gfp Posted February 22, 2024 Posted February 22, 2024 1 hour ago, SafetyinNumbers said: The Digit IPO should allow for recognition of an additional gain in BV assuming its higher than the current mark which seems more likely than not. It seems like approval for Fairfax to own a majority interest in Digit would result in their conversion of the preferred and they would then own 74% and Digit would become a consolidated subsidiary. Currently the 49% interest in Digit is held on the books for about $130 million and is equity accounted and the preferred that could convert to another 25% ownership interest has been marked to the Sequoia Capital valuation. Then presumably Fairfax would sell some Digit in the IPO? I don't know what the accounting treatment is when a hybrid equity method / market to market ownership interest becomes consolidated but it may be a one-time adjustment to book value at the IPO event. I don't see it continually being marked to market at Digit's share price. I guess the 49% will be written up once sort of like Gulf Insurance was just treated upon consolidation. One and done.
Dinar Posted February 22, 2024 Posted February 22, 2024 I think BIAL will be IPOed this year, may be via Anchorage, but it should generate several billion dollars of book value increase or at least show how undervalued it is on the company's books.
valuesource Posted February 22, 2024 Posted February 22, 2024 Short interest on TMX actually increased slightly. I'd also like to hear @sleepydragon's take.
Viking Posted February 22, 2024 Posted February 22, 2024 (edited) How Does Fairfax’s Valuation Compare to Other P/C Insurers? There are lots of methods an investor can use to value a company and its stock price. In this post, we are going to use a method called ‘relative valuation.’ We are going to try and see what we can learn about Fairfax’s current valuation by comparing the company to a group of other P/C insurers. We are going to keep the analysis very top line. In terms of time-frame, we are going to use the last 5 years. This is a good length of time to get a reading on the performance of the management teams for each company. And it also smooths out the impact of large short term events like catastrophes, Covid and the big swing in interest rates. Who are we going to look at? Below is the list of the seven P/C insurers we will compare (listed in alphabetical order): AIG: the fallen star; a turnaround play today. Berkshire Hathaway: historically, the gold standard; now more of a conglomerate than P/C insurer. We include it for fun. Chubb: big, traditional insurer; international in scope. Fairfax Financial: a turnaround play; about 30% of investments are in equities; international in scope. Intact Financial: largest P/C insurer in Canada; expanding globally. Markel: baby Berk; US focus WR Berkley: traditional insurer; US focus To state the obvious: all P/C insurance companies have unique business models. Berkshire Hathaway has not released Q4, 2023 results so for them I have used an estimate for 2023YE book value and 2023 EPS. ————— The most important metric used by investors and analysts to value a P/C insurance company is book value. Yes, it has its flaws. However, it is a good place to start. 5-Year Change in Book Value “In other words, the percentage change in book value in any given year is likely to be reasonably close to that year’s change in intrinsic value.” Warren Buffett We are going to look at the change in book value for the 5-year period from Dec 31, 2018 to December 31, 2023. We have sorted the results in the table below from the best to the worst performers. So which company has increased BVPS the most? Fairfax Financial. Fairfax has increased BV by 117% over the past 5 years, a CAGR of 16.8%. Were you expecting that? I bet you weren’t expecting that. The second surprise is the size of the outperformance by Fairfax over all peers. For example, Fairfax’s BV CAGR is 10% better than that achieved by Chubb - that is serious outperformance. Don’t get me wrong, Chubb is a quality company. In the quote above, Warren Buffett suggests investors should use the annual change in book value as a rough approximation of the change in intrinsic value for a company. Using Buffett’s quote as a guide, I think we can safely say that Fairfax has increased intrinsic value over the past 5 years at a much faster pace than its P/C insurance peers. Note: five of the seven companies pay a dividend (and WR Berkley has also paid special dividends). Why has Fairfax’s performance been so strong? The management team at Fairfax has been executing exceptionally well over the past 5 years. Especially when it comes to capital allocation. I recently wrote a long post on this topic so I am not going to repeat it here. How have shareholders been rewarded? 