Fairfax 2024

[UK]

3 hours ago, Cigarbutt said:

This line of reasoning raises the possibility that one comes to an incorrect conclusion.

The first issue is that float is based on net (not gross) insurance reserve liabilities (when premiums are ceded to another party of the reinsurance type so is the "float"). In 2017, FFH retained 81.8% of gross premiums and in 2023, 78.6% of gross premiums. So this partly explains why the growth in float was slower than the growth in gross premiums and is an issue unrelated to the "duration" of insurance liabilities.

The second and more important issue is more conceptual (and even mathematical). To assess the validity or signal when comparing the growth of premiums and float, one would have to assume some kind of steady state (for example, constant growth over time). Think of an insurer which decides to significantly curtail new business or even move to run-off. Then the negative growth in gross premiums would happen faster than the decline in float because of the lag effect and the shape of the payment distribution over time, an issue not linked to a change in the "duration" of insurance liabilities. 

Recently, FFH has grown ++ the gross premiums component:

The relative float growth will catch up over time especially if the growth in gross premiums written settles down (it's just a timing issue at this point) and this temporary decoupling is essentially unrelated to a hypothetical change in the "duration" of insurance liabilities.

One way to support the above is to observe, over time, the composition and distribution of the insurance product lines. This appears to be quite constant. On a recent conference call, the CFO mentioned an insurance liability duration of 3.8 years and i would suggest that this duration hasn't changed much in the last few years.

-----

Reading the above, i'm not sure it makes sense? Being simple minded (thinking along first principles is above my capacity), i always try analogies. So, for example, if you try to be more friendly to others around you, eventually, people around you will become more friendly to you (no guarantee of course) but there is a lag effect and your rate of growth of being nicer to others will precede the rate of growth of others being nice to you. The opposite obviously can occur but there may be a lag effect in the other direction as well due to the accumulation of social capital. Makes sense?

 

Thanks!

[Cigarbutt]

11 hours ago, Dinar said:

I think the big risks are the northeast wind that Prem referred to (what is that by the way?), general major catastrophe - say massive earthquake in NY?

-Attempt to answer this question, a reference to investment performance and another question

The reference may be related to wind risk in the Northeast USA (it's tricky to refer to this risk as there may be climatic repercussions...i found the picture below which is climate-agnostic):

i know that a "roughly" 1% exceedance probability is nothing to be excited about for the typical human but, when reading human recollections of such events in the New England area during the past century, people describe unexpected change with sunny skies changing to some kind of roar. People who tell these stories had either foresight or were simply lucky. 

Opinion: FFH is relatively well positioned for such event but who really knows?

-----

Opinion: To explain FFH's stock value outperformance over the last 38 years by referring to "leverage in a bull market" is likely a (over) simplification. They used to compare (in older annual reports, in the CEO's section) their relative investment outperformance compared to bond indices and large stock indices and the results were impressive (Graham-Doddsville type), a good thing because their underwriting performance was really terrible, then).

-----

Opinion: There is a short supply of discussion on the evolution of their investment stance (apart from sparse and intermittent mention of the cost part related to their previous posture). They used to position their portfolio in order to withstand a similar 1% exceedance probability event, a protection against the general markets not just wind but who cares these days? 

Edited April 18, 2024 by Cigarbutt
spelling

[MMM20]

12 hours ago, Dinar said:

O'k, wise guy, what has been the return on the equity & quasi equity portfolio over the past 5, 10, and 20 years and how does that compare with the S&P?  Then adjust for the fact that Shawkei, Tyku/Davos Brands and Eurobank where way riskier investments than the S&P 500, and that Fairfax should have earned liquidity and risk premiums above the S&P.  

I wasn’t referring to you - I know you can change your mind. Other people I talk to IRL continue to push back similarly, though, harping on Blackberry and other cherry-picked bad outcomes, despite what is now a satisfactory result over any long term period. They tend to be more GARP/ quality growth investors who don’t really like or get old school value and seem to expect a reversion to ZIRP and 2010s environment in which they built their careers. I guess we’ll see about that.
 

