Q1 2024

[Luca]

Looking forward to the results later. 

[gfp]

https://www.globenewswire.com/news-release/2024/05/02/2874789/0/en/Fairfax-India-Holdings-Corporation-Financial-Results-for-the-First-Quarter.html

 

 

Press release pdf: https://www.fairfax.ca/wp-content/uploads/2024_05_May_02-PRFFH-Q1-2024-Press-Release-Final.pdf

Edited May 2 by gfp

[ValueMaven]

https://www.fairfax.ca/press-releases/fairfax-financial-holdings-limited-financial-results-for-the-first-quarter-2024-05-02/

[ValueMaven]

The consolidated undiscounted combined ratio of the property and casualty insurance and reinsurance operations was 93.6%

[gfp]

Nice, so they repurchased 240,734 shares during the quarter - $260.3 million worth.

 

3/31 share count is 22,831,173 shares

 

 

[Parsad]

Good results...pretty much in line with expectations and guidance!  Cheers!

[nwoodman]

Insurance companies are in good shape, Brit being a standout.  The bond hit was a little higher than I expected. Looking forward to the CC

[newtovalue]

good result  - now trading @ 1.18x Q1 2024 book value. next big leg up will be Digit and TSX 60 inclusion

 

also looking forward to the call tomorrow 

[gfp]

The full quarterly report is out now in case it hasn't already been posted here:

https://www.fairfax.ca/wp-content/uploads/2024_05_May_02-FFH-2024-Q1-Interim-Report-Final.pdf

[Dinar]

I would like to know is where those losses on equity investments came from.  It seems that aside from profit on the swap, return on the equity portfolio was not lousy.

[Viking]

Q1 Earnings: Answers to questions

 

Overall, it was a boring, solid quarter.

 

1.) How are they allocating new capital?

 

What did Fairfax do with $1 billion notes offering that was completed the end of March?

 

A: Stay tuned. Cash increased to $2.5 billion. It is earning +5% so perhaps Fairfax feels no urgency to deploy it quickly. 

 

2.) Impact of change in interest rates on reported results?

 

A: this was about a $125 million headwind. This was higher than I expected; although I do expect the puts and takes to roughly balance out over time.

 

"The benefit of the effect of increases in discount rates on prior year net losses on claims of $192.3 million partially offset net losses recorded on the company’s bond portfolio of $318.8 million."

 

3.) What is interest and dividend income?

• Q4, 2023 = $536.4 million
• Q1, 2024 = $589.8 million = a run rate of $2.36 billion for 2024 (up from $1.9b in 2023).

A: Increased $53 million from last quarter. Much more than I was expecting.

 

Is Fairfax’s investment in Kennedy Wilson’s debt platform continuing to grow?

 

A: Yes. It increased by $160 million in Q1.  

 

4.) Insurance

 

What is growth in net premiums written? GIG + organic? A: Solid increase of 11.2% (5.3% was GIG)

What is CR? Is it below 94%?                                              A: Solid 93.6% (was 94.0% in Q1, 2023)

What is level of reserve releases? Trend?                          A: TBD

 

Brit update: ex Ki, CR was 90.2% in Q1. Importantly, company is growing top line again, as net premiums written increased 6.5% in Q1. Continuing solid performance we saw in 2023.

 

5.) What is share of profit of associates?

 

A: Total of $127.7 was lower than expected. $28.6 million loss from Helios. Seasonality. Not concerned.

 

"Consolidated share of profit of associates of $127.7 million principally reflected share of profit of $79.3 million from Eurobank, $36.0 million from EXCO Resources and $34.8 million from Poseidon, partially offset by share of loss of $28.6 million from Helios Fairfax Partners."

 

6.) Equities:

 

What are investment gains from equities?

 

A: Equities booked a $275 million gain. About what I expected (a little lower based on my tracking model but it does not capture everything Fairfax owns).

 

 

For Associate holdings, what is the excess of market value to carrying value? 

• Q1, 2024 = $1,185.6 million = $52/share

7.) Is there any adverse development for runoff? More broadly, what are the results for runoff/life bucket?

 

A: Results were roughly as expected.

 

8.) What is book value per share? This increased a smaller amount than I expected; normal range.

 

The dividend payment in January will dent this by $15/share.

 

Q1 = $945.44 (2023YE = $939.65)

 

9.) Other notes:

 

Shares Outstanding

• During the first quarter of 2024 the company purchased 240,734 of its subordinate voting shares for cancellation at an aggregate cost of $260.3 million ($1,081/share).
• Fairfax is now buying back shares at a premium to book value. They continue to see this as an attractive price to pay.
• At March 31, 2024 there were 22,831,173 common shares effectively outstanding.