5.13-Year Change in Share Price We are going to look at the change in the share price for the 5.13-year period from Dec 31, 2018 to February 16, 2024. Once again, we have sorted the results in the table below from the best to the worst performers. Which company has seen their share price increase the most? Three companies are bunched together as the top performers - WR Berkley, Fairfax Financial and Intact Financial. Including dividends, these three companies have delivered a CAGR of around 20% to investors over each of the past 5.13 years. That is outstanding. Berkshire Hathaway, Chubb and AIG can be grouped in the next performance band. Including dividends, they have delivered a CAGR of about 14% which is quite good. And Markel has been the clear laggard with a CAGR of about 7%. Another key takeaway is the performance of the group as a whole has been very good. Six of the seven companies listed have delivered a very good return to investors over the past 5.13 years. For reference, over the same 5.13 years, the S&P500 increased 100%, which was a CAGR of 14.4% (not including dividends). Now let’s put book value and share price together and see what we can learn about valuation. Current Price to Book Value (P/BV) At 2.8, Both Intact and WR Berkley trade at the highest P/BV multiple. This is not surprising given they also saw the biggest increases in share price over the past 5 years. Does anything in the chart below jump out? Yes. Fairfax looks out of place. Fairfax has been compounding book value at the highest rate over the past 5 years. So how can it also be trading at the lowest P/BV (i.e. the cheapest) valuation? That makes no sense. Let’s look at another valuation measure and see what it tells us. Price to Earnings Ratio (PE) To keep things simple, I used reported EPS from 2023 for each of our seven companies. For Berkshire, who has not yet reported, I took the estimate from Yahoo Finance. For Intact Financial, who reported restructuring charges in Q4, I was generous and used the 2023 number in Yahoo Finance (which looks like it nets out the restructuring charges). Does anything in the chart below jump out? Yes. Fairfax looks out of place (again). Fairfax has been compounding book value at the highest rate over the past 5 years. So how can it also be trading at the lowest PE (i.e. the cheapest) valuation? That makes no sense. So what can explain the disconnect between Fairfax’s past performance (top-tier) and its valuation (bottom tier)? To be fair, as we learned earlier in this post, Fairfax’s stock price has been one of the top performers over the past 5 years. So investors clearly have been warming to the company. However, even with the strong performance in recent years, the stock’s valuation continues to be at the bottom when compared to peers. Why is that? Lack of understanding of the company. Fairfax is still not a well understood company. Few investors (or analysts) have followed it in recent years. Yes, this is changing. But it will take time for people to get back up to speed with the company. Fairfax is also a turnaround. And turnarounds are exceedingly hard to value - especially at the point when their business results hockey stick and turn higher. The interesting thing with Fairfax though is the turnaround was actually completed back in 2021. But because the company was not followed back then pretty much no one noticed (well, except for a bunch of investors on the investing forum ‘Corner of Berkshire and Fairfax’). Operating earnings and the future. Over the past 5 years, Fairfax has quietly completed one of the of great turnarounds in recent Canadian business history. Operating earnings at Fairfax have exploded - and that is not hyperbole. Operating earnings averaged $1 billion ($39/share) at Fairfax for the 5-years from 2016 to 2020. In 2023, operating earnings were $4.4 billion ($193/share). Per share, operating earnings have increased 395% over their baseline from just a couple of years ago. Importantly, this new level of operating earnings, around $200/share, is sustainable. This was discussed on Fairfax’s Q4 conference call. Operating earnings are considered the highest quality type of earnings a P/C insurance company can deliver. Think about what this new development means for Fairfax’s future results - earnings, ROE, book value and multiple. What did we learn in the post? Warren Buffett tells us that the change in book value per share is a good approximation for change in intrinsic value. Over the past 5 years, Fairfax has delivered a cumulative increase in BVPS of 117%, which is a CAGR of 17.8%. Simply outstanding. This is best-in-class performance compared to peers. We also learned that operating earnings have spiked at Fairfax by close to 400% over the past 3 years from $39/share to about $200/share today - and that the higher amount is durable. This suggests Fairfax should be able to continue to deliver top-tier performance when compared to peers in the coming years. We also learned that Fairfax currently has the cheapest valuation - its P/BV is 1.09 and its PE is 5.9. Fairfax’s valuation is significantly below peers. So an investor today is able to buy the top performing P/C insurance company - with among the best future prospects - at the cheapest valuation. In short, the risk/reward set-up for Fairfax has rarely looked better. I think that guy in Omaha would call Fairfax a very fat pitch. "The way of the successful investor is normally to do nothing -- not until you see money lying there, somewhere over in the corner, and all that is left for you to do is go over and pick it up." Jim Rogers Edited February 22, 2024 by Viking
Hamburg Investor Posted February 22, 2024 Posted February 22, 2024 3 hours ago, Cigarbutt said: Do you mean from 2001 to 2004? Yes - thanks, I changed that.
