Q3 results

[thowed]

Yes, extremely grateful to @Viking and everyone else who has contributed.  The research has been top-notch.

[Haryana]

About 200mm of loss on bonds in Q3 vs ~400mm of loss in Q2.

 

This was more than offset by gains on equities however the majority of that equity gain came from thier own stock TRS.

 

“Net gains on investments of $56.0 million in the quarter was principally comprised of mark to market gains on common stocks of $273.3 million, which was largely offset by mark to market losses on bonds of $196.7 million due to continued rising interest rates.

“

 

 

Fairfax India also seem to have done quite well with book value approaching $21 with the stock stuck about $12 something.

 

 

[MMM20]

  

On 2/10/2022 at 7:29 PM, MMM20 said:

Stock should be up 50% tomorrow.

 

4 hours ago, MMM20 said:

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

 

 

I've just been a tad bit early with these things, giving Mr Market a little too much credit. Can I toot my own horn yet on some of the more aggressively bullish posts in '21 / early '22? Famous last words, but I think this is shaping up to a ~6-10x over ~4-6 years sort of return from when Prem loaded up on shares personally and the market reaction was a mix of indifference, disdain, and "what's that crazy old canadian doing now? he did blackberry lol."

 

I'm still here for the narrative shift and 1.5-2x BVPS...inject it into my veins. That said, even with all the strength in these results and the still seemingly super cheap valuation...is it time to start taking a little risk off the table if this pricing cycle is finally nearing its last legs? Are we finally at/near the peak of the hard market? If so, will Fairfax properly adjust and free up gobs of capital to return to shareholders? Has the real Teledyne-ing begun?

 

Thank you all for sharing your ideas and work. This has been a massive ballast for my portfolio over the past couple years. Now back to keeping the emotion and horn tooting out of it.

 

Edited November 3, 2023 by MMM20

[SafetyinNumbers]

29 minutes ago, MMM20 said:

  

 

 

I've just been a tad bit early with these things, giving Mr Market a little too much credit. Can I toot my own horn yet on some of the more aggressively bullish posts in '21 / early '22? Famous last words, but I think this is shaping up to a ~6-10x over ~4-6 years sort of return from when Prem loaded up on shares personally and the market reaction was a mix of indifference, disdain, and "what's that crazy old canadian doing now? he did blackberry lol."

 

I'm still here for the narrative shift and 1.5-2x BVPS...inject it into my veins. That said, even with all the strength in these results and the still seemingly super cheap valuation...is it time to start taking a little risk off the table if this pricing cycle is finally nearing its last legs? Are we finally at/near the peak of the hard market? If so, will Fairfax properly adjust and free up gobs of capital to return to shareholders? Has the real Teledyne-ing begun?

 

Thank you all for sharing your ideas and work. This has been a massive ballast for my portfolio over the past couple years. Now back to keeping the emotion and horn tooting out of it.

 

I think it’s too soon to start trimming. Maybe once it gets into the S&P/TSX 60. I appreciate that some people have insanely large positions though so each his own!

 

I still expect the index chase to continue and eventually when the stock is 1.5-2x book value, the analysts may start to model earnings growth which will finally get the quants and their active counterparts involved. 
 

[MMM20]

16 minutes ago, SafetyinNumbers said:

I appreciate that some people have insanely large positions though so each his own!

 

I am still in this camp and occasionally lose sleep over it, if I'm being honest with myself. The one thing that keeps me up at night is that FFH is not truly anti-fragile and we're still overdue for The Big One. I might just trim ~10% to buy some FIH. Hard to go too wrong.

 

Edited November 3, 2023 by MMM20

[SafetyinNumbers]

10 minutes ago, MMM20 said:

 

I am still in this camp and occasionally lose sleep over it, if I'm being honest with myself. The one thing that keeps me up at night is that FFH is not truly anti-fragile and we're still overdue for The Big One. I might just trim ~10% to buy some FIH. Hard to go too wrong.

 

it would be nice if everyone who trimmed FFH bought FIH. The discount would close in no time.

