Fairfax 2024

[73 Reds]

1 minute ago, gfp said:

 

If Fairfax exits a bit early and doesn't hold out for a high valuation, there is always the possibility they are an interested buyer for the "hedge blocks" for lack of a better term.  They bought Prem's block - another case where "Fairfax" was both interested in buying and selling at a certain price - so it isn't too far fetched.  If they wait for over-valuation to exit, which I doubt, they may not be a buyer of the hedge shares.

 

Yes, I am in New Orleans proper, inland and east of the track.  Plenty of rain today.  The hurricane doesn't look too bad, we should be fine.  Just waiting around to leave town until after the storm so we can check the properties.

"Just waiting around to leave town until after the storm so we can check the properties."

Yeah, know that feeling all too well.....

[MMM20]

On 8/26/2024 at 10:23 PM, SafetyinNumbers said:

Definity and Intact preannouced big CAT losses for Q3. Fairfax will get hit hard in Northbridge but Canada is ~10% of premiums so it shouldn’t be as bad.

 

While IFC has hardly moved on the announcement, I find it hard to believe FFH wouldn’t be down big if they pre-announced a $68 hit to pretax earnings for Q3 on CAT losses.

 

Can you share any insight into why Canadian PMs are such fans of IFC? Does the board agree that there's a reasonable upside scenario for FFH over the next few years in which that preference shifts? Maybe my thinking is too zero-sum and there's room for more than one - but I wonder if when FFH gets into the indexes, the narrative among these PMs will follow price and FFH will similarly get valued on earnings as a high quality compounder => 2x+ rerating (to fair-ish IMHO) from this valuation. So what's different about the IFC shareholder base? Are we talking CSU levels of cult fandom over the border there? Appreciate any insights from the board!

 

Edited September 12 by MMM20

[SafetyinNumbers]

34 minutes ago, MMM20 said:

 

Can you share any insight into why Canadian PMs are such fans of IFC? Does the board agree that there's a reasonable upside scenario for FFH over the next few years in which that preference shifts? Maybe my thinking is too zero-sum and there's room for more than one - but I wonder if when FFH gets into the indexes, the narrative among these PMs will follow price and FFH will similarly get valued on earnings as a high quality compounder => 2x+ rerating (to fair-ish IMHO) from this valuation. So what's different about the IFC shareholder base? Are we talking CSU levels of cult fandom over the border there? Appreciate any insights from the board!

 

I think they love IFC because it screens well on both qualitative and quantitative characteristics. 
 

I’m pretty sure that’s all it takes.

 

I think FFH can rerate as shares get bought by the company and eventually the 60 out of investors who think the current multiple is fair. I don’t know if it will ever screen well because of technical (FFH doesn’t report adjusted EPS) and business model reasons (equities can be lumpy).

[MMM20]

https://iansbnr.com/industry-cat-loads-are-still-not-high-enough/

 

"The US 1 in 100 PML is 30% of US surplus. Wow!!! That is a level typically associated with cat reinsurers. Sure, I get a lot of that PML doesn’t sit on US balance sheets due to reinsurance protection, but on a gross basis, the average US diversified insurer looks like a cat reinsurer! At the end of the day, the primaries are paying for this one way or the other. Just because they’re paying it through ceded premium, doesn’t mean the cost isn’t there. This calls into question whether US insurers are truly adequately capitalized to withstand a 1 in 100 event or are we heading towards another post Andrew reckoning where the industry learns it didn’t hold enough capital for cat risk? Just because we have better models now, doesn’t mean we can’t make the same mistakes in new ways! Housing investors had much better tools to assess risk in the 2000s than the 1990s but they made much bigger mistakes."

 

 

[SharperDingaan]

Just dropping in ...

 

What are the thoughts around the coming weather related cat losses as we go into hurricane season? The ask is because interest rates are dropping (inflation at 2%) raising the tide for all, and FFH traditionally has Q4 seasonal exposure to weather related cat losses. Seems to be a pending opportune swing trade; particularly if enough of the insured US East Coast floods out to stress the industry ability to pay out.