Interest expense

• Was $151.5 million in Q1; about $20 million more than I expected. And it does not include a full quarter of the $1 billion in new borrowings that closed in late March (while this is being held, the interest being earned will show up in interest income).

Comprehensive income

• Unrealized foreign currency translation losses were $228.4 million in Q1. Yes, the US$ was very strong. 

Edited May 2 by Viking

[gfp]

21 minutes ago, Viking said:

Interest expense

• Was $151.5 million in Q1; about $20 million more than I expected. And it does not include a full quarter of the $1 billion in new borrowings that closed in late March (while this is being held, the interest being earned will show up in interest income).

 

 

What do you mean by this bolded section above?

[Viking]

1 hour ago, gfp said:

 

What do you mean by this bolded section above?

The $1 billion bond offering closed late in March. My assumption is Fairfax will start paying interest immediately. As a result, my assumptions is they also have use of the $1 billion.
 

If they do not have an immediate use for the $1 billion my assumption is they could buy very short term treasuries with it. if they did this we would see a small increase in interest income. $1 billion earning 5% = $50 million = $1 million per week. 
 

Now if I am way off base (perhaps my 5% is way too high?), please let me know (it wouldn’t be the first time). 

[glider3834]

10 hours ago, Viking said:

Q1 Earnings: Answers to questions

 

Overall, it was a boring, solid quarter.

 

1.) How are they allocating new capital?

 

What did Fairfax do with $1 billion notes offering that was completed the end of March?

 

A: Stay tuned. Cash increased to $2.5 billion. It is earning +5% so perhaps Fairfax feels no urgency to deploy it quickly. 

 

2.) Impact of change in interest rates on reported results?

 

A: this was about a $125 million headwind. This was higher than I expected; although I do expect the puts and takes to roughly balance out over time.

 

"The benefit of the effect of increases in discount rates on prior year net losses on claims of $192.3 million partially offset net losses recorded on the company’s bond portfolio of $318.8 million."

 

3.) What is interest and dividend income?

• Q4, 2023 = $536.4 million
• Q1, 2024 = $589.8 million = a run rate of $2.36 billion for 2024 (up from $1.9b in 2023).

A: Increased $53 million from last quarter. Much more than I was expecting.

 

Is Fairfax’s investment in Kennedy Wilson’s debt platform continuing to grow?

 

A: Yes. It increased by $160 million in Q1.  

 

4.) Insurance

 

What is growth in net premiums written? GIG + organic? A: Solid increase of 11.2% (5.3% was GIG)

What is CR? Is it below 94%?                                              A: Solid 93.6% (was 94.0% in Q1, 2023)

What is level of reserve releases? Trend?                          A: TBD

 

Brit update: ex Ki, CR was 90.2% in Q1. Importantly, company is growing top line again, as net premiums written increased 6.5% in Q1. Continuing solid performance we saw in 2023.

 

5.) What is share of profit of associates?

 

A: Total of $127.7 was lower than expected. $28.6 million loss from Helios. Seasonality. Not concerned.

 

"Consolidated share of profit of associates of $127.7 million principally reflected share of profit of $79.3 million from Eurobank, $36.0 million from EXCO Resources and $34.8 million from Poseidon, partially offset by share of loss of $28.6 million from Helios Fairfax Partners."

 

6.) Equities:

 

What are investment gains from equities?

 

A: Equities booked a $275 million gain. About what I expected (a little lower based on my tracking model but it does not capture everything Fairfax owns).

 

 

For Associate holdings, what is the excess of market value to carrying value? 

• Q1, 2024 = $1,185.6 million = $52/share

7.) Is there any adverse development for runoff? More broadly, what are the results for runoff/life bucket?

 

A: Results were roughly as expected.

 

8.) What is book value per share? This increased a smaller amount than I expected; normal range.

 

The dividend payment in January will dent this by $15/share.

 

Q1 = $945.44 (2023YE = $939.65)

 

9.) Other notes:

 

Shares Outstanding

• During the first quarter of 2024 the company purchased 240,734 of its subordinate voting shares for cancellation at an aggregate cost of $260.3 million ($1,081/share).
• Fairfax is now buying back shares at a premium to book value. They continue to see this as an attractive price to pay.
• At March 31, 2024 there were 22,831,173 common shares effectively outstanding.

