Fairfax 2025

[Cigarbutt]

27 minutes ago, cwericb said:

Wondering when that graph was made as things have changed drastically in that respect in the last few years..

Who knows but so far, outside some noise, changes have been quite linear.

As a proxy, here's an historical map of NY Central Park temperature, with recent data:

The risk, obviously, is the possibility of seeing non-linear changes...

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On a personal level, the odds of going to Central Park in New York City have gone down significantly but this change is not related to weather.

Irrelevant addition:

Living in Canada (like you), 'we' see very significant seasonal variations in temperatures. Being an avid cyclist, i keep a log of various data inputs. One of the inputs is when i complete my first long ride with short sleeves (top and bottom). What has happened in the last 25 years is an almost linear change (with some noise, earlier and earlier in the year, even April now). 

For this aspect (and some others), i wish for non-linear changes 'cause i like it hot.

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Back to FFH 2025

[SafetyinNumbers]

6 hours ago, Cigarbutt said:

 

 

 

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What about Fairfax here?

A few days ago, FFH released their annual "ESG" report and the report includes an updated historical catastrophe exposure curve, the results of which have been based, to some degree, on external and internal 'models':

Since 2018 and 2019, FFH has voluntarily and explicitly decided to reduce cat exposure risk even if they likely have been able to extract a cat underwrting profit over time. There will be bad years and FFH does not have Fort-Knox-BRK type of financial strength but the cat risk appears (very very likely) to be manageable.

It's interesting to note (gfp included a post here recently about that) that Fitch has recently upgraded FFH, in small part because of the improved underwriting profile, including lower relative cat exposure. Writing this, i remember the days (2005) when FFH's cat exposure (and other exposures...) was uncomfortably high and when Fitch had downgraded FFH to B+ ("highly speculative"). Times have changed, not only the climate.

 

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TLDR version:

All that to say that a more relevant risk (from an odds point of view) is the passage of an equivalent financial storm (cat5) on the asset side of their balance sheet. How does one insure against that?

 

I think the insurance against that is at the high end of that range, FFH, still likely would not lose money in the FTM period that it happens. $5bn of pre-tax cat losses is basically the sum of conservative estimates of investment income, underwriting income and associates income. The combined ratio would be around 110 for the year which is high but very survivable.
 

If it were to happen, the stock would likely have a big drawdown as uncertainty would be high. FFH probably couldn’t take advantage of the drawdown to buyback stock as they would need all of their capital to write business in the resulting hard market. They might tap their credit lines or add leverage on some of their controlled holdings like Recipe as it’s deleveraged post acquisition. Forward ROE should increase enough to make up for the short term hit to returns. 
 

The best case scenario is that it happens when FFH has a much higher valuation such that it could issue equity at a big multiple of book and really take advantage of the hard market. 

[gfp]

Fairfax earnings after the close today.  Conference call tomorrow morning an hour before the market opens.  Quarter includes L.A. wild fires and some bond volatility.  A great opportunity to sell their Blackberry shares in February (which they likely passed on...).

 

Looking forward to it

[Crip1]

2 minutes ago, gfp said:

Fairfax earnings after the close today.  Conference call tomorrow morning an hour before the market opens.  Quarter includes L.A. wild fires and some bond volatility.  A great opportunity to sell their Blackberry shares in February (which they likely passed on...).

 

Looking forward to it

I was just going to comment that the board's been rather quiet in the lead up to the earnings release today. No idea what that means, or if it means anything at all...it's just a little odd.

 

-Crip

[gfp]

Are we expecting approximately 212,026 shares repurchased in the quarter?  Anyone have a better figure than that?

[Malmqky]

14 minutes ago, Crip1 said:

I was just going to comment that the board's been rather quiet in the lead up to the earnings release today. No idea what that means, or if it means anything at all...it's just a little odd.

 

-Crip

I’m far from an expert here, but I think this is one of the harder quarters to predict. I suspect most here are taking a wait and see approach.

[mananainvesting]

I wonder what business Fairfax buys this year! Looking forward to it, and knowing more about it! 

[SafetyinNumbers]

Estimates look very beatable. I think analysts are predicting losses on the equity portfolio and Cat losses in California without any offsetting reserve releases.

[Viking]

1 hour ago, gfp said:

Are we expecting approximately 212,026 shares repurchased in the quarter?  Anyone have a better figure than that?

I think your total number is directionally correct. But I don’t think effective shares will fall by nearly that much. I think most of the repurchases in Q1 will go to offset the compensation program (which Prem reviewed in his letter in the 2024AR). Share repurchases from this point forward will reduce effective shares outstanding. At least I think that is what Fairfax has done in the past. 

