Fairfax 2024

[valuesource]

On 2/20/2024 at 8:21 AM, gfp said:

Thanks for the clarification.  I primarily use Interactive Brokers in the USA and I can never seem to find FFH.U (the US dollar traded Toronto shares) - does anybody else with IB have access to FFH.U ?  Fairfax India shows up no problem.

I see what you are saying about IB.  FFH.U does not come up in the search.  I generally agree with @SafetyinNumbers that FRFHF is the favoured approach to buying in USDs.  With IB the F/X rates are low enough to entertain buying on TMX (where most of the volume is).  There is, quite obviously, lots of arbitrage or at least electronic trading on TMX.  053 - Morgan Stanley, 039 - Merrill Lynch and 079 - CIBC are making it annoying to try to bid or offer any stock.  But you have to try to transact on TMX because it is the best market.

 

Another thing I've noticed is the action in the Market-on-close facility has been high for a while.  At times we've seen 100k shares trade MOC in a day.  MOC promotes liquidity at the end of day and allows Buy/Sell orders to be entered throughout the day with a published imbalance at 3:50pm.  Between 3:50 and 4:00pm offsetting orders are solicited and a price is determined according to supply/demand.  It's not moving the market much ($1-3 based on the size of the imbalance) but the volumes are material.

[glider3834]

On 2/24/2024 at 4:04 AM, Cigarbutt said:

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.

Peter Clarke did make point on a CC they are looking to grow premium while keeping their cat exposure about the same, so over time their cat loss should effectively be falling as percentage of overall net written premium and their combined ratio. 

 

And I think that is starting to show up in the numbers too, I did this table below which illustrates. 

 

 

 

 

Some comments on this table above.

 

1. Over the 2018-2023 period, Fairfax's share of global insured cat losses looks to have varied between 0.8% in 2020 to 1.0% in 2022. However, in the table above based on Munich re's estimates for global insured cat losses for 2018 & 2023, Fairfax's share of total global insured cat losses was almost the same in each year.

 

Munich re has global insured natural cat losses at US$80B in 2018 (Fairfax share US$752M or 0.940%) https://www.reinsurancene.ws/munich-re-pegs-2018-insured-cat-losses-at-80bn-double-the-30-year-average/and US$95B in 2023 (Fairfax share US$897M or 0.944%) https://www.reuters.com/business/environment/quakes-storms-cause-95-billion-insurance-losses-2023-munich-re-2024-01-09/

 

2. Fairfax's growth in net written premium over the 2018 to 2022 period was 76%. Over same period, appears that Global commercial P&C premiums grew 33%. So Fairfax appears to have more than 2x the industry growth rate, yet appears based on numbers above to have not done so by increasing cat loss exposure at same rate.

 

https://www.mckinsey.com/industries/financial-services/our-insights/global-insurance-report-2023-expanding-commercial-p-and-cs-market-relevance

 

3. Just bear in mind with all above numbers & comments , these are based on Fairfax's results in last 5 years and Munich re estimates of industry cat losses. This information is useful, but of course, future loss or cat loss experience for Fairfax or Industry or both cannot be guaranteed.

 

4. Key point with above, we are looking at Fairfax's cat loss experience where global industry cat losses in 2 periods are not too dis-similar in size - in 2023 they were around US$95B or 19% higher than 2018 at US$80B . If global cat losses were say 50% higher in 2023 vs 2018, then cat loss impact for Fairfax in CR points is going to be much greater and cat loss/NPW ratio higher. Of course, the flipside is that with every terrible cat year comes pressure for harder insurance pricing, which if it transpires would then be likely to show up in future combined ratios. 

 

Also just a reminder -please don't rely on my numbers or comments in this post  or any of my posts - always check them & do your own due diligence - my comments here are opinion and for entertainment, and this is not financial advice.

 

 

Edited February 25, 2024 by glider3834

[Cigarbutt]

23 hours ago, glider3834 said:

Peter Clarke...

And I think that is starting to show up in the numbers too, I did this table below which illustrates. 