My own view is that this is a quality growth stock but driven by an old school value investor, so for many it just does not compute. Still, if FFH had outperformed consistently in the broadly defined equity portfolio over the past ~15 years, there would be no debating that this is a quality compounder and it would trade at ~3x book today. And do you include pet insurance? Do you include digit? Do you include the other insurance acquisitions? Would those not be considered “equity investments” inside of any conglomerate? I think the whole bifurcation is the wrong way to look at it. So much comes down to how you frame the analysis. 
 

Anyway, they seem set up to outperform peers for years and still we’re still at 7x p/e and 1.1x book. 
 

Edited April 18, 2024 by MMM20

[giulio]

12 hours ago, Viking said:

@Dinar If Fairfax has performed so poorly on the investment side, how did they compound book value at 18.4% over 38 years? Insurance/underwriting?

I cannot claim to be an expert in the field so any input is appreciated, here is my 2c:

 

An insurer would need to write @85% CR or below to achieve those results without a strong performance on the investment side. Some lines of insurance could allow you to achieve that CR. Or a combination of niche expertise and strong technology (i.e. low loss ratio and low expense ratio).

For example, Kinsale has a "standard" $3b portfolio but excels on the uw side.

 

I am not sure if an insurer can scale and still maintain such a CR. 

Another example would be Francis Chou at Wintaii: both strong uw and investment expertise, but he write $50M in premium on $150M of equity.

@Parsad correct me if I am wrong here.

What does Watsa mean when he says that to achieve 15% ROE FFH needs a 95% CR and a 7% return on investment portfolio?

The math is simple: a 7% ROI (both interests, dividends and gains realized and unrealized) translates to 5.1% after tax (26.5% Canadian rate). At 3x leverage (thanks to float and some debt) this equals 15% ROE. 

UW profits would more than cover FFH other expenses (overhead, interests, run off).

Now 75% of the portfolio is fixed income in nature (A) and 25% is equities (B). 

If (A) earns 4% and (B) 16% you get 7% ROI.

 

This is my extremely simplistic view and the way I would look at an insurer with demonstrated uw discipline and a focus on investment performance.

It is not easy to find both these elements. It is even more rare to find an investment team that aims for superior returns in BOTH equities and bonds!

Most insurers just park float in bonds and match liabilities. At FFH we benefit from an incredible astute team that looks for bargains even in bonds. Do not underestimate this.

 

I think the above equation completely melts down in a world of 0-2% return on bonds and an equity portfolio "drowned" in hedges, shorts and some bad investments. Still, Over the last 10 years, FFH BV has compounded at 10%.

 

I remain optimistic about the future and believe that they will achieve their stated goals. 

 

G

 

 

 

[giulio]

2 hours ago, Cigarbutt said:

They used to compare (in older annual reports, in the CEO's section) their relative investment outperformance compared to bond indices and large stock indices and the results were impressive (Graham-Doddsville type)

It would be great to see them post this again!

[Xerxes]

16 minutes ago, MMM20 said:

I wasn’t referring to you - I know you can change your mind. Many other people have pushed back similarly though harping on Blackberry and other mistakes.
 

My own view is that if they had outperformed consistently in the broadly defined equity portfolio over the past ~15 years, there would be no debating that this is a quality compounder and it would trade at ~3x book today. And do you include pet insurance? Do you include digit? Do you include the other insurance acquisitions? Would those not be considered “equity investments” inside of any conglomerate? I think that whole bifurcation is the wrong way to look at it.
 

Anyway, they seem set up to outperform peers for years and still we’re still at 7x p/e and 1.1x book. 
 

it maybe that in the 2010s, FFH was a “holding company” with its investment and therefor its fortune was heavily tied in BB, Resolute etc. Still worse they had an unusual appetite for large illiquid holdings. 