[Viking]

My guess is Fairfax delivers a good quarter.

Headwind:

- Underwriting income. Fairfax said they expect cat losses from California wildfires to come in at $500 to $750 million (reinsurance exposure). Which side of 100 does that put the company’s CR for Q1? What are the size of reserve releases?

 

This should be baked in to analysts estimates, given Fairfax’s communication. But perhaps not. 
 

Tailwinds:

- Mark to market gains from equities.

- Mark to market gains from bonds (IFRS will offset some of the gains).

- Currency (weak US$) - this will boost book value (via comprehensive income)

My guess is the size of the different tailwinds are not fully baked in to analysts estimates.

Other items of interest:

- What is top-line growth at Odyssey and Brit? Their growth in 2024 was subdued, due to internal issues/choices.

- Where does non-insurance consolidated earnings come in (Recipe, Sleep Country, Peak, AGT etc)?

- Has interest and dividend income plateaued? The Q4 number is overstated by +$100 million due to the one-time payment from Digit due to their IPO.

 

Bottom line, we have been spoiled by Fairfax over the past couple of years. Their quarterly results usually have consistently surprised to the upside (not always but usually). That will not always be the case. 

Edited May 1, 2025 by Viking

[Txvestor]

5 minutes ago, Viking said:

My guess is Fairfax delivers a good quarter.

Headwind:

- Underwriting income. Fairfax said they expect cat losses from California wildfires to come in at $500 to $750 million (reinsurance exposure). Which side of 100 does that put the company for Q1?
 

Tailwinds:

- Mark to market gains from equities.

- Mark to market gains from bonds (IFRS will offset some of the gains).

- Currency (weak US$) - this will boost book value (via comprehensive income)

Other items of interest:

- What is top-line growth at Odyssey and Brit? Their growth in 2024 was subdued, due to internal issues/choices.

- Where does non-insurance consolidated earnings come in (Recipe, Sleep Country, Peak, AGT etc)?

- Has interest and dividend income plateaued? 

I also expect them to come in better than expected. I vaguely remember them saying in Q4 conf call commentary that  they expected the Cali wildfires to come in within their cat loss anticipated underwriting guardrails. It wasn't clear if they meant for the Q or for the year.
MKL had 4 points attributed to the wildfires yesterday. So my guess is Fairfax come in around a 97-98%. Lets see. 

Edited May 1, 2025 by Txvestor

[gfp]

https://www.globenewswire.com/news-release/2025/05/01/3072914/0/en/Fairfax-Financial-Holdings-Limited-Financial-Results-for-the-First-Quarter.html

 

Good quarter!

 

98.5% combined ratio for underwriting profit of $96.9m in the quarter after $781.3m in CAT losses ($692.1m cal wildfire).

 

Share count down 87k shares to 21,581,313 after total repurchase of 205,610 shares - as mentioned by others here, the balance goes towards future equity comp bucket

 

BVPS $1080.38 usd - about 1.44x BV at current share price.

 

Excess of FV over carrying value $1.4356 Billion

Edited May 1, 2025 by gfp

[gfp]

Quarterly report is out now -

 

https://www.fairfax.ca/wp-content/uploads/2025/05/FFH-2025-Q1-Interim-Report-Final.pdf

[Hoodlum]

I don't think I saw this mentioned previously regarding Recipe ownership.

 

During the first quarter of 2025 Recipe repurchased and cancelled its common shares not owned by Fairfax, which increased Fairfax's ownership interest in Recipe from 84.0% to 100.0%.

[jbwent63]

12 minutes ago, Hoodlum said:

I don't think I saw this mentioned previously regarding Recipe ownership.

 

During the first quarter of 2025 Recipe repurchased and cancelled its common shares not owned by Fairfax, which increased Fairfax's ownership interest in Recipe from 84.0% to 100.0%.

Me either, a surprise. I'm wondering if there was a fallout with the Phelan family (who I believe owned the other 16%) which precipitated such minimal disclosure. Happy to have it all under the roof now.

[glider3834]

I have been trying unsuccessfully to work out an approximate value of their investment in Sigma for years  - they kept this one under wraps & now we know 

 

'On March 28, 2025 the company sold its equity interest in Sigma Companies International Corp. ("Sigma") for total consideration of $327.1, comprised of cash consideration of $284.1 and a retained ownership interest in Sigma of 16.1% (through a new limited partnership interest) with a fair value of $43.0 at closing of the transaction, which is classified as FVTPL. As a result, the company recorded a realized gain of $178.7 in the consolidated statement of earnings.'