 

https://www.mckinsey.com/industries/financial-services/our-insights/global-insurance-report-2023-expanding-commercial-p-and-cs-market-relevance

opinion for entertainment...

The link you mention also discusses the potential advantages of specialty lines. One of the keys for the transformation (survival) of Crum & Forster about 25 years ago was the rapid move out of commodity lines to more specialized lines with very obvious positive underwriting results. The specialty market has been growing faster than the general market and FFH has followed. When using a similar proportional table as the one you've included above (using the last 8 to 12 years), specialty lines (as defined by FFH) have grown a lot but not significantly versus total premiums at large.

 

For some years now, S&P Global has produced a ranking with the last one being:

"The U.S. Property and Casualty Insurance Performance Rankings are based on statutory financial results collected and compiled by S&P Global Market Intelligence. They are determined using 13 financial metrics from 2022 statutory filings grouped into six buckets: rates of return, underwriting profitability, balance sheet expansion, investment performance, prior-accident-year reserve development and premium growth."

S&P Global describes how the above rankings show that some relatively small players have been able to grow profitably a lot from a small base and expanding into specialty markets. They also describe that FFH was able to grow profitably both their niche specialty segments and also their much larger portfolio of commodity-like products.

i would venture to say that there is some 'moat' in there, especially when considering the now longer-term track record.

Edited February 26, 2024 by Cigarbutt
spelling

[glider3834]

2 hours ago, Cigarbutt said:

The link you mention also discusses the potential advantages of specialty lines. One of the keys for the transformation (survival) of Crum & Forster about 25 years ago was the rapid move out of commodity lines to more specialized lines with very obvious positive underwriting results. The specialty market has been growing faster than the general market and FFH has followed. When using a similar proportional table as the one you've included above (using the last 8 to 12 years), specialty lines (as defined by FFH) have grown a lot but not significantly versus total premiums at large.

 

For some years now, S&P Global has produced a ranking with the last one being:

"The U.S. Property and Casualty Insurance Performance Rankings are based on statutory financial results collected and compiled by S&P Global Market Intelligence. They are determined using 13 financial metrics from 2022 statutory filings grouped into six buckets: rates of return, underwriting profitability, balance sheet expansion, investment performance, prior-accident-year reserve development and premium growth."

S&P Global describes how the above rankings show that some relatively small players have been able to grow profitably a lot from a small base and expanding into specialty markets. They also describe that FFH was able to grow profitably both their niche specialty segments and also their much larger portfolio of commodity-like products.

i would venture to say that there is some 'moat' in there, especially when considering the now longer-term track record.

good pick up cigarbutt cheers!

[Bryggen]

On 2/21/2024 at 2:59 PM, jbwent63 said:

I was just looking at the filing. Gurufocus states that FFH also acquired additional BB shares which appears to be false. It looks like one of the Watsa holding companies (The Second 810 Holding Co) acquired 129,000 shares and then Prem was awarded 296,571 shares upon leaving the board. I might be wrong but I don't think FFH has more BB shares and the note was repaid.

So, do we know for sure the news is false? Can anyone confirm? I was surprised by it. Thanks! Bry

[glider3834]

6 hours ago, Bryggen said:

So, do we know for sure the news is false? Can anyone confirm? I was surprised by it. Thanks! Bry

https://www.sec.gov/Archives/edgar/data/915191/000094787124000176/xslF345X05/ownership.xml

 

[jbwent63]

On 2/26/2024 at 4:00 PM, glider3834 said:

https://www.sec.gov/Archives/edgar/data/915191/000094787124000176/xslF345X05/ownership.xml

 

https://www.sec.gov/Archives/edgar/data/915191/000110465924025508/tm246589d1_sc13d.htm

 

These reports start at the top of the ownership structure.....with Mr. Watsa personally.....so then you see the Watsa family holding companies, then finally Fairfax....and the amount of shares held by Fairfax (46,724,700) is unchanged from the prior quarter. This is what was also reported in the 13-F on February 14, 2024.

