Fairfax 2024

[Thrifty3000]

1 hour ago, Junior R said:

I would rather have David Sokol as Fairfax ceo over Ben

Just wait until the world recognizes how much better Prem has done with succession planning than Buffett.

[Xerxes]

46 minutes ago, Thrifty3000 said:

Ahem…

 

 

opps 

[MMM20]

10 hours ago, Thrifty3000 said:

Ahem…

 

 

 

Thanks, I figured it wasn't the first time this was brought up. I'm wondering if Sokol as CEO is one plausible way the stock ends up rerating ~2-3x this decade. Maybe he's got a chip on his shoulder and learned some hard lessons from the way things ended at BRK. Fairfax looks like the ideal platform for him to build on and outdo BRK over the next decade or two. But yeah, he's 68 and I wonder if he'd be up for it. Maybe it's not worth speculating about, but I wonder if anyone has a strong opinion on this and/or a different one than a few years ago. 

 

Edited September 24 by MMM20

[Thrifty3000]

I think Sokol would be way more valuable/effective as a board member (holding operating managers accountable for high performance). As an operator he might be too much of a culture shock.

 

However, I also think Sokol is probably too expensive of a board member. He would probably demand millions in board compensation, which would cause all kinds of headaches with future board comp and retention.

Edited September 24 by Thrifty3000

[UK]

3 hours ago, Thrifty3000 said:

I think Sokol would be way more valuable/effective as a board member (holding operating managers accountable for high performance). As an operator he might be too much of a culture shock.

 

Definitelly could be hard for him to let sit everybody idle during soft insurance market:))

[John Hjorth]

3 hours ago, Thrifty3000 said:

... However, I also think Sokol is probably too expensive of a board member. He would probably demand millions in board compensation, which would cause all kinds of headaches with future board comp and retention.

 

It is not the way things works anywhere. If proposed for a board position, you have to accept or reject the outlined pricinciples and practices for board membership compensation, which just would then just trigger a 'No, thank you.' And certainly Mr. Sokol already knows that.

[Parsad]

19 hours ago, nwoodman said:

I would much prefer Clarke to Sokol. I might be a bit naive, but Clarke’s style imbues trust, Sokol not so much.

 

If something happened today, Peter Clarke would become CEO.  David as talented as he is, would probably be precluded by his age, as would Andy Barnard. 

 

Not likely to be Ben, but never say never.  He's likely to be Chair one day, or perhaps Christine will be Chair...one of the Watsa children will be.

 

Long term, it could also be Wade, Lawrence or one of the insurance leaders.  The pool is very deep, so that is the one thing I'm not concerned about at Fairfax.

 

Cheers!

 

 

[Parsad]

17 hours ago, Thrifty3000 said:

Just wait until the world recognizes how much better Prem has done with succession planning than Buffett.

 

+1!  By far!  Cheers!

[Parsad]

8 hours ago, MMM20 said:

 

Thanks, I figured it wasn't the first time this was brought up. I'm wondering if Sokol as CEO is one plausible way the stock ends up rerating ~2-3x this decade. Maybe he's got a chip on his shoulder and learned some hard lessons from the way things ended at BRK. Fairfax looks like the ideal platform for him to build on and outdo BRK over the next decade or two. But yeah, he's 68 and I wonder if he'd be up for it. Maybe it's not worth speculating about, but I wonder if anyone has a strong opinion on this and/or a different one than a few years ago. 

 

 

I think he's quite content managing his own family office.  No bullshit and you still grow your wealth!  Really got the shaft at Berkshire...why risk going through that again.  Cheers!

[Parsad]

2 hours ago, UK said:

 

Definitelly could be hard for him to let sit everybody idle during soft insurance market:))

 

No, he understands reinsurance as well as anyone.  He's probably one of the most underrated operators in business.  Cheers!

[Parsad]

2 hours ago, John Hjorth said:

 

It is not the way things works anywhere. If proposed for a board position, you have to accept or reject the outlined pricinciples and practices for board membership compensation, which just would then just trigger a 'No, thank you.' And certainly Mr. Sokol already knows that.