Interest expense

• Was $151.5 million in Q1; about $20 million more than I expected. And it does not include a full quarter of the $1 billion in new borrowings that closed in late March (while this is being held, the interest being earned will show up in interest income).

Comprehensive income

• Unrealized foreign currency translation losses were $228.4 million in Q1. Yes, the US$ was very strong. 

hopefully they will unpack a bit more detail on profit from associates (below comments are opinion not advice cheers)

- Both GIG and IIFL Finance contributed to associate profit in 2023 but not in Q124 because GIG moved to consolidated insur sub & IIFL Finance to Common Stocks

-Helios looks to be a 4Q unrealised, investment loss due to lower expected mgmt fees from TopCo investment due to higher rates.

-Stelco results in next quarters expected to improve on 4Q23 (reported I believe in Fairfax 1Q24 on one-quarter lag)

- Potential catalysts for earnings at Eurobank (HB acquisition) & Poseidon (delivery & chartering of new ships) in future periods

- BIAL EBITDA grew 50% 9M to Dec23 (vs Dev22) showing cash flow generation growth but not sure how BIAL profit share contribution under IFRS in Q124.

- hopefully we have some more detail on share of profit from Fairfax India Associates & Other non-insurance in Q1

 

 

 

Edited May 3 by glider3834

[Cigarbutt]

For the Q1 underwriting side, short term volatility prevents meaningful conclusions about underlying trends. Numbers show a slight deterioration and this will be followed.

For Q1 of 2022, 2023 and 2024, the underlying AY undiscounted CR ex-cat shows: 90.8, 90.9 and 92.4.

These numbers exclude run-off (short term volatility even more significant here) and in Q1 2024, they report about a 1% favorable reserve development.

There is an expectation that FFH will continue to perform better than comparable peers on the underwriting front.

[gfp]

Conference call just started

[gfp]

It was great to hear Wade do the investment overview.  Did everyone else hear average duration of 2.8 years on the fixed income portfolio?  I heard yield of 5% as well.  If I heard correctly on duration it seems like they tactically shortened again. 

 

edit: I also heard duration of about 3 at the end of the call.  2.8, if I heard correctly might include cash and bills and 3 might be just the "bond portfolio."  

Edited May 3 by gfp

[Viking]

41 minutes ago, gfp said:

It was great to hear Wade do the investment overview.  Did everyone else hear average duration of 2.8 years on the fixed income portfolio?  I heard yield of 5% as well.  If I heard correctly on duration it seems like they tactically shortened again. 

some quick thoughts:

• Wade’s summary was short, concise and well done.
• Investment portfolio is $65b; $46 fixed income and $19b equity
• Grivalia Hospitality - George K estimates One and Only development is worth entirety of GH carrying value.
• Kennedy Wilson debt platform is at $4.8b? and yield is 8.25%
• As fixed income matures, Fairfax has been leaving at short end, which is shortening avg duration a little.
• Allied World - reinsurance increased double digit
• Eurobank - share of profit of associates was $79 million; this included $45 million in one offs (adj due to sale of sub etc); underlying was $124 million, which was $30 million more than prior year.
• GIG ownership was increased in April from 90 to 97.1 at a cost of $127 million (mandatory tender offer)
• FFH-TRS: think its a great investment (shares still offer good value)
• Insurance: continue to see opportunities. Price increases exceed loss cost trends.
• Insurance subs have $3 billion in dividend capacity; paid $451 million to hold co in Q1.
• Expense ratio ticked higher in Q1: inclusion of GIG (has higher exp ratio), bus mix, investments in technology

Edited May 3 by Viking

[MMM20]

My takeaway was there was little remarkable about the quarter and that's a good thing.

[Cigarbutt]

11 hours ago, gfp said:

Did everyone else hear average duration of 2.8 years on the fixed income portfolio?  I heard yield of 5% as well.  If I heard correctly on duration it seems like they tactically shortened again. 

edit: I also heard duration of about 3 at the end of the call.  2.8, if I heard correctly might include cash and bills and 3 might be just the "bond portfolio."  

This well explained in the interim report:

FFH used to report their relative bond performance (last time from 2017 annual report; from memory this did not even include the CDS swap gains which imo were sort of bond investments):

Since then, (guess to some degree) it appears that their relative total return bond performance has come down, with relative coupon income performance improving. FFH has had (at least up to 2016-7) an unusual capacity to harvest alpha-type capital gains in bonds, especially during "transitions". Those capital gains have been (at least up to 2016-7) lumpy but incredibly significant given the high (sort of leveraged float portfolio) exposure to bonds versus equity. Maybe this isn't so relevant anymore?