[Cigarbutt]

Some more thoughts about the evolving hard market. The following is about the US property-casualty market:

The recent hard market is similar in extent (area under the curve) to the 2000-4 hard market and FFH, once again, was able to grow much more than peers but, this time around, at least at this point, they don't have to absorb losses that materialized before (late 90s) and which are yet to be reported.

The best scenario would be for the hard market to continue and the ideal scenario would be that new momentum be given to more hardening as a result of pain from the asset side of the balance sheets at large with FFH potentially remaining more flexible during a relative downturn.

 

However, it seems like the hard market may be abating.

 

If that's the case, it will be interesting to see how FFH (at the holding company) use the dividend capacity at the subs.

Summary table form the last few years:

The dividend capacity at end of 2023 is (estimation/guess) likely between 3.6 to 4.5B.

So, dividend capacity has been growing at a higher rate than equity during rising premiums requiring more capital.

Interesting (forward-looking), no?

 

[newtovalue]

Anyone know when the annual report and letter comes out?

[gfp]

6 minutes ago, newtovalue said:

Anyone know when the annual report and letter comes out?

 

Last year it was published March 10th.  (a Friday after the close)

Edited March 1, 2024 by gfp

[newtovalue]

ty @gfp

 

[glider3834]

3 hours ago, gfp said:

 

Last year it was published March 10th.  (a Friday after the close)

Last year agm was 20 Apr - this year 11 Apr - i wonder if that affects timing of release?

[SafetyinNumbers]

2 minutes ago, glider3834 said:

Last year agm was 20 Apr - this year 11 Apr - i wonder if that affects timing of release?

Great point and the Leap Year added a day to prepare.

 

[gfp]

2 minutes ago, glider3834 said:

Last year agm was 20 Apr - this year 11 Apr - i wonder if that affects timing of release?

 

Who knows.  Some CEOs are just better at turning in their homework in a timely fashion.  The Boston Omaha boys send in their letter whenever they damn well feel like it.

[gfp]

Is this book still available anywhere?  I would like to gift one but I don’t want to give my only copy. Selfish, I know 

[TwoCitiesCapital]

https://www.zeebiz.com/markets/ipo/news-sebi-clears-fairfax-backed-digits-ipo-after-delay-letter-shows-278705

[petec]

On 2/29/2024 at 5:52 AM, Cigarbutt said:

The dividend capacity at end of 2023 is (estimation/guess) likely between 3.6 to 4.5B.

Why *such* a big uplift from 2022?

 

Thanks.

 

And yes this is very meaningful going forward. Buybacks in a soft(er) market...

[Dipesh Patel]

https://www.businesswire.com/news/home/20240304019257/en/Kennedy-Wilson’s-Real-Estate-Debt-Platform-Reaches-7-Billion-in-Originations

 

Kennedy Wilson’s Real Estate Debt Platform Reaches $7 Billion in Originations

Platform totals $11 billion in capital commitments with $4 billion of remaining capacity

March 04, 2024 06:00 AM Eastern Standard Time

BEVERLY HILLS, Calif.--(BUSINESS WIRE)--Global real estate investment company Kennedy Wilson (NYSE: KW) announces that its real estate debt investment platform more than doubled in size in the past year and has reached $7 billion in originations with a strong pipeline of new opportunities.

The milestone comes on the heels of Kennedy Wilson’s acquisition of a $4.1 billion loan portfolio from a regional bank in June 2023 and the subsequent integration of the bank’s lending team, which strengthened real estate debt capabilities and expanded Kennedy Wilson’s presence into key markets across the United States. Since the acquisition of the portfolio, the debt team has closed approximately $500 million of new loans with $1.3 billion currently expected to close by Q2 2024, focused primarily on multifamily and student housing construction lending opportunities with high-quality sponsors seeking loans in the range of $40-$200 million.

Kennedy Wilson’s debt platform, originally launched in 2020 and expanded in Europe in 2021, benefits from a unique, unlevered structure. The lending team provides a hands-on approach to each loan, rooted in Kennedy Wilson’s historic strengths in real estate asset management. In 2024, Kennedy Wilson plans to roll out a best-in-class debt servicing platform that will further expand its capabilities.