Hamburg Investor Posted February 22, 2024 Posted February 22, 2024 (edited) 1 hour ago, Viking said: How Does Fairfax’s Valuation Compare to Other P/C Insurers? There are lots of methods an investor can use to value a company and its stock price. In this post, we are going to use a method called ‘relative valuation.’ We are going to try and see what we can learn about Fairfax’s current valuation by comparing the company to a group of other P/C insurers. We are going to keep the analysis very top line. In terms of time-frame, we are going to use the last 5 years. This is a good length of time to get a reading on the performance of the management teams for each company. And it also smooths out the impact of large short term events like catastrophes, Covid and the big swing in interest rates. Who are we going to look at? Below is the list of the seven P/C insurers we will compare (listed in alphabetical order): AIG: the fallen star; a turnaround play today. Berkshire Hathaway: historically, the gold standard; now more of a conglomerate than P/C insurer. We include it for fun. Chubb: big, traditional insurer; international in scope. Fairfax Financial: a turnaround play; about 30% of investments are in equities; international in scope. Intact Financial: largest P/C insurer in Canada; expanding globally. Markel: baby Berk; US focus WR Berkley: traditional insurer; US focus To state the obvious: all P/C insurance companies have unique business models. Berkshire Hathaway has not released Q4, 2023 results so for them I have used an estimate for 2023YE book value and 2023 EPS. ————— The most important metric used by investors and analysts to value a P/C insurance company is book value. Yes, it has its flaws. However, it is a good place to start. 5-Year Change in Book Value “In other words, the percentage change in book value in any given year is likely to be reasonably close to that year’s change in intrinsic value.” Warren Buffett We are going to look at the change in book value for the 5-year period from Dec 31, 2018 to December 31, 2023. We have sorted the results in the table below from the best to the worst performers. So which company has increased BVPS the most? Fairfax Financial. Fairfax has increased BV by 117% over the past 5 years, a CAGR of 16.8%. Were you expecting that? I bet you weren’t expecting that. The second surprise is the size of the outperformance by Fairfax over all peers. For example, Fairfax’s BV CAGR is 10% better than that achieved by Chubb - that is serious outperformance. Don’t get me wrong, Chubb is a quality company. In the quote above, Warren Buffett suggests investors should use the annual change in book value as a rough approximation of the change in intrinsic value for a company. Using Buffett’s quote as a guide, I think we can safely say that Fairfax has increased intrinsic value over the past 5 years at a much faster pace than its P/C insurance peers. Note: five of the seven companies pay a dividend (and WR Berkley has also paid special dividends). Why has Fairfax’s performance been so strong? The management team at Fairfax has been executing exceptionally well over the past 5 years. Especially when it comes to capital allocation. I recently wrote a long post on this topic so I am not going to repeat it here. How have shareholders been rewarded? 5.13-Year Change in Share Price We are going to look at the change in the share price for the 5.13-year period from Dec 31, 2018 to February 16, 2024. Once again, we have sorted the results in the table below from the best to the worst performers. Which company has seen their share price increase the most? Three companies are bunched together as the top performers - WR Berkley, Fairfax Financial and Intact Financial. Including dividends, these three companies have delivered a CAGR of around 20% to investors over each of the past 5.13 years. That is outstanding. Berkshire Hathaway, Chubb and AIG can be grouped in the next performance band. Including dividends, they have delivered a CAGR of about 14% which is quite good. And Markel has been the clear laggard with a CAGR of about 7%. Another key takeaway is the performance of the group as a whole has been very good. Six of the seven companies listed have delivered a very good return to investors over the past 5.13 years. For reference, over the same 5.13 years, the S&P500 increased 100%, which was a CAGR of 14.4% (not including dividends). Now let’s put book value and share price together and see what we can learn about valuation. Current Price to Book Value (P/BV) At 2.8, Both Intact and WR Berkley trade at the highest P/BV multiple. This is not surprising given they also saw the biggest increases in share price over the past 5 years. Does anything in the chart below jump out? Yes. Fairfax looks out of place. Fairfax has been compounding book value at the highest rate over the past 5 years. So how can it also be trading at the lowest P/BV (i.e. the cheapest) valuation? That makes no sense. Let’s look at another valuation measure and see what it tells us. Price to Earnings Ratio (PE) To keep things simple, I used reported EPS from 2023 for each of our seven companies. For Berkshire, who has not yet reported, I took the estimate from Yahoo Finance. For Intact Financial, who reported restructuring charges in Q4, I was generous and used the 2023 number in Yahoo Finance (which looks like it nets out the restructuring charges). Does anything in the chart below jump out? Yes. Fairfax looks out of place (again). Fairfax has been compounding book value at the