[MMM20]

3 minutes ago, SafetyinNumbers said:

it would be nice if everyone who trimmed FFH bought FIH. The discount would close in no time.

 

To be clear, I'm talking about trimming FFH ~20-30% higher to buy back FIH at today's price. 100% counting my chickens before they hatch.

[LC]

I actually recently went the other way - selling FIH to buy FFH (under 800 USD when it briefly dipped). I did not see a near term FIH catalyst but rather FFH continues to dazzle.

 

FFH is 36% of my portfolio as of today's close. It's a lot. I might trim just to keep the position reasonable and sleep easier. 

[Gregmal]

1 hour ago, SafetyinNumbers said:

I think it’s too soon to start trimming. Maybe once it gets into the S&P/TSX 60. I appreciate that some people have insanely large positions though so each his own!

 

I still expect the index chase to continue and eventually when the stock is 1.5-2x book value, the analysts may start to model earnings growth which will finally get the quants and their active counterparts involved. 
 

This. I view things in the context of “where does 20% up or down take us?” 20% down here is back up the truck again whereas 20% up is still kinda in fairish value territory. So nowhere near sell territory and push comes to shove buy. 

[This2ShallPass]

6 hours ago, gfp said:

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

Thanks, I started getting a little worried that Ki was that big % for Fairfax..phew.

 

Btw, are the 23M shares without the swaps, so in reality it's like 21M?

 

They killed it with the duration, 4 years I haven't increased my position since ~$500 but today it might be an even better opportunity. Thinking of adding to my already large but <30% position..

[Viking]

Great quarter. I am travelling so my comments will be short. Below are some answers to the questions I asked a couple of days ago. The conference call in the morning will provide some more answers. The big news is the extension of duration of the bond portfolio.

 

1.) Topline growth? Slowing from 8% to 5%.

• This is lower growth than peers.
• Positive if this means Fairfax is exercising discipline when it comes to underwriting.

2.) underwriting profit/CR? Very strong 95%

• CR was 100.3% in Q3 2022
• CR was 93.9% in 1H 2023
• Is Fairfax moving up the quality chain (of insurers) when it comes to underwriting?
• After Q3 results, can you still say Markel is a better underwriter than Fairfax?

3.) Interest and dividend income for Q3? $512.7 = +100% to prior year. Right around what I had modelled. 

• Q1 = $382.3 million
• Q2 = $464.6
• Q3 2022 = $256.5

4.) Average duration of bond portfolio? We should learn this on the conference call.

• At Q2, it was 2.4 years
• What Fairfax has done here is likely the most significant development of the quarter.

5.) Share of profit of associates? $291.5 = much stronger than expected.

6.) Investment gains (losses): $56 (see chart)

• Equities = +$273 million
• Bonds = - $196.6

7.) IFRS 17 offset (effects of discounting and risk adjustment): looks to me like it was a big tailwind about $450 million? Big number, if my estimate is accurate.

 

8.) Share buybacks during quarter?

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

9.) Book value? $876.55

• Q2 = $834/share

10.) GIG update - still expected to close in 2023? Yes.

 

 

[UK]

1 hour ago, Viking said:

7.) IFRS 17 offset (effects of discounting and risk adjustment): looks to me like it was a big tailwind about $450 million? Big number, if my estimate is accurate.

 

Yes, it is second thing I am not sure how awesome it is:). Seems this makes up some 31 per cent of total pretax earnings in Q3 (24 percent in 9M). Excluding this, EPS would be ~30 USD, much closer to analyst estimates for the quarter. Not sure how to think about this item, making up almost 1/3 of the earnings, but dynamics of which nobody seems fully understand:)

 

Not sure how to estimate net insurance liabilities change in the Q3, but I suspect (or am afraid), this thing is much more change in discount (interest) rate, than change in reserves, driven. Somebody should just ask on the earnings call plain and simple, if this damned thing will reverse as quickly as it grew, if interest rates will go substantially lower in the future.