 

A “holding company”’s fortune improves only on the back of its investments. One has to sell an investment in gain to re-deploy elsewhere. And they just happened to be bad investment in 2010’ FFH era. 
 

Today, it is an “operating company” where the operating cash flows gushes in to make new investment, letting past investment mistakes dwindle in size harmlessly. 
 

 

 

 

Edited April 18, 2024 by Xerxes

[Hoodlum]

Congrats to Prem.   Well deserved. 
 

https://www.businesswire.com/news/home/20240418306017/en/Prem-Watsa-Named-2024-Insurance-Hall-of-Fame-Laureate

 

NEW YORK--(BUSINESS WIRE)--The International Insurance Society (IIS) has named Prem Watsa, the Founder, Chairman and CEO of Toronto-based Fairfax Financial Holdings Limited, the 2024 Insurance Hall of Fame Laureate. Mr. Watsa will be formally honored at an awards ceremony on Nov. 17, 2024 at the Hyatt Regency Miami. The awards ceremony kicks off the Global Insurance Forum, running from Nov. 17-19, 2024.

 

 

“As the 2024 Insurance Hall of Fame Laureate, Mr. Prem Watsa's legacy of excellence, ingenuity and integrity continues to inspire future generations in the insurance industry and beyond,” says Josh Landau, President of the International Insurance Society. “Mr. Watsa is a visionary leader whose wisdom and foresight have left an indelible mark on the financial landscape in Canada and across the globe.”

 

[Dinar]

@MMM20, Look I own the stock, and I give Prem credit for the correct calls on the bond market, the building of the insurance business, and investments in India.  If Prem is comfortable with venture capital - Digit, Tyke/Davos, etc.., then he is certainly comfortable with GARPY names or should be.  

[vinod1]

14 hours ago, Viking said:

@Dinar If Fairfax has performed so poorly on the investment side, how did they compound book value at 18.4% over 38 years? Insurance/underwriting?

 

I ran the numbers a whole while back, but if they have indexed their bond and stock portfolio, they would have pretty much achieved close to that without that really stunning first year. The main thing is the model. 

 

Run an efficient P&C company -> Gather long term float -> Invest that float in stocks and bonds

 

You dont have to be spectacular in underwriting and if you can just get the index returns for stocks and bonds, especially when interest rates are normal, you get outstanding results. 

 

Attributing performance is not straightforward. And take Fairfax claims of bond and stock performance with a grain of salt. It is basically an example of "How to Lie with Statistics". But I do not attribute that to any attempt to mislead, just plain enthusiasm. 

 

I would give Fairfax one thing, they did the right thing in sticking with cash when bond yields are low, resisting the institutional imperative (as many many investors on this board must have done as well), and invested in bonds when they normalized. Not easy, but they did that really well.

 

Vinod

 

 

 

 

[Hoodlum]

18 hours ago, Viking said:

@petec

I remember when everyone thought the 10 year US Treasury yield would peak at 3%. The fact the fixed income team did not meaningfully extend duration earlier and at much lower yields is amazing. 

 

I remember these discussions as well.  Fortunately, the bond team recognized that the rate increase had a ways to go at that time. 

[MMM20]

On 4/18/2024 at 10:11 AM, Dinar said:

@MMM20, Look I own the stock, and I give Prem credit for the correct calls on the bond market, the building of the insurance business, and investments in India.  If Prem is comfortable with venture capital - Digit, Tyke/Davos, etc.., then he is certainly comfortable with GARPY names or should be.  

 

 

I hear you. Either way it makes no sense that FFH still trades where it does, even if some people hate the portfolio and think it's a weird agglomeration of bad businesses and venture type bets.

 

 

Edited April 23, 2024 by MMM20
fixing screenshot

[Viking]

2 hours ago, MMM20 said:

 

 

I hear you. Either way it makes no sense that FFH still trades where it does, even if some people hate the portfolio and think it's a weird agglomeration of bad businesses and venture type bets.