highest rate over the past 5 years. So how can it also be trading at the lowest PE (i.e. the cheapest) valuation? That makes no sense. So what can explain the disconnect between Fairfax’s past performance (top-tier) and its valuation (bottom tier)? To be fair, as we learned earlier in this post, Fairfax’s stock price has been one of the top performers over the past 5 years. So investors clearly have been warming to the company. However, even with the strong performance in recent years, the stock’s valuation continues to be at the bottom when compared to peers. Why is that? Lack of understanding of the company. Fairfax is still not a well understood company. Few investors (or analysts) have followed it in recent years. Yes, this is changing. But it will take time for people to get back up to speed with the company. Fairfax is also a turnaround. And turnarounds are exceedingly hard to value - especially at the point when their business results hockey stick and turn higher. The interesting thing with Fairfax though is the turnaround was actually completed back in 2021. But because the company was not followed back then pretty much no one noticed (well, except for a bunch of investors on the investing forum ‘Corner of Berkshire and Fairfax’). Operating earnings and the future. Over the past 5 years, Fairfax has quietly completed one of the of great turnarounds in recent Canadian business history. Operating earnings at Fairfax have exploded - and that is not hyperbole. Operating earnings averaged $1 billion ($39/share) at Fairfax for the 5-years from 2016 to 2020. In 2023, operating earnings were $4.4 billion ($193/share). Per share, operating earnings have increased 395% over their baseline from just a couple of years ago. Importantly, this new level of operating earnings, around $200/share, is sustainable. This was discussed on Fairfax’s Q4 conference call. Operating earnings are considered the highest quality type of earnings a P/C insurance company can deliver. Think about what this new development means for Fairfax’s future results - earnings, ROE, book value and multiple. What did we learn in the post? Warren Buffett tells us that the change in book value per share is a good approximation for change in intrinsic value. Over the past 5 years, Fairfax has delivered a cumulative increase in BVPS of 117%, which is a CAGR of 17.8%. Simply outstanding. This is best-in-class performance compared to peers. We also learned that operating earnings have spiked at Fairfax by close to 400% over the past 3 years from $39/share to about $200/share today - and that the higher amount is durable. This suggests Fairfax should be able to continue to deliver top-tier performance when compared to peers in the coming years. We also learned that Fairfax currently has the cheapest valuation - its P/BV is 1.09 and its PE is 5.9. Fairfax’s valuation is significantly below peers. So an investor today is able to buy the top performing P/C insurance company - with among the best future prospects - at the cheapest valuation. In short, the risk/reward set-up for Fairfax has rarely looked better. I think that guy in Omaha would call Fairfax a very fat pitch. "The way of the successful investor is normally to do nothing -- not until you see money lying there, somewhere over in the corner, and all that is left for you to do is go over and pick it up." Jim Rogers What else can you say but: Thank you! The picture gets richer every time thanks to the different perspectives you offer and which are necessary for a deeper understanding. What strikes me when watching your last chart: Every single "Non-Berkalike" (I don't like the term, but still...) exploded in valuation, meaning the Price CAGR exceeds the book value CAGR in that 5 year view by miles: Non-Berkalikes: - Intact: 6.8% (17.7% minus 10.9%) - WRB: 11.7% - Chubb: 7.8% - AIG: 11.9% While the Berkalikes (including the original): - BRK: 1.0% (14.3% minus 13.3%) - MKL: (4.0%) - FFH: 1.0% On average the non-Berkalikes Price increase exceeded Book value growth by 9.6%, while the Berkalikes performed (0.6%) in that category. And Apart from AIG, the non-Berkalikes are currently all valued higher (PB ratio). And AIG should certainly be excluded for other reasons. Is this simply coincidence, as its only seven data points? Or is it due to the unorthodox, difficult to understand structure with "owned businesses" and the high level of involvement in publicly traded companies? A different shareholder structure? Mr. Market is going nuts again? Anyhow I would be quite happy if the share price could stay where it currently is and Prem would buy back the company with the profits from the next few years. In less than a decade, the company would belong to the readers of cobf... Edited February 22, 2024 by Hamburg Investor
