Fairfax 2025

[gfp]

49 exclamation points, including some rare double exclamation points.  This company is going places

[LC]

13 minutes ago, Junior R said:

 

That's awesome and I hope his legacy serves to save lives. 

[ourkid8]

2 hours ago, gfp said:

49 exclamation points, including some rare double exclamation points.  This company is going places

 

I consider each exclamation point as a  (It reminds me of reddit forums when ppl were saying to the moon!!)

Edited yesterday at 12:31 AM by ourkid8

[Castanza]

59 minutes ago, Junior R said:

 

Wow pretty cool they’re doing that. Not too many companies pushing things like that. 

[Buffett_Groupie]

"In Canada, there is only one company that we can find that has a better track record than us over the past
39 years – and it is significantly better – and I am not going to tell you who!"

 

Which company? 

[mananainvesting]

Here is what Perplexity said . 

 

[mananainvesting]

Ok, pretty sure (95%) it is $BN.TO . The BN return doesn't even include the BAM spin. 

[bluedevil]

Excellent letter, as usual.

 

My summary:  expect $150 per share in operating earnings per year for each of the next four years, and the insurance companies are kicking ass and taking names.  

[mananainvesting]

Anyone here done research on Commercial International bank? What in the monopoly money is this 50% ROE and ~10% NIM??????? (Replacing Prem's exclamations with my question mark)

 

 

[gfp]

Interesting that Poseidon closed on the sale of APR Energy - I guess I hadn't been paying close enough attention.  Not surprising though.

[djokovic1]

6 hours ago, bluedevil said:

Excellent letter, as usual.

 

My summary:  expect $150 per share in operating earnings per year for each of the next four years, and the insurance companies are kicking ass and taking names.  

 

Yes for me this is the main point, i.e we are trading below 10x sustainable earnings. Also this $150/share is understated because: 

 

i) Each year this $150/share will be re-invested into buybacks and premium growth which will grow the $150/share by roughly 15% each year.

 

ii) Equity returns which are not included can have a meaningful impact over long time frames

[Xerxes]

Does anyone know what is the logic of NOT including other non-insurance investments on page 22

 

in fact only $3.5B of $17B is shown, which are the ones that are fully consolidated 

[gfp]

4 minutes ago, Xerxes said:

Does anyone know what is the logic of NOT including other non-insurance investments on page 22

 

in fact only $3.5B of $17B is shown, which are the ones that are fully consolidated 

 

Investments in associates is also listed

[Xerxes]

Right. But only $1.2 out of $7B that is carried on the book as “associates”

[Xerxes]

Actually I am guessing all the mark to mark investments and a good portion of “associates” are offset against the liabilities of the insurance business, and are held embedded inside the subs. 
 

So that is why we don’t see it. 

[Cigarbutt]

On 2/17/2025 at 2:25 PM, Cigarbutt said:

It's too early to tell the % dividend on preferred equity issued. On the initial capital (375M received), already the following dividends have been paid: 18.7M in 2022, 40.6M in 2023 and 12.9M in 1st 6 months of 2024 to which one may need to add a dividend paid to Class A shares (Omers) during the fall of 2024 and another 8M (?) upon repurchase (383M) of the minority interest last December. We'll know more with Brit's 2024 annual filings.

At any rate, this was a good deal (for both FFH and Omers) even if dividends paid have a relative tax disadvantage versus straight debt.

A quick follow-up note on the possibility to "reengineer" the dividend rate paid to Omers for the Brit financing 'transaction' that was concluded on Dec 13th 2024.

The FFH-buying-back-Brit-minority-interest part of the deal happened on Dec 13th 2024 with a 383M cash consideration which, i'm assuming now, includes an 8M cash component (383-375 (principal)) for a residual accrued dividend. In 2024, FFH paid a total of 33.3M (last dividend accrued on Dec 11th 2024, 20.4M) to class A (Omers) shares.

If above is correct, the dividend rate on capital lent was about 7.5%, likely reflecting a tighter spread vs other previous similar deals and quite well correlated to a generally lower interest rate environment and a slowly but surely improving credit profile at FFH.