[Cigarbutt]

17 hours ago, petec said:

Why *such* a big uplift from 2022?

...

And yes this is very meaningful going forward. Buybacks in a soft(er) market...

Many moving variables.

The most significant being

-higher adjusted operating profits/overall profits ahead of net premiums growth at relevant subs in 2023,

-reported (and expected for the full year) relatively low capital sent to relevant subs in 2023.

[petec]

9 hours ago, Cigarbutt said:

Many moving variables.

The most significant being

-higher adjusted operating profits/overall profits ahead of net premiums growth at relevant subs in 2023,

-reported (and expected for the full year) relatively low capital sent to relevant subs in 2023.

 

Thanks. 

[John Hjorth]

On 3/3/2024 at 2:38 AM, gfp said:

Is this book still available anywhere?  I would like to gift one but I don’t want to give my only copy. Selfish, I know 

 

I have spent a good deal of time time trying to find a way to lay my hands on a copy, for me first time this book was mentioned here on CoBF recently, but so far to no avail.

 

Your copy is very likely a keeper, @gfp .

[MMM20]

Circling back on the sizing thing, I thought this was a helpful framing: https://harveysawikin.substack.com/p/value-investing-lessons-from-major 

My sense is that this one's something between "Long-Term Champion" and "Medium-Term Performer" (more the former IMHO) and I'm planning accordingly.

 

In the mid-00’s, I established a managed account for my children at a brokerage. When I took personal control of the account in 2010, I sold several of the positions and with the proceeds bought Microsoft, making it approximately 20% of the portfolio. Since then, I have barely touched the account, and now Microsoft represents 75% of the value, having mightily outperformed the rest of the stocks. The overall return on the portfolio has been increasingly converging with the total return on Microsoft since 2011 and, if the latter keeps performing, this will be even more so.

 

Admittedly, not every stock is a Microsoft, and if I had let, say, Disney grow into a 75% position, I would have been upset, and my long-term return compromised when it halved a couple of years ago. I have given this dilemma a lot of thought and have concluded that the two approaches (sell positions at fair value vs. hold everything static forever) are irreconcilable. You can, however, draw lessons from each one to try to generate attractive returns without taking reckless single-stock risk. One way to do this is to separate your portfolio into three main categories.

 

Long-Term Champions are companies you believe to be long-term compounders. A stock like that should be held, trimmed sparingly, and only significantly reduced when it becomes highly overvalued, or changes in some fundamental way. Fundamental change is not something that cannot happen to a Cézanne but can and does to a company, e.g., because of macro events, technological disruption, or management changes.

 

Medium-Term Performers are companies you like but cannot visualize as a potential Cézanne. Here it becomes more important to manage its weighting in your portfolio. Cyclicals such as resource companies go in this bucket, since they are vulnerable to large commodity price fluctuations over time. These kinds of stocks can graduate to the top category if they have excellent managements and/or operate in the right sectors. Of course, medium-term performers can also be downgraded to the uninvestable category.

 

Arbitrages are stocks that you think are currently undervalued and where you see a catalyst for value-recognition – but have no conviction beyond that point. In these cases, you need to remember to sell when the stock reaches the range of fair value, and if it is not very liquid, to leave something on the table for the market. In the past I have made the mistake of holding onto less liquid stocks for the top tick and finding it hard to sell on the way back down.

 

A framework like the above cannot be applied mechanically because the markets are always presenting investors with new circumstances. Still, even if it does nothing other than make an investor hesitate before deciding to reduce a Cézanne or Matisse stock just because it “went up a lot”, then it is valuable.

 

Edited March 6, 2024 by MMM20

[Jaygo]

1 hour ago, MMM20 said:

Circling back on the sizing thing, I thought this was a helpful framing: https://harveysawikin.substack.com/p/value-investing-lessons-from-major 

My sense is that this one's something between "Long-Term Champion" and "Medium-Term Performer" (more the former IMHO) and I'm planning accordingly.