@MMM20 It is interesting how everyone views Fairfax’s equity portfolio. Mostly, people seem to view it through the prism of their own investing framework.

 

The reason i like their current equity portfolio so much is more because of a relative perspective: 7 years ago it was stuffed full of underperforming holdings; or holdings with a poor outlook. That is no longer the case (or much less the case). As a result, i expect it to perform much better compared to the portfolio that existed 7 years ago.

Edited April 18, 2024 by Viking

[Parsad]

7 hours ago, vinod1 said:

 

I ran the numbers a whole while back, but if they have indexed their bond and stock portfolio, they would have pretty much achieved close to that without that really stunning first year. The main thing is the model. 

 

Run an efficient P&C company -> Gather long term float -> Invest that float in stocks and bonds

 

You dont have to be spectacular in underwriting and if you can just get the index returns for stocks and bonds, especially when interest rates are normal, you get outstanding results. 

 

Attributing performance is not straightforward. And take Fairfax claims of bond and stock performance with a grain of salt. It is basically an example of "How to Lie with Statistics". But I do not attribute that to any attempt to mislead, just plain enthusiasm. 

 

I would give Fairfax one thing, they did the right thing in sticking with cash when bond yields are low, resisting the institutional imperative (as many many investors on this board must have done as well), and invested in bonds when they normalized. Not easy, but they did that really well.

 

Vinod

 

 

 

 

 

+1!  I think they've added tremendous value to their investment return on the bond side...Brian has definitely added significant alpha.  On the equities side, I think they would have done fine as well if they had stayed away from the short positions, etc.  But because of those macro bets, just buying the S&P 500 would have given the same return or better on the equity side. 

 

With Wade leading the way on the equity side going forward, I think you'll start to see better returns.  But we may not do as well on the fixed income side when Brian is gone.  Regardless, with the leverage Fairfax uses in float and debt, they don't need homeruns...just doubles and triples...to hit that 15% ROE.  

 

Cheers!

[Parsad]

8 hours ago, Hoodlum said:

Congrats to Prem.   Well deserved. 
 

https://www.businesswire.com/news/home/20240418306017/en/Prem-Watsa-Named-2024-Insurance-Hall-of-Fame-Laureate

 

NEW YORK--(BUSINESS WIRE)--The International Insurance Society (IIS) has named Prem Watsa, the Founder, Chairman and CEO of Toronto-based Fairfax Financial Holdings Limited, the 2024 Insurance Hall of Fame Laureate. Mr. Watsa will be formally honored at an awards ceremony on Nov. 17, 2024 at the Hyatt Regency Miami. The awards ceremony kicks off the Global Insurance Forum, running from Nov. 17-19, 2024.

 

 

 

“As the 2024 Insurance Hall of Fame Laureate, Mr. Prem Watsa's legacy of excellence, ingenuity and integrity continues to inspire future generations in the insurance industry and beyond,” says Josh Landau, President of the International Insurance Society. “Mr. Watsa is a visionary leader whose wisdom and foresight have left an indelible mark on the financial landscape in Canada and across the globe.”

 

 

Congratulations to Prem!  Truly well deserved.  Cheers!

[Hamburg Investor]

On 4/18/2024 at 3:12 PM, giulio said:

I cannot claim to be an expert in the field so any input is appreciated, here is my 2c:

 

An insurer would need to write @85% CR or below to achieve those results without a strong performance on the investment side. Some lines of insurance could allow you to achieve that CR. Or a combination of niche expertise and strong technology (i.e. low loss ratio and low expense ratio).

For example, Kinsale has a "standard" $3b portfolio but excels on the uw side.

 

I am not sure if an insurer can scale and still maintain such a CR. 

Another example would be Francis Chou at Wintaii: both strong uw and investment expertise, but he write $50M in premium on $150M of equity.

@Parsad correct me if I am wrong here.

What does Watsa mean when he says that to achieve 15% ROE FFH needs a 95% CR and a 7% return on investment portfolio?