Viking Posted February 22, 2024 Posted February 22, 2024 (edited) 23 minutes ago, Hamburg Investor said: What else can you say but: Thank you! The picture gets richer every time thanks to the different perspectives you offer and which are necessary for a deeper understanding. What strikes me when watching your last chart: Every single "Non-Berkalike" (I don't like the term, but still...) exploded in valuation, meaning the Price CAGR exceeds the book value CAGR in that 5 year view by miles: Non-Berkalikes: - Intact: 6.8% (17.7% minus 10.9%) - WRB: 11.7% - Chubb: 7.8% - AIG: 11.9% While the Berkalikes (including the original): - BRK: 1.0% (14.3% minus 13.3%) - MKL: (4.0%) - FFH: 1.0% On average the non-Berkalikes Price increase exceeded Book value growth by 9.6%, while the Berkalikes performed (0.6%) in that category. And Apart from AIG, the non-Berkalikes are currently all valued higher (PB ratio). And AIG should certainly be excluded for other reasons. Is this simply coincidence, as its only seven data points? Or is it due to the unorthodox, difficult to understand structure with "owned businesses" and the high level of involvement in publicly traded companies? A different shareholder structure? Mr. Market is going nuts again? Anyhow I would be quite happy if the share price could stay where it currently is and Prem would buy back the company with the profits from the next few years. In less than a decade, the company would belong to the readers of cobf... @Hamburg Investor Yes, i like to look at Fairfax in lots of different ways. None on their own are perfect. But looked at together, i think it is possible to sketch a pretty accurate picture of the company and its valuation. One of the lesson’s for me with Fairfax over the past couple of years is how long it takes for narratives to change for companies. Even when the facts are clearly saying something quite different. This is actually good news for investors. In situations where fundamentals are improving faster than what is being reflected in the narrative it means you have lots of time to learn and get your position size right. Edited February 22, 2024 by Viking
SafetyinNumbers Posted February 22, 2024 Author Posted February 22, 2024 1 hour ago, Hamburg Investor said: Anyhow I would be quite happy if the share price could stay where it currently is and Prem would buy back the company with the profits from the next few years. In less than a decade, the company would belong to the readers of cobf... I am curious what percentage CoBF owns of Fairfax. It could be a material number!
backtothebeach Posted February 22, 2024 Posted February 22, 2024 2 minutes ago, SafetyinNumbers said: I am curious what percentage CoBF owns of Fairfax. It could be a material number! My guess is around $1B = 4-5%.
Cigarbutt Posted February 22, 2024 Posted February 22, 2024 2 hours ago, Hamburg Investor said: Yes - thanks, I changed that. The comment was not to make you "change that", it was because several aspects of your post are interesting and, before commenting on this specific aspect, i wanted to make sure we were on the same page. The 2001-4 topic is both interesting and, especially, relevant for today (i think). From 2004: Later in the report: Reserving All in all, I am very happy to report that our reserves held up well. Any development at Northbridge and OdysseyRe was absorbed in their excellent combined ratios. ----- FFH expanded ++ in the late 1990s during an unusually soft market (during the nadir of the cycle in fact) and invested in very very poor underwriters (means bad results now and bad results to come when the tide goes out on reserves). So thanks to very unusual and large covers (Chubb- and SwissRe- like), thanks to the very hard market that followed (2001-4) and (critical for FFH survival) thanks to FFH's unusual ability to raise capital in a quite constrained time for them, FFH was able to absorb the HUGE negative results from the late 1990s that eventually were recognized and was even able to report decent combined ratios with a positive trend from 2001 to 2004. Now in 2024, 'we' have just lived through a moderate hard market for a few years and now, what could happen?
dartmonkey Posted February 22, 2024 Posted February 22, 2024 4 hours ago, valuesource said: Short interest on TMX actually increased slightly. I'd also like to hear @sleepydragon's take. This FFH.U entity is new to me. I have usually bought FFH in CAD, but journalled it all over to my US account as FRFHF shares in order to avoid the automatic conversion of the USD dividend into CAD at disadvantageous exchange rates (TD Direct Investing likes to gouge its customers this way; one of these days I will get around to transferring these assets into Interactive Brokers which treats customers properly for commissions and especially forex and interest rates, but I have so far left it there because I have the same Fairfax shares there for >10 years...) Anyways, FFH.ca and FRFHF are the 2 share formats I am familiar with, and the ones I see quotes for on most financial sites. But what is FFH.U ? Is this just shorthand for the US FFH shares that trade OTC as FRFHF, or is it something else?
SafetyinNumbers Posted February 22, 2024 Author Posted February 22, 2024 51 minutes ago, dartmonkey said: This FFH.U entity is new to me. I have usually bought FFH in CAD, but journalled it all over to my US account as FRFHF shares in order to avoid the automatic conversion of the USD dividend into CAD at disadvantageous exchange rates (TD Direct Investing likes to gouge its customers this way; one of these days I will get around to transferring these assets into Interactive Brokers which treats customers properly for commissions and especially forex and interest rates, but I have so far left it there because I have the same Fairfax shares there for >10 years...) Anyways, FFH.ca and FRFHF are the 2 share formats I am familiar with, and the ones I see quotes for on most financial sites. But what is FFH.U ? Is this just shorthand for the US FFH shares that trade OTC as FRFHF, or is it something else? FFH, FRFHF and FFH.U are all the same shares. FFH.U is simply the USD listing on the TSX. FIH.U is the Fairfax India ticker and it trades in USD too. FIH doesn’t have a C$ ticker on the TSX although it could if they wanted to pay for it.
