Q3 - 2024

[Luke]

Looking forward to this quarter's earnings season. 

[SafetyinNumbers]

33 minutes ago, Luke said:

Looking forward to this quarter's earnings season. 

Consensus seems a bit low for Q3 and maybe a bit high now for Q4 post Milton although there are the special Stelco and Peak Achievement gains expected in Q4 to offset. I also expect reserve releases to step up now that we are lapping the hard market which began ~4 years ago. 
 

 

 

[A_Hamilton]

On 10/12/2024 at 10:17 AM, SafetyinNumbers said:

Consensus seems a bit low for Q3 and maybe a bit high now for Q4 post Milton although there are the special Stelco and Peak Achievement gains expected in Q4 to offset. I also expect reserve releases to step up now that we are lapping the hard market which began ~4 years ago. 
 

 

 

I'm not sure the hard market is leading to large redundancy. It seems inflation and social inflation are moving just as much as price. I think pricing is high in part because it is a hard market, but in part because inflation/litigation/to a lesser extent claims frequency are up.

[SafetyinNumbers]

51 minutes ago, A_Hamilton said:

I'm not sure the hard market is leading to large redundancy. It seems inflation and social inflation are moving just as much as price. I think pricing is high in part because it is a hard market, but in part because inflation/litigation/to a lesser extent claims frequency are up.

That really depends if their assumptions were the same as yours when they wrote that business 4 years ago. We’ll know soon enough. 

[A_Hamilton]

41 minutes ago, SafetyinNumbers said:

That really depends if their assumptions were the same as yours when they wrote that business 4 years ago. We’ll know soon enough. 

I just wouldn't get too excited about it. Every major rating agency and major insurer has spoken about casualty inflation / some with outright deficiency pointed out, others like FFH taking redundancy from other lines and strengthening in casualty. 

 

https://www.carriermanagement.com/news/2024/05/08/261925.htm

 

https://www.insurancebusinessmag.com/us/news/breaking-news/casualty-comes-back-to-bite-476388.aspx

 

 

[SafetyinNumbers]

5 hours ago, A_Hamilton said:

I just wouldn't get too excited about it. Every major rating agency and major insurer has spoken about casualty inflation / some with outright deficiency pointed out, others like FFH taking redundancy from other lines and strengthening in casualty. 

 

https://www.carriermanagement.com/news/2024/05/08/261925.htm

 

https://www.insurancebusinessmag.com/us/news/breaking-news/casualty-comes-back-to-bite-476388.aspx

 

 

I was thinking going from 1-2 points of reserve releases to 3-4 points.

[Haryana]

"2024 third quarter results, which will be announced after the close of markets on Thursday, October 31"

 

https://www.fairfax.ca/press-releases/fairfax-announces-conference-call-2/

[TwoCitiesCapital]

Lol

 

Is it the deteriorating fundamentals OR Q3 earnings that is gonna propel this higher?

[dartmonkey]

The title is a bit misleading - it is the consensus that is deteriorating, not the fundamentals. And it would make sense that, with interest rates coming down, the consensus view of the future might deteriorate. The question is, is that anticipated deterioration already in the share price, or not? Their finding suggests that analysts' worries tend to overcorrect the share price leading to short term gains (in the following month, singular).

 

Most of us probably don't care very much what the price does in the next month, so this finding is not really relevant. Decreasing interest rates will be a brake on interest income from current investments, but there is no reason to think that there will be any decrease in earnings from other sources like underwriting and earnings from consolidated companies with >50% ownership) like Recipe, Grivalia, Sleep Country), in associates ($8b in 20-50% stakes like Eurobank, Poseidon and Quess) and the in common and preferred stock holdings (~$10b in <20% stakes like Commercial International Bank, Occidental Petroleum, Mytilineos and Kennedy Wilson). And as the ~$4b in earnings for the next few years roll in, a lot of them will be going to increase the $44b bond portfolio, too, so interest rates may well be lower in a few years, but those rates will be applied to a much larger fixed income portfolio, so lower rates in a few years don't even necessarily mean lower total interest income.