What is the difference between tactical asset allocation and market timing?

[This2ShallPass]

On 5/2/2024 at 3:25 PM, Dinar said:

I would like to know is where those losses on equity investments came from.  It seems that aside from profit on the swap, return on the equity portfolio was not lousy.

I was wondering the same. If you exclude TRS, loss of ~$50M this quarter? 

[nwoodman]

Just got done listening to the CC.  Great notes above by all. A couple of things that caught my attention

 

1. The callout by Wade on Grivallia.  

2. The Dividend capacity by Jen captured in Note 19 and where it could come from

 

3.  A shame that the last question got cut off on the amount that could be reallocated from bonds to equities in a market sell off. It would be nice to get an idea of the number.  They have been pretty clear that it would be a move from treasuries to corporate debt but any further capacity for equities would have been an interesting insight.

 

4.  In general great to hear from the “young guns”.  

 

 

[nwoodman]

Transcript attached and some Claude summaries from Wade’s comments and the Q&A

 

Wade Burton

• The investment portfolio stands at around $65 billion, including $9.3 billion in cash and short-term treasuries, $46 billion in fixed income, and $19 billion in equities (associates, limited partnerships, preferred and common stocks).
• The fixed income portfolio is built for safety, with government bonds making up the vast majority. It has a short duration of 2.8 years and yields 5%.
• The mortgage book stands at $4.8 billion, all first mortgages with duration under 2 years, yielding over 8.25%.
• Fairfax is watching inflation data closely and thinks it may be difficult for the Fed to drop rates if inflation stays above 3%. Higher rates could persist longer than expected.
• Of the $19 billion in equity and equity-like investments, associate investments (strategic/significant stakes like Eurobank and Poseidon) make up the bulk and are generally performing well and undervalued versus carrying value.
• Common stocks are a small portion at under $5 billion. Not seeing many opportunities currently with North American markets at high levels.
• Overall, the investment portfolio is structured to prioritize safety, with good locked-in interest income, little credit risk, and equity investments that are undervalued, soundly financed and performing well. It is positioned to handle uncertainty around interest rates and inflation.

Q&A Summary

 

1. Fairfax continues to hold total return swaps (TRS) on its own shares as it believes it's a good investment. The TRS contracts expire in 2025 and 2026 but can be extended. Fairfax also continues share buybacks, balancing it with maintaining financial strength and ratings.

2. Premium growth opportunities still exist in many lines despite the market not being as hard as in 2019-2023. Cyber, D&O and workers' comp are seeing rate decreases over 10%. Excluding Gulf Insurance, premiums grew 5% gross and 7% net in Q1. Fairfax's scale and diversification provide growth potential.

 

3. The reinsurance market remains strong but not as robust as 2023. Odyssey had a higher base to grow from after taking advantage of the hard market in prior years. Allied World and Brit also have reinsurance opportunities. 

 

4. With premiums leveling off and earnings stabilizing, there is increased capacity to dividend funds from insurance subsidiaries to the holding company. In 2024, Fairfax can dividend $3 billion up based on statutory requirements. $451 million was dividended in Q1.

 

5. The consolidated expense ratio ticked up about 1 point in Q1 to 31.5% mainly due to the inclusion of Gulf Insurance which runs a higher expense ratio. Mix of business and continued investments in technology and people also contributed.

6. Fairfax has flexibility to reallocate from its defensive, liquid bond portfolio to equities if dislocations in the equity markets present attractive opportunities.

 

FRFHF - Transcripts.pdf

[UK]

5 minutes ago, nwoodman said:

Transcript attached and some Claude summaries from Wade’s comments and the Q&A

 

Wade Burton

• The investment portfolio stands at around $65 billion, including $9.3 billion in cash and short-term treasuries, $46 billion in fixed income, and $19 billion in equities (associates, limited partnerships, preferred and common stocks).
• The fixed income portfolio is built for safety, with government bonds making up the vast majority. It has a short duration of 2.8 years and yields 5%.
• The mortgage book stands at $4.8 billion, all first mortgages with duration under 2 years, yielding over 8.25%.
• Fairfax is watching inflation data closely and thinks it may be difficult for the Fed to drop rates if inflation stays above 3%. Higher rates could persist longer than expected.
• Of the $19 billion in equity and equity-like investments, associate investments (strategic/significant stakes like Eurobank and Poseidon) make up the bulk and are generally performing well and undervalued versus carrying value.
• Common stocks are a small portion at under $5 billion. Not seeing many opportunities currently with North American markets at high levels.
• Overall, the investment portfolio is structured to prioritize safety, with good locked-in interest income, little credit risk, and equity investments that are undervalued, soundly financed and performing well. It is positioned to handle uncertainty around interest rates and inflation.