dartmonkey Posted February 22, 2024 Posted February 22, 2024 (edited) 1 hour ago, SafetyinNumbers said: FFH, FRFHF and FFH.U are all the same shares. FFH.U is simply the USD listing on the TSX. FIH.U is the Fairfax India ticker and it trades in USD too. FIH doesn’t have a C$ ticker on the TSX although it could if they wanted to pay for it. Yes, this is what I expected, except I can't find a quote for FFH.U on TD Direct Investing or Yahoo or Seeking Alpha ; well actually, yes, on TD Direct Investing there is a stale quote of $903.32 (bid $1013, ask $1019) so I suppose there are occasional trades. I am familiar with the TSX having .U shares denominated in USD, like FIH.U, which actually trades that way, and for FFH.U, I suppose this just means that the TSX will purchase FFH shares using USD funds, but given the absence of an active market on the Toronto exchange, buying or selling them that way would not seem optimal. Of course, once you have them, it makes no difference whether they are called FFH.to or FFH.U or FRFHF - a share is a share. But when people here refer to FFH.U, are they just referring to the USD value of FFH shares, usually obtained by looking at where they're trading over the counter in New York as FRFHF? Edited February 22, 2024 by dartmonkey
gfp Posted February 22, 2024 Posted February 22, 2024 6 minutes ago, dartmonkey said: Yes, this is what I expected, except I can't find a quote for FIH.U on TD Direct Investing or Yahoo or Seeking Alpha ; well actually, yes, on TD Direct Investing there is a stale quote of $903.32 (bid $1013, ask $1019) so I suppose there are occasional trades. I am familiar with the TSX having .U shares denominated in USD, like FIH.U, which actually trades that way, and for FFH.U, I suppose this just means that the TSX will purchase FFH shares using USD funds, but given the absence of an active market on the Toronto exchange, buying or selling them that way would not seem optimal. Of course, once you have them, it makes no difference whether they are called FFH.to or FFH.U or FRFHF - a share is a share. But when people here refer to FIH.U, are they just referring to the USD value of FFH shares, usually obtained by looking at where they're trading over the counter in New York as FRFHF? Sounds like you confused some tickers there unintentionally. FIH.U and FFXDF (OTC) are Fairfax India. The others mentioned above are Fairfax Financial.
dartmonkey Posted February 22, 2024 Posted February 22, 2024 32 minutes ago, gfp said: Sounds like you confused some tickers there unintentionally. FIH.U and FFXDF (OTC) are Fairfax India. The others mentioned above are Fairfax Financial. Yes, you're right, and twice for good measure. Corrected now. I think I have my answer, that no real trading is done on the TSX with the FFH.U ticker, and I am guessing it's just a way of referring to the US price of Fairfax, avoiding the hard-to-remember FRFHF OTC ticker that actually gets traded, but if I'm wrong, someone please correct me.
SafetyinNumbers Posted February 22, 2024 Author Posted February 22, 2024 29 minutes ago, dartmonkey said: Yes, you're right, and twice for good measure. Corrected now. I think I have my answer, that no real trading is done on the TSX with the FFH.U ticker, and I am guessing it's just a way of referring to the US price of Fairfax, avoiding the hard-to-remember FRFHF OTC ticker that actually gets traded, but if I'm wrong, someone please correct me. You are correct FFH.U doesn’t trade much but if one uses the FFH bid/ask and converts to USD to place an order an arb will likely provide a fill. I do think people use the FRFHF quote when discussing the price (and its usually close enough) but taking the FFH price and converting to USD at the posted rate is probably more accurate.
dartmonkey Posted February 22, 2024 Posted February 22, 2024 ok, that's helpful. Your table does show that the volume of FFH.U that is traded is minimal, 0-20 trades in the last few months, with 0 and 1 being by far the most common volume in a given day. I have no idea what the columns after 'T-TSX' mean ('U-NEO-ATS', 'A-Alpha', etc.), but I probably don't need to know!
Crip1 Posted February 23, 2024 Posted February 23, 2024 7 hours ago, backtothebeach said: My guess is around $1B = 4-5%. Well, I have a half billion so do the rest of you have the other half billion? -Crip
SafetyinNumbers Posted February 23, 2024 Author Posted February 23, 2024 2 hours ago, dartmonkey said: I have no idea what the columns after 'T-TSX' mean ('U-NEO-ATS', 'A-Alpha', etc.), but I probably don't need to know! They are alternative trading systems or alternative exchanges in Canada. FFH looks like it trades around 60-70% of its Canadian volume on the TSX. The rest trades on these alternative venues.