The math is simple: a 7% ROI (both interests, dividends and gains realized and unrealized) translates to 5.1% after tax (26.5% Canadian rate). At 3x leverage (thanks to float and some debt) this equals 15% ROE. 

UW profits would more than cover FFH other expenses (overhead, interests, run off).

Now 75% of the portfolio is fixed income in nature (A) and 25% is equities (B). 

If (A) earns 4% and (B) 16% you get 7% ROI.

 

This is my extremely simplistic view and the way I would look at an insurer with demonstrated uw discipline and a focus on investment performance.

It is not easy to find both these elements. It is even more rare to find an investment team that aims for superior returns in BOTH equities and bonds!

Most insurers just park float in bonds and match liabilities. At FFH we benefit from an incredible astute team that looks for bargains even in bonds. Do not underestimate this.

 

I think the above equation completely melts down in a world of 0-2% return on bonds and an equity portfolio "drowned" in hedges, shorts and some bad investments. Still, Over the last 10 years, FFH BV has compounded at 10%.

 

I remain optimistic about the future and believe that they will achieve their stated goals. 

 

G

 

 

 

 

Totally agree with your conclusion about what 0-2% interest rates mean for insurance.

 

Just some remarks:

- Haven‘t you forgotten premium growth as an important part for how to reach 15% roe? (I don‘t mean acquisitions but internal growth). Another point: The equity returns are not taxed every year; so the overall tax is lower than 26%. And you forget the earnings through a profitable insurance business (cr of e. g. 95)

- You claim 4% roe Bonds / 16% roe stocks. Shouldn’t the bond portfolio yield way higher? Treasuries are higher (and logged in for nearly 4 years) and the corporate bonds even yield higher (like 10%).
- That logic (which I don‘t share)  - needing 16% returns on the inherent stock/business part for getting an overall 15% return for the holding company - seems structurally absurd to me. The whole idea of FFH (and the other insurers investing part of their equity in businesses/stocks) is it to get overall higher returns than the inherent businesses (stocks, wholly owned businesses) returns. So you have two parts (insurance + businesses), both yielding less than the whole. Possible through the magic of float leverage. If one part alone would yield better than the whole - why than not sell the lower yielding one, as that would only be a drag to returns? In other words: If Prem in his own plan would need 16% in the equity part for getting 15% for the holding: Why shouldn‘t he sell the insurance part than and invest the outcome into stocks/wholly owned businesses alone? After doing that he would have a holding with a roe of 16%, before he would have one with a roe of 15%. 

 

 

Edited April 20, 2024 by Hamburg Investor

[giulio]

Hi @Hamburg Investor, I appreciate your response.

 

First, let me stress the fact that this is a very high-level, simplistic view of FFH. I basically assume that their uw profits make them break even on all other costs, so you are left with the portfolio returns.

 

That said, you are right

1. there is certainly upside if their uw profits >> than overhead, interests on debt ecc.
2. FFH cash taxes are lower than the cad rate; I have them @ 16% .

Could you clarify your comment on growth? I am not sure how to interpret your question. Are you referring to some kind of operating leverage?

 

On the bonds yield, this is what FFH reported in the AR 2023

The 10% you mention, I think it refers to the IRR they expect to earn on the KW/PacWest loans, i.e. an example of their opportunism. Corporates are not yielding 10%.

Anyway, you can play around with the numbers. I just wanted to show that if Watsa can display a 18%+ CAGR it's not just leverage or uw profits. The equity portfolio, in a lumpy manner, has certainly contributed!

 

On the last part, I did not get your point.

The insurance segment provides the capital for the investment team to put to work. Only part of it can go to equities. During the last segment of the AGM, Watsa talked about the "transformed" FFH and the "stability" of the interest income achieved. He alluded to the possibility of tilting more capital towards equities in the future, but I guess that will depend on the premiums level and regulatory capital.