But 7.5% was the hurdle in August 2021, a time when FFH was not a natural issuer of 30 year bonds..

 

Note: compared to other previous similar temporary financing 'transactions', it's relatively difficult (even looking at separate sub (Brit) filings) to get a precise and fully reliable answer for the dividend rate resulting from shareholders' agreement.

[dartmonkey]

12 hours ago, gfp said:

Interesting that Poseidon closed on the sale of APR Energy - I guess I hadn't been paying close enough attention.  Not surprising though.

Speaking of Poseidon, p. 16 has an oddly titled table called 'Common stock holdings as of December 31, 2024'. In that table there are companies who have common stocks that are marked to market like Orla Mining and Occidental Petroleum, and associates (20-50% ownership) that are equity accounted, like Eurobank and Quess. The table gives values for what they call 'Carrying value per share' and also 'Share price', often somewhat higher for the associates. But there are also companies that, as far as I know, are not common stocks, like Poseidon. For instance, for Poseidon, they give a carrying value per share of $14.08, with a share price of $15.50. But where are they getting this share price?

[MMM20]

17 hours ago, mananainvesting said:

Anyone here done research on Commercial International bank? What in the monopoly money is this 50% ROE and ~10% NIM??????? (Replacing Prem's exclamations with my question mark)

 

 

It’s clearly a well managed bank but the catch is it’s Egypt where inflation is ~25%. They say “unfortunately” the depreciation of the currency has taken returns from 21% in local FX to 1% in dollars, but that’s exactly what we should expect - we gotta adjust nominal returns expectations for the local FX depreciation given 20%+ inflation differentials. Not monopoly money but close! That doesn’t mean it can’t be a good investment.

 

Edited 18 hours ago by MMM20

[gfp]

32 minutes ago, dartmonkey said:

Speaking of Poseidon, p. 16 has an oddly titled table called 'Common stock holdings as of December 31, 2024'. In that table there are companies who have common stocks that are marked to market like Orla Mining and Occidental Petroleum, and associates (20-50% ownership) that are equity accounted, like Eurobank and Quess. The table gives values for what they call 'Carrying value per share' and also 'Share price', often somewhat higher for the associates. But there are also companies that, as far as I know, are not common stocks, like Poseidon. For instance, for Poseidon, they give a carrying value per share of $14.08, with a share price of $15.50. But where are they getting this share price?

 

Well $15.50 was the take-private price per share.  The carrying value has probably been marked down by either distributions or it is just marked to some conservative multiple of ebitda, cash flow or other income measure.

 

edit: last year they marked it to $1.7 Billion - 10x 2024 expected earnings or 8x 2025 expected earnings.  Then this year they termed it, "$1.9 billion - approximately 7x 2024 earnings" - so obviously earnings came in a lot better than expected

Edited 18 hours ago by gfp

[gfp]

14 hours ago, gfp said:

Interesting that Poseidon closed on the sale of APR Energy - I guess I hadn't been paying close enough attention.  Not surprising though.

 

I looked into this and it isn't much of a success story.  APR Energy wasn't really sold in its entirety.  Atlas / Poseidon made a deal with Fortress to sell certain assets of APR (likely the most attractive subset of assets -850MW worth of turbines) for $350m, leaving Atlas with some APR assets and liabilities.  APR's management team had already left to join Duos Technologies Group (DUOT), which is providing the management services for the assets, "New APR Energy LLC," for Fortress.

 

Apparently Fairfax had indemnified Atlas for certain losses in connection with the deal where Atlas/Seaspan took over APR from Fairfax.  In 2024 and 2023, Fairfax had to send over $46.3 million to Poseidon/Atlas for these losses.  I'm not sure if final disposition of the remnants of old APR will result in more loss payment by Fairfax or not.

 

"Fairfax remains a counterparty to certain indemnification and compensation arrangements related to the acquisition of APR Energy which occurred in 2020. During the three and nine months ended September 30, 2024, the Company received nil and $42,500,000, respectively (2023 – nil and $3,836,000, respectively) from Fairfax for the settlement of an indemnification claim related to losses realized on sale or disposal of certain property, plant and equipment and inventory items."