 

In the mid-00’s, I established a managed account for my children at a brokerage. When I took personal control of the account in 2010, I sold several of the positions and with the proceeds bought Microsoft, making it approximately 20% of the portfolio. Since then, I have barely touched the account, and now Microsoft represents 75% of the value, having mightily outperformed the rest of the stocks. The overall return on the portfolio has been increasingly converging with the total return on Microsoft since 2011 and, if the latter keeps performing, this will be even more so.

 

Admittedly, not every stock is a Microsoft, and if I had let, say, Disney grow into a 75% position, I would have been upset, and my long-term return compromised when it halved a couple of years ago. I have given this dilemma a lot of thought and have concluded that the two approaches (sell positions at fair value vs. hold everything static forever) are irreconcilable. You can, however, draw lessons from each one to try to generate attractive returns without taking reckless single-stock risk. One way to do this is to separate your portfolio into three main categories.

 

Long-Term Champions are companies you believe to be long-term compounders. A stock like that should be held, trimmed sparingly, and only significantly reduced when it becomes highly overvalued, or changes in some fundamental way. Fundamental change is not something that cannot happen to a Cézanne but can and does to a company, e.g., because of macro events, technological disruption, or management changes.

 

Medium-Term Performers are companies you like but cannot visualize as a potential Cézanne. Here it becomes more important to manage its weighting in your portfolio. Cyclicals such as resource companies go in this bucket, since they are vulnerable to large commodity price fluctuations over time. These kinds of stocks can graduate to the top category if they have excellent managements and/or operate in the right sectors. Of course, medium-term performers can also be downgraded to the uninvestable category.

 

Arbitrages are stocks that you think are currently undervalued and where you see a catalyst for value-recognition – but have no conviction beyond that point. In these cases, you need to remember to sell when the stock reaches the range of fair value, and if it is not very liquid, to leave something on the table for the market. In the past I have made the mistake of holding onto less liquid stocks for the top tick and finding it hard to sell on the way back down.

 

A framework like the above cannot be applied mechanically because the markets are always presenting investors with new circumstances. Still, even if it does nothing other than make an investor hesitate before deciding to reduce a Cézanne or Matisse stock just because it “went up a lot”, then it is valuable.

 

I really like this framework.

 

I do the same type of thing by putting my long termers in taxable accounts so i'm less likely to sell to early. My riskiest stuff goes in the rrsp as I might as well take the gov down with me. The RRSP also holds dividend paying US equities. My TFSA is full of the middle ground made up mostly of Canadian equities and reits.

 

If I see a company where i want to hold for a long time and but am still sorting out the valuation its a taxable account thing. If i get a loss over a few years I can bank the loss and buy back lower for the long term.

 

It doesn't always work as i sold SSD, GGG and builders first Source seemingly too early. Maybe i need a new account where i forget the password.

[vinod1]

7 hours ago, Jaygo said:

I really like this framework.

 

I do the same type of thing by putting my long termers in taxable accounts so i'm less likely to sell to early. My riskiest stuff goes in the rrsp as I might as well take the gov down with me. The RRSP also holds dividend paying US equities. My TFSA is full of the middle ground made up mostly of Canadian equities and reits.

 

If I see a company where i want to hold for a long time and but am still sorting out the valuation its a taxable account thing. If i get a loss over a few years I can bank the loss and buy back lower for the long term.

 

It doesn't always work as i sold SSD, GGG and builders first Source seemingly too early. Maybe i need a new account where i forget the password.

 

Just use one brokerage account for long term holds. One for more active holdings. You would hardly ever need to login into that account, mostly to reinvest the dividends. But not seeing them, you end up not even thinking about them much and even if you login into that account, it is easier to avoid tinkering. 

 

Maybe that is the way I am, but that helped for me.

[MarioP]

On 3/2/2024 at 8:38 PM, gfp said:

Is this book still available anywhere?  I would like to gift one but I don’t want to give my only copy. Selfish, I know 

You should talk about it to Fairfax employees at the AM. Perhaps they can have a reedition. Just tell them that they have at least three takers