Hamburg Investor Posted February 23, 2024 Posted February 23, 2024 (edited) 16 hours ago, backtothebeach said: My guess is around $1B = 4-5%. How do you get to that estimate? Seems a lot to me, but I have no clues whatsoever. Edited February 23, 2024 by Hamburg Investor
Hamburg Investor Posted February 23, 2024 Posted February 23, 2024 (edited) 16 hours ago, Cigarbutt said: The comment was not to make you "change that", it was because several aspects of your post are interesting and, before commenting on this specific aspect, i wanted to make sure we were on the same page. The 2001-4 topic is both interesting and, especially, relevant for today (i think). From 2004: Later in the report: Reserving All in all, I am very happy to report that our reserves held up well. Any development at Northbridge and OdysseyRe was absorbed in their excellent combined ratios. ----- FFH expanded ++ in the late 1990s during an unusually soft market (during the nadir of the cycle in fact) and invested in very very poor underwriters (means bad results now and bad results to come when the tide goes out on reserves). So thanks to very unusual and large covers (Chubb- and SwissRe- like), thanks to the very hard market that followed (2001-4) and (critical for FFH survival) thanks to FFH's unusual ability to raise capital in a quite constrained time for them, FFH was able to absorb the HUGE negative results from the late 1990s that eventually were recognized and was even able to report decent combined ratios with a positive trend from 2001 to 2004. Now in 2024, 'we' have just lived through a moderate hard market for a few years and now, what could happen? Thanks, @Cigarbutt, that's really helpful. I know I have to dig deeper into what happend especially at the beginning of the century for getting a deeper understanding. It sounds like you want to name other points - what is it? Edited February 23, 2024 by Hamburg Investor
Cigarbutt Posted February 23, 2024 Posted February 23, 2024 4 hours ago, Hamburg Investor said: ...to dig deeper... ..other points? One has to wonder if your time is well spent on some shared minutiae here but your posts triggered some kind of trip to memory lane (and a thick file). Disclosure (variable position sizing for me over time) and opinion: the 'market' has often gotten FFH's valuation approximately right but not always. For example around +/- 2001-2, the market's quotes resulted in an opportunity to buy an uncomfortable asset at quite a steep discount, meaning, as an equivalent, that one could buy an insurer with a price embedding some kind of an additional adverse reserve development cover and potential upside for better underwriting going forward (and some other potential upside to be uncovered over time). Now, from the underwriting point of view (a key ingredient for FFH), it looks like the market presents (has been presenting for some time) another opportunity by being too slow in applying a premium necessary for a much improved and consistent insurance underwriter (the picture has been changing for some time now but, from the legend, apparently Newton only realized some deep insights about gravity when the apple actually fell). ----- The following is a fragment of stuff i've been following. Warning: it may contain errors and some 'in-house' numbers are clearly not up to USGAAP/IFRS standards. Ok, we could talk hours but i aim to visit my mother-in-law today (who shows significant cognitive decline) in order to play Bingo with her so i'll stick to some essentials? Some comments -AY CR adj. is an in-house measure to represent FFH accident year combined ratio adjusted for reserve development (including run-off) and catastrophes % points. -CR as reported is FFH as reported. -comm. CR is a reasonable proxy to compare under, ie US commercial lines Some 'messages' -AY CR is a reasonable way to assess performance over time. For FFH, compare 2007-16 to 2017-23. -When compared to US commercial lines, FFH has done better for reported combined ratios but (opinion based on some minutiae not included here), it would look even better if their reserving process was less conservative (precision: conservative reserving is something to look for and not a comparative disadvantage). Also some years (2011 19.3, 2017 13.7, 2021 7.5), FFH had to absorb higher than usual catastrophe combined ratio points which helps to explain poorer performance vs commercial insurers in general. Also for the period 2017-23, FFH on average reported 7.3 catastrophe points compared to a slightly lower level of catastrophe combined ratio points before which also helps to 'justify' the lower superior more recent performance compared to commercial line insurers. My understanding is that FFH aims to maintain average catastrophe points to 6 combined ratio points or lower (something like that) and it appears that they are taking real actions to achieve this. Anyways, with FFH becoming international, more diversified and with more exposure to reinsurance, the commercial group comparative is becoming less relevant. -The most important message perhaps is the fact that recently reported numbers over the last 2 or 3 years seem to confirm quite clearly a more positive path for further significant underwriting profitability. Starting with a baseline 87.8 and adding 6 points of catastrophe points and adjusting for expected reserve releases, it's very reasonable to expect reported combined ratios between 90 and 95% and likely closer to 90 than 95.