 

Yeah, and he's already worth probably north of half a billion...$2M in compensation for a board seat would have no effect whatsoever.  If he does it, he'll do it for free.  Cheers!

[Thrifty3000]

What would be the impact to FFH earnings if US corporate taxes increase to 28% from 21% (when the Trump tax cuts expire)? Do we just reduce the US-based earnings, or is there some kind of tax treaty with Canada that changes the math?

[gfp]

2 minutes ago, Thrifty3000 said:

What would be the impact to FFH earnings if US corporate taxes increase to 28% from 21% (when the Trump tax cuts expire)? Do we just reduce the US-based earnings, or is there some kind of tax treaty with Canada that changes the math?

I don’t think the Trump corporate tax rate cuts expire. Congress would have to do something 

[Thrifty3000]

7 minutes ago, gfp said:

I don’t think the Trump corporate tax rate cuts expire. Congress would have to do something 

 

7 minutes ago, gfp said:

I don’t think the Trump corporate tax rate cuts expire. Congress would have to do something 

Ok, but Kamala is calling for 28% corporate tax in her budget plan. So I’m curious what the risk adjustment to fair value should be. 

[Thrifty3000]

Here are the corporate related elements of her plan…

 

[Maverick47]

43 minutes ago, Thrifty3000 said:

Ok, but Kamala is calling for 28% corporate tax in her budget plan. So I’m curious what the risk adjustment to fair value should be. 

Personally I’m not too worried about corporate tax rate changes over the long term.  Insurance companies will set rates targeting their desired after tax returns on allocated capital.  So if tax rates on US based income increase, and if target after tax returns are unchanged, insurers’ pricing formulas will simply adjust to charge their customers rates that will be sufficient to generate those after tax returns.  
 

You are correct to be concerned about what would happen in the short term.  Since rates are set in advance, to the extent that premiums in force are set based on lower tax rates, they will generate lower than desired profits between the time when tax rates are changed and when the rates can be adjusted upwards.  This should affect all insurance companies in the taxing jurisdiction relatively equally as a one time upward or downward impact on after tax earnings, depending on whether corporate tax rates are increased or decreased.

 

 

[SafetyinNumbers]

Does anyone know why they have been provisioning at 26% this year vs 18% last year?

[Luke]

4 hours ago, Thrifty3000 said:

Here are the corporate related elements of her plan…

 

There will be a 4%?! buyback tax??

[petec]

On 9/21/2024 at 4:49 PM, SafetyinNumbers said:

I believe them when they say they are looking to buy quality on a dip

 

Have they actually said this?

[SafetyinNumbers]

43 minutes ago, petec said:

 

Have they actually said this?

That’s what I heard at the AGM. 

[gfp]

8 hours ago, Luke said:

There will be a 4%?! buyback tax??

 

Just remember that what someone running for president puts on their website has little connection to 1) the actual powers of the presidency and 2) what will happen if they are elected.  If Joe and Kamala wanted 28% corporate taxes and a 4% buyback tax why aren't they doing that now?  Because they can't.  POTUS doesn't get to make these types of decisions so it doesn't matter what you put out there.  If you have a view on the composition of each house of congress then maybe you can game out something that could actually pass that she would sign (if she is elected, still an open question).

 

Also, since this was a Fairfax specific question originally, remember that Fairfax is a Canadian company, with subsidiaries in multiple tax jurisdictions from Bermuda, Mauritius, the UK, and the United States (and many many others).  Fairfax's actual cash tax rate is complicated and different forms of income in different jurisdictions are taxed differently.  Fairfax Financial is not like Berkshire with a large deferred capital gain tax liability and a fairly pure USA tax jurisdiction. 

 

I still hope somebody asks on one of the conference calls if gains from the total return swaps Fairfax holds on their own shares are tax-free.  In the United States, transactions in an issuers own stock are not taxable but this is Canada and these are derivatives so I have no idea what the treatment is.  I guess I should just email them and ask.