[gfp]

Just now, glider3834 said:

I have been trying unsuccessfully to work out an approximate value of their investment in Sigma for years  - they kept this one under wraps & now we know 

 

'On March 28, 2025 the company sold its equity interest in Sigma Companies International Corp. ("Sigma") for total consideration of $327.1, comprised of cash consideration of $284.1 and a retained ownership interest in Sigma of 16.1% (through a new limited partnership interest) with a fair value of $43.0 at closing of the transaction, which is classified as FVTPL. As a result, the company recorded a realized gain of $178.7 in the consolidated statement of earnings.'

 

And the retained interest is part of this PE buyout announced in April - 

https://www.wppartners.com/wind-point-partners-acquires-sigma/

 

Interesting company

[Txvestor]

2 hours ago, Viking said:

My guess is Fairfax delivers a good quarter.

Headwind:

- Underwriting income. Fairfax said they expect cat losses from California wildfires to come in at $500 to $750 million (reinsurance exposure). Which side of 100 does that put the company for Q1?
 

Tailwinds:

- Mark to market gains from equities.

- Mark to market gains from bonds (IFRS will offset some of the gains).

- Currency (weak US$) - this will boost book value (via comprehensive income)

Other items of interest:

- What is top-line growth at Odyssey and Brit? Their growth in 2024 was subdued, due to internal issues/choices.

- Where does non-insurance consolidated earnings come in (Recipe, Sleep Country, Peak, AGT etc)?

- Has interest and dividend income plateaued? 

 

Nice quarter from Fairfax. EPS $42.7
BV $1080.4 up ~3.5% adjusted for the dividend paid in Q1.

Add in the $1.44B in gains they have not accounted for and you get another $67 per share or so of BV. So call it an adjusted BV of $1147. 

CR for the Q1 came in at 98.5% despite Cat losses of $781M($692M of those from the Cali wildfires). Prior year reserve releases were particularly strong at over $200M. 
So even with the major Cat event they made about a $97M of underwriting profit.
Gross premiums grew 5% and Net 8.4%.
Thats despite Gulf shrinking some by letting go of some marginal business on the health insurance side. 

Investment gains from equities of $779.5M and Bond gains of $388M. 
$2.1B cash at holding company level and $1.7B more available in associates and non insurance subsidiaries(great liquidity).
Don't they also have a $2B LOC they extended recently? 
 

The non insurance consolidated earnings is the one that's a tad weak, and where I have to wonder if the LT returns on capital are worth the hassle for them. But I guess it's a source of diversification of income streams and they can trade them for capital when opportunities arise. 

 

Insurance interest and dividends was $516M up from $500M, so going along at an annual run rate of over $2B now.
I also saw the share count down by about 87k to 21.59M. 
 

Whats not to like!  

Edited May 1, 2025 by Txvestor

[Hoodlum]

Since Recipe purchased 16% of outstanding share at $157.6M, that would put its current market value at ~$2B. 
 

The 2024 report has both the Carrying and Market value of Recipe at $669M.  Wouldn't the Market value need to be adjusted now to provide a more accurate gap between Carrying and Market values of Recipe.

Edited May 1, 2025 by Hoodlum

[gfp]

5 minutes ago, Hoodlum said:

Since Recipe purchase 16% of outstanding share at $157.6M, that would put its current value at ~$2B.  The 2024 report has both the Carrying and Market value of Recipe at $669M.  Wouldn't the Market value need to be adjusted now to provide a more accurate gap between Carrying and Market values.

 

Maybe time to brush up on your cross multiplying skills?

[Hoodlum]

24 minutes ago, gfp said:

 

Maybe time to brush up on your cross multiplying skills?

Lol.  It has been a long week. 

[adventurer]

In the european session nobody seems to care about Q1 results so far 

[MMM20]

2 hours ago, adventurer said:

In the european session nobody seems to care about Q1 results so far

 

This is the path to rerating nirvana.

[dartmonkey]

11 hours ago, Haryana said:

Right, just without using a calculator and with my memory of multiplication tables:

if 16% is about 160mm then 100% would be about 6 times that which is 960m ~ 1billion

The calculation is actually even easier than that: 16%= $160m means 100% = $1000m, no need to multiply 160 by 6 and round. 

 

[Hoodlum]

Murad Al-Katib of AGT Foods was on the Bloomberg Odd Lots podcast today

https://player.fm/series/series-1504378/what-the-lentil-king-of-saskatchewan-knows-about-world-trade

 

Edited May 2, 2025 by Hoodlum