Fairfax 2024

[Hoodlum]

54 minutes ago, Dinar said:

Munich RE was up 4.1% after announcing 2025 earnings forecast, including forecasting a 79 combined ratio in the reinsurance business.

Swiss Re today as well is targeting a P&C CR of below 85 for 2025.  They also committed to at least a 14% ROE over the next few years

 

 

Edited Friday at 11:45 PM by Hoodlum

[Viking]

2 hours ago, mananainvesting said:

Fairfax buys back 14% of Brit from Omers, increasing ownership to 100%. 

 

https://www.fairfax.ca/press-releases/fairfax-announces-acquisition-of-omers-investment-in-brit-2024-12-13/

I love it. This increases the numerator of the EPS calculation. (Buybacks reduce the denominator of the EPS calculation.) Like when they purchased a chunk of Allied World a couple of years ago, I wonder if this will create some minor noise when Fairfax reports Q4 results? I do not understand how a ‘call option’ flows though the financial statements when it is exercised. I am not complaining - more a heads up so we are not surprised.

 

From the announcement today

 

TORONTO, Dec. 13, 2024 – Fairfax Financial Holdings Limited (“Fairfax”) (TSX: FFH and FFH.U) announces that it has increased its ownership interest in Brit Limited to 100% from 86.2% by acquiring the interest of OMERS, the pension plan for Ontario’s municipal employees, for cash consideration of approximately US$383 million.

From Fairfax’s 2021AR

 

“Sale of non-controlling interest in Brit On August 27, 2021 Brit issued shares representing a 13.9% equity interest to OMERS for cash consideration of $375.0 which was subsequently paid by Brit as a dividend to Fairfax. The company recorded an aggregate equity gain of $115.4, principally comprised of a dilution gain and the fair value of a call option received, which was presented as other net changes in capitalization in the consolidated statement of changes in equity.The company has the option to purchase OMERS’ interest in Brit at certain dates commencing in October 2023.”

 

“Brit, based in London, England, is a market-leading global Lloyd’s of London specialty insurer and reinsurer. In 2021, Brit’s net premiums written were US$1,998.3 million. At year-end, the company had shareholders’ equity of US$1,912.1 million and there were 854 employees.”

 

From Fairfax’s 2023AR

 

“Brit, based in London, England, is a market-leading global Lloyd’s of London specialty insurer and reinsurer. In 2023, Brit’s net premiums written were US$2,982.7 million.At year-end, the company had shareholders’ equity of US$2,617.2 million and there were 911 employees.”

Edited Saturday at 12:47 AM by Viking

[Hoodlum]

3 minutes ago, Viking said:

I love it. This increases the numerator of the EPS calculation. (Buybacks reduce the denominator of the EPS calculation.) Like when they purchased a chunk of Allied World a couple of years ago, I wonder if this will crease some minor noise when Fairfax reports Q4 results? I am not complaining. This is a solid move.

 

From the announcement today

 

TORONTO, Dec. 13, 2024 – Fairfax Financial Holdings Limited (“Fairfax”) (TSX: FFH and FFH.U) announces that it has increased its ownership interest in Brit Limited to 100% from 86.2% by acquiring the interest of OMERS, the pension plan for Ontario’s municipal employees, for cash consideration of approximately US$383 million.

From Fairfax’s 2021AR

 

“Sale of non-controlling interest in Brit On August 27, 2021 Brit issued shares representing a 13.9% equity interest to OMERS for cash consideration of

$375.0 which was subsequently paid by Brit as a dividend to Fairfax. The company recorded an aggregate equity gain of $115.4, principally comprised of a dilution gain and the fair value of a call option received, which was presented as other net changes in capitalization in the consolidated statement of changes in equity.The company has the option to purchase OMERS’ interest in Brit at certain dates commencing in October 2023.”

 

“Brit, based in London, England, is a market-leading global Lloyd’s of London specialty insurer and reinsurer. In 2021, Brit’s net premiums written were US$1,998.3 million. At year-end, the company had shareholders’ equity of US$1,912.1 million and there were 854 employees.”

 

From Fairfax’s 2023AR

 

“Brit, based in London, England, is a market-leading global Lloyd’s of London specialty insurer and reinsurer. In 2023, Brit’s net premiums written were US$2,982.7 million.At year-end, the company had shareholders’ equity of US$2,617.2 million and there were 911 employees.”

I also wonder if this had to be completed before the transition of KI Insurance transition out of Brit on Jan 1. 

[SafetyinNumbers]

1 hour ago, Hoodlum said:

The first sub buyback with more to come in 2025. It is interesting that Fairfax paid only $8M more than what they sold this for in 2021. So it looks like OMERS only benefited from the Brit dividends over that time. 
 

I believe we have now shifted away from share buybacks, focusing instead on buying back sub minority ownerships.  Odyssey Re will likely be next with the exit of non-profitable contacts completing in Q4. 
 

 

It’s interesting. Unless I did the math wrong, so far the dividends received by OMERS until the end of Q224 were ~19% of their initial investment and with the gain a total of ~21%. So not a huge return over 40 months. It’s possible there was also another dividend in the past 5 months which would add to it.

[Hoodlum]

35 minutes ago, SafetyinNumbers said:

It’s interesting. Unless I did the math wrong, so far the dividends received by OMERS until the end of Q224 were ~19% of their initial investment and with the gain a total of ~21%. So not a huge return over 40 months. It’s possible there was also another dividend in the past 5 months which would add to it.

i suspect that the extra $8m was to cover the dividend for most of Q4. 

[TwoCitiesCapital]

1 hour ago, SafetyinNumbers said:

It’s interesting. Unless I did the math wrong, so far the dividends received by OMERS until the end of Q224 were ~19% of their initial investment and with the gain a total of ~21%. So not a huge return over 40 months. It’s possible there was also another dividend in the past 5 months which would add to it.

 

I don't think it's surprising to most of us to hear it was structured as some form of fixed rate financing arrangement. 

 

But consider where the 10-year treasury was in mid-2021 - like 1.5%. Corporate bonds wouldn't have been much higher. 

 

So this was still a very attractive deal for OMERS in terms of fixed return options. 

 

They got a 4-years bonds paying 4+% instead of 2+%. 

[SafetyinNumbers]

1 hour ago, TwoCitiesCapital said:

 

I don't think it's surprising to most of us to hear it was structured as some form of fixed rate financing arrangement. 

 

But consider where the 10-year treasury was in mid-2021 - like 1.5%. Corporate bonds wouldn't have been much higher. 

 

So this was still a very attractive deal for OMERS in terms of fixed return options. 

 

They got a 4-years bonds paying 4+% instead of 2+%. 

I agree but I did think this financing was more expensive. Happy to be wrong. 

[Redskin212]

I think OMERS hurdle for these type transactions is 9%

[SafetyinNumbers]

7 hours ago, Redskin212 said:

I think OMERS hurdle for these type transactions is 9%

Looks like they made 6% on this one.