 

Below is one quarter of FFH tax complications - and cash taxes paid will differ from this substantially

Edited September 25 by gfp

[Luke]

55 minutes ago, gfp said:

 

Just remember that what someone running for president puts on their website has little connection to 1) the actual powers of the presidency and 2) what will happen if they are elected.  If Joe and Kamala wanted 28% corporate taxes and a 4% buyback tax why aren't they doing that now?  Because they can't.  POTUS doesn't get to make these types of decisions so it doesn't matter what you put out there.  If you have a view on the composition of each house of congress then maybe you can game out something that could actually pass that she would sign (if she is elected, still an open question).

 

Also, since this was a Fairfax specific question originally, remember that Fairfax is a Canadian company, with subsidiaries in multiple tax jurisdictions from Bermuda, Mauritius, the UK, and the United States (and many many others).  Fairfax's actual cash tax rate is complicated and different forms of income in different jurisdictions are taxed differently.  Fairfax Financial is not like Berkshire with a large deferred capital gain tax liability and a fairly pure USA tax jurisdiction. 

 

I still hope somebody asks on one of the conference calls if gains from the total return swaps Fairfax holds on their own shares are tax-free.  In the United States, transactions in an issuers own stock are not taxable but this is Canada and these are derivatives so I have no idea what the treatment is.  I guess I should just email them and ask.

 

Below is one quarter of FFH tax complications - and cash taxes paid will differ from this substantially

Thank you for your detailed answer! 

[A_Hamilton]

4 hours ago, gfp said:

 

Just remember that what someone running for president puts on their website has little connection to 1) the actual powers of the presidency and 2) what will happen if they are elected.  If Joe and Kamala wanted 28% corporate taxes and a 4% buyback tax why aren't they doing that now?  Because they can't.  POTUS doesn't get to make these types of decisions so it doesn't matter what you put out there.  If you have a view on the composition of each house of congress then maybe you can game out something that could actually pass that she would sign (if she is elected, still an open question).

 

Also, since this was a Fairfax specific question originally, remember that Fairfax is a Canadian company, with subsidiaries in multiple tax jurisdictions from Bermuda, Mauritius, the UK, and the United States (and many many others).  Fairfax's actual cash tax rate is complicated and different forms of income in different jurisdictions are taxed differently.  Fairfax Financial is not like Berkshire with a large deferred capital gain tax liability and a fairly pure USA tax jurisdiction. 

 

I still hope somebody asks on one of the conference calls if gains from the total return swaps Fairfax holds on their own shares are tax-free.  In the United States, transactions in an issuers own stock are not taxable but this is Canada and these are derivatives so I have no idea what the treatment is.  I guess I should just email them and ask.

 

Below is one quarter of FFH tax complications - and cash taxes paid will differ from this substantially

The TRS are at the Parent level. There have historically been a lot of net operating losses at the parent from interest expense in Canada that doesn't have an offsetting gain each year. You'd have to speak to the company, but my understanding a few years ago was that this was shielding a decent portion of the gain (though with the swap up so much now it is likely less).

[Hektor]

https://www.fairfax.ca/press-releases/intention-to-make-a-normal-course-issuer-bid-for-subordinate-voting-shares-and-preferred-shares-09-26-2024/?utm_source=press-release&utm_medium=email&utm_term=Thu+Sep+26+2024&utm_campaign=Intention+to+Make+a+Normal+Course+Issuer+Bid+for+Subordinate+Voting+Shares+and+Preferred+Shares

[adventurer]

18 hours ago, Hektor said:

https://www.fairfax.ca/press-releases/intention-to-make-a-normal-course-issuer-bid-for-subordinate-voting-shares-and-preferred-shares-09-26-2024/?utm_source=press-release&utm_medium=email&utm_term=Thu+Sep+26+2024&utm_campaign=Intention+to+Make+a+Normal+Course+Issuer+Bid+for+Subordinate+Voting+Shares+and+Preferred+Shares

Thank you.

Can somebody please explain the concept of buybacks with respect to the time horizon? Are buybacks always announced the way Fairfax`s has been announced (above)? And is it not always desirable to own shares during these periods? At least if around 10% or above of the outstanding shares are to be acquired?

 

And does somebody have experience as to how probable it is that Fairfax will be able to acquire the full amount of shares? Did they manage to acquire the target amount in the past?