dartmonkey Posted February 23, 2024 Posted February 23, 2024 (edited) 2 hours ago, Cigarbutt said: One has to wonder if your time is well spent on some shared minutiae here but your posts triggered some kind of trip to memory lane (and a thick file). Disclosure (variable position sizing for me over time) and opinion: the 'market' has often gotten FFH's valuation approximately right but not always. For example around +/- 2001-2, the market's quotes resulted in an opportunity to buy an uncomfortable asset at quite a steep discount, meaning, as an equivalent, that one could buy an insurer with a price embedding some kind of an additional adverse reserve development cover and potential upside for better underwriting going forward (and some other potential upside to be uncovered over time). Now, from the underwriting point of view (a key ingredient for FFH), it looks like the market presents (has been presenting for some time) another opportunity by being too slow in applying a premium necessary for a much improved and consistent insurance underwriter (the picture has been changing for some time now but, from the legend, apparently Newton only realized some deep insights about gravity when the apple actually fell). ----- The following is a fragment of stuff i've been following. Warning: it may contain errors and some 'in-house' numbers are clearly not up to USGAAP/IFRS standards. Ok, we could talk hours but i aim to visit my mother-in-law today (who shows significant cognitive decline) in order to play Bingo with her so i'll stick to some essentials? Some comments -AY CR adj. is an in-house measure to represent FFH accident year combined ratio adjusted for reserve development (including run-off) and catastrophes % points. -CR as reported is FFH as reported. -comm. CR is a reasonable proxy to compare under, ie US commercial lines Some 'messages' -AY CR is a reasonable way to assess performance over time. For FFH, compare 2007-16 to 2017-23. - How do you get a comparable AY number for recent years without the benefit of knowing what the future reserve developments will be? You seem to be assuming that adjustments will follow historical trends, for instance taking this years CR as reported from 93.2 to an AY CR of 89.0 over time, is that right? And with average AY CR's from 2017-2023 almost 10 percentage points better than published CR numbers, as opposed to 3 points lower from 2007 to 2016, we should conclude that either they are have gotten much better at underwriting, or their standards for reserving have gotten much worse recently. Hopefully the former. But might it be fair to say that part of the pessimism about how much this company is worth is based on the suspicion that their reserving standards may have slipped and that the CRs (and AY CRs) will not be as good as they look? Along with skepticism that interest rates will not hold up and that the company might return to buying Blackberries? Edited February 23, 2024 by dartmonkey
Masterofnone Posted February 23, 2024 Posted February 23, 2024 Meaningless conjecture- The price action the last two days has the feel of shorts covering on the bid and short-term traders taking their 10% on the ask.
Cigarbutt Posted February 24, 2024 Posted February 24, 2024 (edited) 9 hours ago, dartmonkey said: ...pessimism...suspicion...not be as good as they look? ...skepticism... Maybe and the aim should be to try to (constructively) destroy the thesis, but in this specific case (expected underwriting results within the next few years, absent extrinsic material surprises)... Every hard market is different: and how a specific company opportunistically takes advantage of a specific hard market is different (just think of the opportunistic capital that comes in the market after very large catastrophe years): Will string of startups truly benefit buyers? | Business Insurance FFH has grown premiums very significantly during this last hard market (net premiums earned 2018: 12066.0M, estimated net premiums earned 2023: about 22100-22300M). Not as impressive as the growth in 2001 to 2004 but quite significant. During a hard market, price of policies increase very likely ahead of underlying policy costs and underwriting standards tighten which very very typically results in reserves linked to "current" accident year policies to become redundant over the duration of the reserves. For all hard markets (not only the last three) (the opposite applies for soft markets but in the other direction), some time after the hardening starts, the accident year combined ratio will tend to (not always) go down (as was the case during the 2001-4 period for FFH) and reserve redundancies will very typically get recognized (as was the case for FFH in the years that followed the 2008-2012 hard market). As far as catastrophe losses, it appears that FFH management is quite mindful of the potential lumpiness of results (in both directions) and they've periodically commented on that aspect, including after the difficult 2011 year and they seem to be focused on making a reasonable return over time and, in the last two years, have been reporting adjustments including reduced exposure at Brit. ----- From now on, i will try to focus on the downside but (opinion) the progress that FFH has shown over the years on the underwriting front has been very impressive and (another opinion hopefully ahead of the cheery consensus) underwriting results are likely to drive various measures of return on capital. Edited February 24, 2024 by Cigarbutt spelling
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