 

G

 

 

 

[Viking]

WR Berkely reported Q1 results this morning. Results looked good to me. But clearly Mr Market wasn’t happy - the stock is currently down 6%. 2024 is shaping up to be a decent year for the overall insurance market. My guess is we are approaching the tail end of the hard market in the overall P/C insurance market. As a result, i think we see lots of volatility with insurance stocks as they report results. We are also approaching hurricane season, which tends to be a volatile period for P/C insurance stocks. Chubb reports results tomorrow (Wed).
 

Here are some notes from WRB’s conference call:

- “the business is firing on all cylinders”; both investments and insurance

- “enthusiastic about 2024 and the groundwork laid for 2025”

- “better than average chance we can grow top line 10-15% in 2024” ; lots of variability by business line.

 

- top line growth in net premiums written was 10.7%

- increase in rate was 7.8%, above loss cost trend in aggregate.

- 80% renewal ratio

- “record investment income and Q1 underwriting profit”

 

- fixed income book yield = 4.2% (excluding Argentina transaction) and new money rate is currently 5.25% to 5.5%.

- “earnings power of business has considerable upside from here”

- fixed income duration extended from 2.4 to 2.5 years.

- “average life of reserves is just under 4 years”

- adverse development from soft market from 2019 and prior years should largely be in rear view mirror.

 

- share buybacks: do not buy back stock blindly; only when they feel it offers good value. They did not buy back any stock in Q1.

Edited April 23, 2024 by Viking

[SafetyinNumbers]

31 minutes ago, Viking said:

WR Berkely reported Q1 results this morning. Results looked good to me. But clearly Mr Market wasn’t happy - the stock is currently down 6%. 2024 is shaping up to be a decent year for the overall insurance market. My guess is we are approaching the tail end of the hard market in the overall P/C insurance market. As a result, i think we see lots of volatility with insurance stocks as they report results. We are also approaching hurricane season, which tends to be a volatile period for P/C insurance stocks. Chubb reports results tomorrow (Wed).
 

Here are some notes from WRB’s conference call:

- “the business is firing on all cylinders”; both investments and insurance

- “enthusiastic about 2024 and the groundwork laid for 2025”

- “better than average chance we can grow top line 10-15% in 2024” ; lots of variability by business line.

 

- top line growth in net premiums written was 10.7%

- increase in rate was 7.8%, above loss cost trend in aggregate.

- 80% renewal ratio

- “record investment income and Q1 underwriting profit”

 

- fixed income book yield = 4.2% (excluding Argentina transaction) and new money rate is currently 5.25% to 5.5%.

- “earnings power of business has considerable upside from here”

- fixed income duration extended from 2.4 to 2.5 years.

- “average life of reserves is just under 4 years”

- adverse development from soft market from 2019 and prior years should largely be in rear view mirror.

 

- share buybacks: do not buy back stock blindly; only when they feel it offers good value. They did not buy back any stock in Q1.

2.5x+ BV starting to seem expensive or is something else going on?

[steph]

....and 15 times earnings.   FFh could double and still be cheaper than WRB. 

[Saluki]

13 minutes ago, steph said:

....and 15 times earnings.   FFh could double and still be cheaper than WRB. 

 

Yes, a couple of months ago a friend asked me about FFH because someone they knew was interested in it. This was right before the Muddy short attack.  I mentioned that if you look at it like most insurance companies (or banks), it's above book, which is not great, but still cheaper than BRK or MKL by that metric.  If you account for future growth which is probable based on history, and profits locked in due to rolling the fixed income portfolio, it's trading at a great price (based on P/E) for anything it looks like a great bet.  

 

I haven't sold any shares, but didn't have the courage to double down during the few days that the price dropped, because it's already a big position for me.  I have been adding to FF India though. It's still at an inexplicable discount to book and they are making some shrewd moves buying back shares and selling things when they are fully priced, like the National Stock Exchange in India. And I appreciate that when the performance fee was due to FFH, that Prem didn't dilute us and take his fee in shares instead of cash.  You wouldn't see that at Brookfield. 