 

Edited November 3, 2023 by UK

[Viking]

58 minutes ago, UK said:

 

Yes, it is second thing I am not sure how awesome it is:). Seems this makes up some 31 per cent of total pretax earnings in Q3 (24 percent in 9M). Excluding this, EPS would be ~30 USD, much closer to analyst estimates for the quarter. Not sure how to think about this item, making up almost 1/3 of the earnings, but dynamics of which nobody seems fully understand:)

 

Not sure how to estimate net insurance liabilities change in the Q3, but I suspect (or am afraid), this thing is much more change in discount (interest) rate, than change in reserves, driven. Somebody should just ask on the earnings call plain and simple, if this damned thing will reverse as quickly as it grew, if interest rates will go substantially lower in the future.

 

@UK , thanks for attaching the screen shot from Fairfax’s Q3 report. Yes, it would be good to get your question answered: “Somebody should just ask on the earnings call plain and simple, if this damned thing will reverse as quickly as it grew, if interest rates will go substantially lower in the future.”

 

But with Fairfax extending duration of their fixed income portfolio, if interest rates decline they will get a large unrealized gain. Perhaps the two (average duration of insurance liabilities and fixed income portfolio) largely offset each other now. I am not concerned - but i need to keep learning.

 

The important things for me are:

1.) underwriting - CR

2.) yield/duration of fixed income portfolio

3.) quality/performance of equity holdings

4.) shares outstanding

5.) capital allocation decisions

 

Quarterly movements in the value of the fixed income or equity portfolio or now insurance liabilities (IFRS 17) is largely just noise. Every quarter there are puts and takes with each - so i would like to understand them. 

 

Edited November 3, 2023 by Viking

[UK]

31 minutes ago, Viking said:

@UK , thanks for attaching the screen shot from Fairfax’s Q3 report. Yes, it would be good to get your question answered: “Somebody should just ask on the earnings call plain and simple, if this damned thing will reverse as quickly as it grew, if interest rates will go substantially lower in the future.”

 

But with Fairfax extending duration of their fixed income portfolio, if interest rates decline they will get a large unrealized gain. Perhaps the two (average duration of insurance liabilities and fixed income portfolio) largely offset each other now. I am not concerned - but i need to keep learning.

 

The important things for me are:

1.) underwriting - CR

2.) yield/duration of fixed income portfolio

3.) quality/performance of equity holdings

4.) shares outstanding

5.) capital allocation decisions

 

Quarterly movements in the value of the fixed income or equity portfolio or now insurance liabilities (IFRS 17) is largely just noise. Every quarter there are puts and takes with each - so i would like to understand them. 

 

 

Thank you! Yes, however this item will develope in the future, I doubt it could become 'thesis killer'. Underwriting, bond portfolio management and other/general execution continues to be excelent. I think this question 'Is Fairfax moving up the quality chain (of insurers) when it comes to underwriting' is much more important for the whole story. And the answer: it looks like so!

[gfp]

So end of Q3 the duration was still 2.3 years.  The best part of the extended duration to 3.1 years (current situation) is that it occurred in October!  An excellent time to grab those 3 and 5 year notes.

 

 

[gfp]

You know they aren't a widely followed hot stock when there are barely any questions asked on the call!

[Thrifty3000]

Only 2 questions on the call?!

[Daphne]

Typically there are several questions. Lack of questions indicates to me that like Viking 

,people are travelling or, they understand and are pleased with the results

[UK]

Anybody has transcript?

[dealraker]

22 minutes ago, gfp said:

You know they aren't a widely followed hot stock when there are barely any questions asked on the call!

Correct.  

[Buffett_Groupie]

16 hours ago, MMM20 said:

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

 

Depressed with only 5% pop so far?

[UK]

 

[MMM20]

19 minutes ago, Buffett_Groupie said:

Depressed with only 5% pop so far?

 

Give it two or three days. There's often a lag for some reason. Efficient markets!

[Crip1]

1 hour ago, gfp said:

So end of Q3 the duration was still 2.3 years.  The best part of the extended duration to 3.1 years (current situation) is that it occurred in October!  An excellent time to grab those 3 and 5 year notes.

 

 

So...this is when they extended durations?

[gfp]

Just now, Crip1 said:

So...this is when they extended durations?

 

Are you asking what the definition of October is?