[Dinar]

Chubb just reported.  Results seem very good to me.

[Mystery Guest]

This what you get with auto generated AI news. 

each shift in a single stat generates a comment not an analysis 

 

Cheers 

[SafetyinNumbers]

2 hours ago, dartmonkey said:

The title is a bit misleading - it is the consensus that is deteriorating, not the fundamentals. And it would make sense that, with interest rates coming down, the consensus view of the future might deteriorate. The question is, is that anticipated deterioration already in the share price, or not? Their finding suggests that analysts' worries tend to overcorrect the share price leading to short term gains (in the following month, singular).

 

Most of us probably don't care very much what the price does in the next month, so this finding is not really relevant. Decreasing interest rates will be a brake on interest income from current investments, but there is no reason to think that there will be any decrease in earnings from other sources like underwriting and earnings from consolidated companies with >50% ownership) like Recipe, Grivalia, Sleep Country), in associates ($8b in 20-50% stakes like Eurobank, Poseidon and Quess) and the in common and preferred stock holdings (~$10b in <20% stakes like Commercial International Bank, Occidental Petroleum, Mytilineos and Kennedy Wilson). And as the ~$4b in earnings for the next few years roll in, a lot of them will be going to increase the $44b bond portfolio, too, so interest rates may well be lower in a few years, but those rates will be applied to a much larger fixed income portfolio, so lower rates in a few years don't even necessarily mean lower total interest income.

Consensus FTM EPS went up first and then retraced a bit. I wonder if that’s all it’s referring to. I think the stock will rally after earnings as the index arbs will be more aggressive after that risk is out of the way. 
 

[gfp]

press release PDF here: 

https://www.fairfax.ca/wp-content/uploads/2024/10/2024_10_October_31-PRFFH-Q3-2024-Press-Release-Final.pdf

 

Q3 report PDF here:

https://www.fairfax.ca/wp-content/uploads/2024/10/2024_10_October_31-FFH-2024-Q3-Interim-Report-Final.pdf

 

 

https://www.globenewswire.com/en/news-release/2024/10/31/2973087/0/en/Fairfax-Financial-Holdings-Limited-Financial-Results-for-the-Third-Quarter.html

 

"Our underwriting performance in the third quarter of 2024 was outstanding, with our property and casualty insurance and reinsurance companies reporting a consolidated combined ratio of 93.9% and consolidated underwriting profit of $389.7 million, on an undiscounted basis, despite higher current period catastrophe losses of $434.5 million. "

 

"At September 30, 2024 there were 21,990,603 common shares effectively outstanding."

 

"

The holding company expects to continue to receive dividends from its insurance and reinsurance subsidiaries, which totaled $728.1 for the nine months ended September 30, 2024, of a maximum $3,002.8 available in 2024."

 

1.2x unadjusted bvps

 

?? - do we really want the optics of the company investing $100m into Ben Watsa's fund?  Seems unnecessary

 

 

 

 

Edited Thursday at 09:52 PM by gfp

[gfp]

[gfp]

[Hoodlum]

I wonder when they purchased the $1.3B in 30yr treasuries.  

[Viking]

Looks like another solid quarter to me.

 

A question for board members: are the gains from the Stelco sale and the take out of Peak Achievement (Bauer) not yet realized? I.E. they will be realized when Fairfax reports Q4 earnings?
 