[Viking]

I think that is the best letter that Prem has ever written.

• It is full of super valuable information.
• And it has multiple layers of really good information (for people like me who like to get into the weeds).

Great discussion of:

• The culture/people of Fairfax. 
• The importance of their decentralized operating structure.
• The insurance business - and its quality.
• The various equity holdings - including their level of profitability

Prem also answered a number of questions that had been circulating on CofBF (how to think about diluted shares etc). And he clearly laid out where Fairfax is today (its fundamentals/prospects) and why it is a great investment.

 

Now compare Prem’s letter to Tom Gaynor’s letter. In terms of giving shareholders useful information to help them understand the company/their investment. There is no comparison - one is like watching a high school basketball game and the other is like watching an NBA game.
 

Prem’s letter this year is one of the best that you will find from a CEO - in any industry. It really demonstrates just how well the team at Fairfax (insurance and investments) is executing today (truth be told - for the last 5 years).

 

Anyways, I just wanted to post a short/incomplete summary while I have time. I am helping a close family member prep their house for sale… I am going to be busy for about a week - my posting will be minimal (like it has been for a couple of days).

[nwoodman]

1 hour ago, Viking said:

I think that is the best letter that Prem has ever written.

• It is full of super valuable information.
• And it has multiple layers of really good information (for people like me who like to get into the weeds).

Great discussion of:

• The culture/people of Fairfax. 
• The importance of their decentralized operating structure.
• The insurance business - and its quality.
• The various equity holdings - including their level of profitability

Prem also answered a number of questions that had been circulating on CofBF (how to think about diluted shares etc). And he clearly laid out where Fairfax is today (its fundamentals/prospects) and why it is a great investment.

 

 

+1. I plan to read it again, but on my first pass, I was struck by how certain sections felt like direct responses to questions raised here as well.
 

It also conveyed a real sense of scale. I think it’s hard to reach any conclusion other than Fairfax isn’t just a solid insurance company—it’s a global powerhouse with $70B+ in assets, elite underwriting, and an investment portfolio stacked with long-term compounders.

 

Still very cheap, in my opinion, and I can see why they remain confident in the TRS position. No idea where the share price will be in the short term but this will be a $US100B+ company within a decade.  

[Hoodlum]

I was interested in seeing how long they have to take out the minority owners of their subs.   While the Brit minority position was bought back in December, I decided to go back to the 2023 annual report to see how Allied, Brit and Odyssey compared in this regard. 
 

Fairfax had until 2027 to purchase the Brit minority position but I suspect they had to do this in December, before the splitting of KI Insurance from Brit.

 

Fairfax needs to acquire the remaining 16.6% Allied World position by next year and so they are likely next.  The exact timing will be dependent on how they want to prioritize stock buybacks this year, specifically as it relates to closing out more of their TRS position.

 

 

Comprised of call options on the non-controlling interests in Allied World, Brit and Odyssey Group, which expire in 2026, 2027 and 2029, respectively. At certain dates subsequent to expiry of a call option, the non-controlling interests may request an initial public offering of their shares, the structure, process and timing of which will be controlled by the company; in certain circumstances, the non-controlling interests may request a sale of the respective operating company to a third party.

Edited 12 hours ago by Hoodlum

[Munger_Disciple]

4 hours ago, Viking said:

Prem also answered a number of questions that had been circulating on CofBF (how to think about diluted shares etc)

 

Yes I was happy to read his discussion on treasury shares. Super helpful.

[benchmark]

4 hours ago, nwoodman said:

+1. I plan to read it again, but on my first pass, I was struck by how certain sections felt like direct responses to questions raised here as well.
 

It also conveyed a real sense of scale. I think it’s hard to reach any conclusion other than Fairfax isn’t just a solid insurance company—it’s a global powerhouse with $70B+ in assets, elite underwriting, and an investment portfolio stacked with long-term compounders.

 

Still very cheap, in my opinion, and I can see why they remain confident in the TRS position. No idea where the share price will be in the short term but this will be a $US100B+ company within a decade.  

I agree it's cheap. But if it takes 10 years to get to 100B, it will be disappointing, as the annualized return would be roughly 11.6%.