6 billion of corporate and other bonds with maturities primarily between 2 to 5 years. These actions should result in continued higher levels of interest income for approximately the next 4 years."

 

"At September 30, 2023 there were 23,115,838 common shares effectively outstanding."

FFH_-_2023_Q3_Interim_Report_.pdf FFH_-_2023_Q3_MD&A_section.pdf

Edited November 2, 2023 by gfp

[Santayana]

I'm not sure which statistic is my favorite.  The fact that BV is up ~38% over the last 7 quarters, or that 2023 Q3 earnings were a bit higher than the first 3 quarters of 2022 combined.

[gfp]

[MMM20]

Should be +30% tomorrow. I’ll settle for +10%.

 

Edited November 2, 2023 by MMM20

[Luke]

Damn!

[Parsad]

Yeah, fantastic results.  Increased rates had little effect on their bond portfolio...why I was more conservative on BV.  They killed it again! 

 

CR was exactly where I thought it would be.  They've lengthened out the bond portfolio...steady income and matching liabilities for years to come.  Prem and the team are at the top of their game! 

 

On it's way to being a $2,000 CDN stock in less than three years!  Just if they keep generating the interest income they're getting and breakeven on CR's.  Forget about any investment gains.

 

Cheers!

[UK]

So highest EPS estimate was 26 USD vs actual 42 USD? Premiums growth is maybe the only thing which is not awesome?

 

Edited November 2, 2023 by UK

[Luke]

Somebody has to contact Brett Horn, or he will lose his Job!

[UK]

15 minutes ago, Luca said:

Somebody has to contact Brett Horn, or he will lose his Job!

 

I wrote to him (cc morningstar) a while ago. Not sure he/they care. Not sure we should care about them either:)))

 

Edited November 2, 2023 by UK

[Parsad]

5 minutes ago, Luca said:

Somebody has to contact Brett Horn, or he will lose his Job!

 

I don't see it going back to $750 for the next 4-5 years unless something catastrophic happens.  Not sure what Brett Horn is smoking still!  Cheers!

[Thrifty3000]

9 minutes ago, UK said:

So highest EPS estimate was 26 USD vs actual 42 USD? Premiums growth is maybe the only thing which which is not awesome?

 

Yeah, was surprised to see a pullback on premium growth. Maybe they're just being conservative in the third quarter and waiting to back up the truck on higher volume in Q4 and Jan1.

 

Did you notice this footnote?

 

(2)   Excluding Ki Insurance, gross premiums written decreased by 4.0% and 4.6% in the third quarter and first nine months of 2023 and net premiums written decreased by 9.5% and 1.2% in the third quarter and first nine months of 2023. Excluding Ki Insurance, the combined ratios were 92.4% and 93.1% in the third quarter and first nine months of 2023 and 114.8% and 101.2% in the third quarter and first nine months of 2022.

[hasilp89]

3 minutes ago, UK said:

Premiums growth is maybe the only thing which which is not awesome?

Maybe covered elsewhere but why aren't they buying back more stock?

Also am i understanding the swap correctly - they basically have the option to purchase 1.9M shares for ~$370/share

 

[gfp]

2 minutes ago, hasilp89 said:

Maybe covered elsewhere but why aren't they buying back more stock?

Also am i understanding the swap correctly - they basically have the option to purchase 1.9M shares for ~$370/share

 

 

Because they are keeping the capital in the insurance subs.  There isn't much excess capital at the holding company level

 

[LC]

Well, Viking deserves the honor of a full rundown. I am certainly pleased with the results. It will be interesting to see what management has to say about writing business and the insurance (hard? softening) market in general. 

[Thrifty3000]

$25 per share of carrying value over fair value is also a nice bonus. No excuse for FFH to trade for less than $900 USD per share. And even that is absurdly cheap - as evidenced by FFH ramping up the buybacks again in Q3.

 

PS. I love FFH and I'm not afraid to say it.

 

 

[UK]

8 minutes ago, Thrifty3000 said:

 

Yeah, was surprised to see a pullback on premium growth. Maybe they're just being conservative in the third quarter and waiting to back up the truck on higher volume in Q4 and Jan1.

 

Did you notice this footnote?

 

(2)   Excluding Ki Insurance, gross premiums written decreased by 4.0% and 4.6% in the third quarter and first nine months of 2023 and net premiums written decreased by 9.5% and 1.2% in the third quarter and first nine months of 2023. Excluding Ki Insurance, the combined ratios were 92.4% and 93.1% in the third quarter and first nine months of 2023 and 114.8% and 101.2% in the third quarter and first nine months of 2022.

 

No I didn't noticed. Why would they exclude this? On premiums growth, I think we should just wait for them to comment on it in tomorrow. Maybe not necessarily a big deal.

[UK]

11 minutes ago, gfp said:

 

Because they are keeping the capital in the insurance subs.  There isn't much excess capital at the holding company level

 

 

They also did bought a lot of shares and swaps when they where much cheaper. Also maybe they could delever more before buying shares aggressively?

[gfp]

25 minutes ago, Thrifty3000 said:

 

Yeah, was surprised to see a pullback on premium growth. Maybe they're just being conservative in the third quarter and waiting to back up the truck on higher volume in Q4 and Jan1.

 

Did you notice this footnote?

 

(2)   Excluding Ki Insurance, gross premiums written decreased by 4.0% and 4.6% in the third quarter and first nine months of 2023 and net premiums written decreased by 9.5% and 1.2% in the third quarter and first nine months of 2023. Excluding Ki Insurance, the combined ratios were 92.4% and 93.1% in the third quarter and first nine months of 2023 and 114.8% and 101.2% in the third quarter and first nine months of 2022.

 

To be clear, this footnote only applies to Brit, not Fairfax as a whole

[Blugolds]

20 minutes ago, LC said:

Well, Viking deserves the honor of a full rundown. I am certainly pleased with the results. It will be interesting to see what management has to say about writing business and the insurance (hard? softening) market in general. 

 

Agree, thanks to @Viking for pounding the table on this, and his above and beyond  work/write ups. 

[valuesource]

13 minutes ago, UK said:

 

No I didn't noticed. Why would they exclude this? On premiums growth, I think we should just wait for them to comment on it in tomorrow. Maybe not necessarily a big deal.

I noticed the footnote and Brit is en fuego

[Crip1]

8 minutes ago, Blugolds11 said:

 

Agree, thanks to @Viking for pounding the table on this, and his above and beyond  work/write ups. 

+1