“On July 15, 2024 Cleveland-Cliffs Inc. ("Cliffs") entered into a definitive agreement with Stelco to acquire all outstanding common shares of Stelco for consideration of Cdn$70.00 per share (consisting of Cdn$60.00 cash and Cdn$10.00 in Cliffs common stock), which received shareholder approval on September 16, 2024. Subsequent to September 30, 2024, Stelco received final regulatory approvals and expects the transaction to close on November 1, 2024. Accordingly, on July 15, 2024 the company measured its investment in Stelco as held for sale and ceased applying the equity method of accounting. The company's current estimated pre-tax gain on sale of its holdings of approximately 13 million Stelco common shares is approximately Cdn$495 ($366), calculated as the excess of consideration of approximately Cdn$881 ($652 or $50 per common share) over the carrying value of the investment in associate at September 30, 2024 of approximately Cdn$387 ($286.2).”

 

“September 30, 2024 it was announced the company will, through its insurance and reinsurance subsidiaries, increase its investment in Peak Achievement Athletics Inc. ("Peak Achievement") to a controlling interest by acquiring the 42.6% equity interest owned by Sagard Holdings Inc. The company currently applies the equity method of accounting to its investment in Peak Achievement and expects to consolidate Peak Achievement in its Non-insurance companies reporting segment upon closing, which is anticipated to occur in the fourth quarter of 2024, subject to customary closing conditions. Peak Achievement is engaged in the design, manufacture and distribution of performance sports equipment and related apparel and accessories for ice hockey, roller hockey, and lacrosse, under brands such as Bauer Hockey, Cascade Lacrosse and Maverik Lacrosse.”

[villainx]

 

At September 30, 2024 there were 21,990,603 common shares effectively outstanding.

 

At June 30, 2024 there were 22,181,619 common shares effectively outstanding.

 

seems like repurchase pace slowed?

 

 

[mananainvesting]

Does anyone have insights into how the Marval guru fund has performed in the past? Fairfax invested $50M in 2017, curious how it has performed.

 

Edited Thursday at 10:45 PM by mananainvesting

[gfp]

23 minutes ago, villainx said:

 

At September 30, 2024 there were 21,990,603 common shares effectively outstanding.

 

At June 30, 2024 there were 22,181,619 common shares effectively outstanding.

 

seems like repurchase pace slowed?

 

 

 

I mean, it's not every quarter that Prem offers you $300 million of his stock

[mananainvesting]

59 minutes ago, Hoodlum said:

I wonder when they purchased the $1.3B in 30yr treasuries.  

Majority of it has to be in Q3, I dont see it in the Q2 report.

[Parsad]

25 minutes ago, mananainvesting said:

Does anyone have insights into how the Marval guru fund has performed in the past? Fairfax invested $50M in 2017, curious how it has performed.

 

 

22% annualized over the last five years.  Cheers!

[mananainvesting]

Just now, Parsad said:

 

22% annualized over the last five years.  Cheers!

Thanks Prasad!

 

Dammmmmmmmmmm!!!! In that case, the $100M is well earned! 

[kodiak]

Reported earnings after the close. Another very solid quarter. $42.62 in per share earnings. 93.9% combined ratio, net written premiums up 2.8% before Gulf increase. $1033 3rd quarter end book value, up 11.7% YTD.

 

$2 billion in cash at hold and another $2.1 billion in investments. Very strong balance sheet. FFH has now bought back 1 million shares this year at $1,112 average cost. 4.35% of the shares in 9 months.

 

Net written premiums are now at $26 billion on a run rate basis. Run rate dividends and interest is now $50 per share. Run rate profits from affiliates is almost $25 per share. Run rate underwriting profit at 94% is $70 per share. All pre-tax #’s.

 

Another strong performance by Prem and the team. We are currently selling for around 8 times annualized earnings and 121% of book. We likely get added to TSX 60 in next 12 months, if not in December.

 

This is a great result and I continue to like this story very much. We are still in the early innings in my opinion. More good news to come over the next few years.

[Parsad]

Prem is widening the investment team pool for the day when he and the old guard (Brian, Roger, Chandran, etc) aren't there anymore.  As long as the new managers keep hitting average to good returns, the investment portfolio will provide reasonable gains.  Cheers!