 

Hopefully we're not trying to buy back, at the same time that FFH is trying to buy in more of their now cheap stock  

 

SD

 

Edited Tuesday at 11:13 PM by SharperDingaan

[cwericb]

Well, hurricane season runs June 1 to November 30 so we are well past the halfway point.

 

This year it was predicted that we would see above normal hurricane activity, but that has yet to happen. (There is already a thread here specifically devoted to this.)

 

Living on the Canadian East coast and having lived through both Hurricane Dorion and Hurricane Fiona in the past five years one tends to track these things fairly carefully. If we can just get by for another month or so we should be good for this year.

 

When one finds that "Hurricane Alley" has moved north to include the island on which you live AND your largest investment is Fairfax, hurricanes do  tend to get your attention.

 

Edited yesterday at 01:06 AM by cwericb

[SharperDingaan]

I hear you! we think of this as analogous to going for a cruise into an expected force 10+ hurricane. Little to do with the boat (FFH as ark), and everything to do with the expected washing machine experience.

 

Q4 is the year's catch-up quarter; hence more volatility than other quarters. If the abnormal hurricane season ends Nov-30, 2 of the 3 months in the quarter are exposed to adverse cat loss. Any kind of significant hurricane in December, flooding in the major East Coast cities, or concern around industry ability to pay is a bonus. Calgary's hail storm losses kicking off the bookings. Lower troughs.

 

50-75 bp of expected interest rate cuts by year end lifting the market, plus at least one significant election during Q4. Media streams start to post good news real estate experiences.  Higher peaks.

 

Last time we traded FFH was around the Annual Meeting at a price around CAD 1,550; at today's CAD 1,700 we're up CAD 150. Peak to trough difference here could well match/exceed that; if the washing machine produces a CAD 150 delta - it's a 9.5%+ return (150/(1700-150)). Bonus.     

 

There's also the benefit that were 50% of an existing FFH position sold at CAD 1,700; the remaining position would be hedged at CAD 1,700. Not a bad thing.

 

SD

 

Edited 9 hours ago by SharperDingaan

[Cigarbutt]

On 9/16/2024 at 12:22 PM, MMM20 said:

https://iansbnr.com/industry-cat-loads-are-still-not-high-enough/

 

"The US 1 in 100 PML is 30% of US surplus. Wow!!! That is a level typically associated with cat reinsurers. Sure, I get a lot of that PML doesn’t sit on US balance sheets due to reinsurance protection, but on a gross basis, the average US diversified insurer looks like a cat reinsurer! At the end of the day, the primaries are paying for this one way or the other. Just because they’re paying it through ceded premium, doesn’t mean the cost isn’t there. This calls into question whether US insurers are truly adequately capitalized to withstand a 1 in 100 event or are we heading towards another post Andrew reckoning where the industry learns it didn’t hold enough capital for cat risk? Just because we have better models now, doesn’t mean we can’t make the same mistakes in new ways! Housing investors had much better tools to assess risk in the 2000s than the 1990s but they made much bigger mistakes."

 

 

Ok, i will try to address this.

Interesting article with an interesting view point.

An unusually bad cat year would indeed hurt the bottom line but would also create an opportunity for opportunistic capital.

Cat underwriting results make sense over the long term so another perspective is to ask is: is present policy pricing  adequate?

Cat risk has tended to remain at the primary insurers' level and underwriting in this area has been relatively poor. Reinsurers have remained disciplined for pricing it seems and underwriting results in the cat area have been relatively good. Discipline appears to be maintained:

https://www.insurancebusinessmag.com/ca/news/reinsurance/reinsurance-price-reductions-nonsense-says-munich-re-ceo-505748.aspx

For FFH, it appears that they have adjusted downwards their exposure to cat risk and have relevant and material exposure at the reinsurance level which could be adequately priced for results over the long term.