 

Some of the holdings look interesting and kind of mirror each other, like buying ATCO in FFH and the Tanker company whose name I can't remember in FF India.  

[dartmonkey]

1 hour ago, SafetyinNumbers said:

fixed income book yield = 4.2% (excluding Argentina transaction) and new money rate is currently 5.25% to 5.5%.

 

Does anyone know what this ‘Argentina transaction‘ is?

[Viking]

3 hours ago, dartmonkey said:

 

Does anyone know what this ‘Argentina transaction‘ is?

@dartmonkey here is what was said near the end of the Q1 conference call. I think Rob’s comments at the end of the conversation were meant to be in jest…

 

Brian Meredith

Yes, thanks. Hi, good morning. Two questions. Rich, I'm just curious, could you just give us the actual income that you generated from the Argentina inflation bonds in the quarter? Just so I don't have to do the math.

 

Rich Baio

Rob, I'm not sure we've then generally given that level of detail. I'm not sure if...

 

Brian Meredith

I can back into it with what you said in the yield, but I just wanted to know what the actual number was.

 

Rich Baio

Why don't we take it offline?

 

Rob Berkley

Yes, Brian, he's just going to check with an attorney and call you back. How about that?

 

Brian Meredith

Okay, fair.

[Viking]

5 hours ago, SafetyinNumbers said:

2.5x+ BV starting to seem expensive or is something else going on?

@SafetyinNumbers , the short answer is i am not sure. On their calls, WRB typically tries and stay very top line. They are going to make a lot of money over the next 2 years. 
 

The analysts want to get into the weeds. So it appears the analysts found some things in the weeds that they don’t like. WRB might have done some reserve strengthening from 2019 and prior years? It appears the total insurance market is softening… yet WRB guided to 10 to 15% growth for 2024 (‘trust us’)? The average duration of the fixed income portfolio is only at 2.5 years? 

[SafetyinNumbers]

31 minutes ago, Viking said:

@SafetyinNumbers , the short answer is i am not sure. On their calls, WRB typically tries and stay very top line. They are going to make a lot of money over the next 2 years. 
 

The analysts want to get into the weeds. So it appears the analysts found some things in the weeds that they don’t like. WRB might have done some reserve strengthening from 2019 and prior years? It appears the total insurance market is softening… yet WRB guided to 10 to 15% growth for 2024 (‘trust us’)? The average duration of the fixed income portfolio is only at 2.5 years? 

My guess is that if estimates go up post quarter that eventually the stock will resume moving higher but thankfully I don’t have to bet on it.

[Daphne]

* Fairfax Financial Holdings Ltd. (

FFH-T +0.63%increase

 

) to $2,000 from $1,900. Average: $1,828.09.

 

Analyst: “We believe Fairfax’s current valuation does not fully reflect the company’s earnings potential and remains an attractive opportunity for investors. We believe the stock should garner a sustainable re-rate on the back of the organic expansion in its insurance operations, which likely enhances the company’s ROE and the growth rate potential of its book value, and potentially adds greater consistency to both metrics. The company is likely well positioned for the current rate environment and has locked in a much higher run-rate of operating investment income as a result of the rise in bond yields and its short-duration portfolio. Further, given its value investing approach, we think it has the potential to continue to generate outsized investment returns – even against a backdrop of more modest equity market returns. The company has demonstrated resilience through the business cycle and turbulent financial markets, but we view it as a less defensive play than more traditional publicly listed insurers. At this stage of the market cycle, this likely provides an attractive balance: downside protection thanks to the relative resilience of insurance operations through a potential recession, and upside potential when markets recover. We believe the company is overlooked or unloved by investors, and continues to trade well below its intrinsic value. We are bullish on the name and believe Fairfax is well positioned to successfully navigate the current environment and remains one of our top ideas for 2024. Fairfax’s valuation discount remains wide despite showing strong growth and enhanced ROE potential.

 

FROM TODAYS GLOBE AND MAIL