Q&A Summary

 

1. Fairfax continues to hold total return swaps (TRS) on its own shares as it believes it's a good investment. The TRS contracts expire in 2025 and 2026 but can be extended. Fairfax also continues share buybacks, balancing it with maintaining financial strength and ratings.

2. Premium growth opportunities still exist in many lines despite the market not being as hard as in 2019-2023. Cyber, D&O and workers' comp are seeing rate decreases over 10%. Excluding Gulf Insurance, premiums grew 5% gross and 7% net in Q1. Fairfax's scale and diversification provide growth potential.

 

3. The reinsurance market remains strong but not as robust as 2023. Odyssey had a higher base to grow from after taking advantage of the hard market in prior years. Allied World and Brit also have reinsurance opportunities. 

 

4. With premiums leveling off and earnings stabilizing, there is increased capacity to dividend funds from insurance subsidiaries to the holding company. In 2024, Fairfax can dividend $3 billion up based on statutory requirements. $451 million was dividended in Q1.

 

5. The consolidated expense ratio ticked up about 1 point in Q1 to 31.5% mainly due to the inclusion of Gulf Insurance which runs a higher expense ratio. Mix of business and continued investments in technology and people also contributed.

6. Fairfax has flexibility to reallocate from its defensive, liquid bond portfolio to equities if dislocations in the equity markets present attractive opportunities.

 

FRFHF - Transcripts.pdf 99.35 kB · 0 downloads

 

Thanks!

[Hektor]

7 hours ago, nwoodman said:

Transcript attached and some Claude summaries from Wade’s comments and the Q&A

 

Wade Burton

• The investment portfolio stands at around $65 billion, including $9.3 billion in cash and short-term treasuries, $46 billion in fixed income, and $19 billion in equities (associates, limited partnerships, preferred and common stocks).
• The fixed income portfolio is built for safety, with government bonds making up the vast majority. It has a short duration of 2.8 years and yields 5%.
• The mortgage book stands at $4.8 billion, all first mortgages with duration under 2 years, yielding over 8.25%.
• Fairfax is watching inflation data closely and thinks it may be difficult for the Fed to drop rates if inflation stays above 3%. Higher rates could persist longer than expected.
• Of the $19 billion in equity and equity-like investments, associate investments (strategic/significant stakes like Eurobank and Poseidon) make up the bulk and are generally performing well and undervalued versus carrying value.
• Common stocks are a small portion at under $5 billion. Not seeing many opportunities currently with North American markets at high levels.
• Overall, the investment portfolio is structured to prioritize safety, with good locked-in interest income, little credit risk, and equity investments that are undervalued, soundly financed and performing well. It is positioned to handle uncertainty around interest rates and inflation.

Q&A Summary

 

1. Fairfax continues to hold total return swaps (TRS) on its own shares as it believes it's a good investment. The TRS contracts expire in 2025 and 2026 but can be extended. Fairfax also continues share buybacks, balancing it with maintaining financial strength and ratings.

2. Premium growth opportunities still exist in many lines despite the market not being as hard as in 2019-2023. Cyber, D&O and workers' comp are seeing rate decreases over 10%. Excluding Gulf Insurance, premiums grew 5% gross and 7% net in Q1. Fairfax's scale and diversification provide growth potential.

 

3. The reinsurance market remains strong but not as robust as 2023. Odyssey had a higher base to grow from after taking advantage of the hard market in prior years. Allied World and Brit also have reinsurance opportunities. 

 

4. With premiums leveling off and earnings stabilizing, there is increased capacity to dividend funds from insurance subsidiaries to the holding company. In 2024, Fairfax can dividend $3 billion up based on statutory requirements. $451 million was dividended in Q1.

 

5. The consolidated expense ratio ticked up about 1 point in Q1 to 31.5% mainly due to the inclusion of Gulf Insurance which runs a higher expense ratio. Mix of business and continued investments in technology and people also contributed.

6. Fairfax has flexibility to reallocate from its defensive, liquid bond portfolio to equities if dislocations in the equity markets present attractive opportunities.

 

FRFHF - Transcripts.pdf 99.35 kB · 12 downloads

Thanks @nwoodman