Fairfax 2025

[sholland]

10 hours ago, Hamburg Investor said:

From the book The Once and Future Crum & Foster by Marc Adele:

Edited July 31, 2025 by sholland
Messed up quote. Hamburg Investor asked about insurance cluster risk.

[Hoodlum]

@Viking the Keg Royalty Income Trust vote is expected to take place tomorrow.  We will find out then if it goes through. 

[gfp]

https://www.globenewswire.com/news-release/2025/07/31/3125503/0/en/Fairfax-Financial-Holdings-Limited-Financial-Results-for-the-Second-Quarter.html

[Hoodlum]

I am surprised they didn't close off some TRS through share buybacks.   Book value gained by $78.  Otherwise, no big surprises. 

I wonder what they have planned for the additional debt?

 

Edited July 31, 2025 by Hoodlum

[gfp]

IFS_Q2_English.pdf

 

Link is available now -

https://www.fairfax.ca/wp-content/uploads/2025/07/FFH-2025-Q2-Interim-Report-Final.pdf

Edited July 31, 2025 by gfp

[SafetyinNumbers]

18 minutes ago, Hoodlum said:

I am surprised they didn't close off some TRS through share buybacks.   Book value gained by $78.  Otherwise, no big surprises. 

I wonder what they have planned for the additional debt?

 

If they had closed more of the TRS, it would have hit SEDI already. I expect they will do more in Q4. The debt could be for that and to buy in some Allied World. You borrow when you can, not when you have to.

[Viking]

48 minutes ago, Hoodlum said:

I am surprised they didn't close off some TRS through share buybacks.   Book value gained by $78.  Otherwise, no big surprises. 

I wonder what they have planned for the additional debt?

Fairfax holds the FFH-TRS position as an investment. As such, my guess is they will hold the position as long as they continue to see it as a good investment. They still hold the position so I think we can conclude they think their stock remains undervalued at its current price. 
 

I think you have to answer the ‘what is Fairfax worth’ question first… to have a strong opinion on whether they should exit the position. If you think Fairfax is fairly valued today then I understand the desire to see them exit the position (i.e. they are not being compensated for the risk). 

[Viking]

46 minutes ago, gfp said:

IFS_Q2_English.pdf 721.97 kB · 41 downloads

 

Link is available now -

https://www.fairfax.ca/wp-content/uploads/2025/07/FFH-2025-Q2-Interim-Report-Final.pdf

Great quarter. Pretty much what we were expecting (I think). Like every quarter, yes, there were some puts and takes. Bottom line, great start to the year. Hopefully we get some good questions on the conference call in the morning. 

[djokovic1]

16 minutes ago, Viking said:

Fairfax holds the FFH-TRS position as an investment. As such, my guess is they will hold the position as long as they continue to see it as a good investment. They still hold the position so I think we can conclude they think their stock remains undervalued at its current price. 
 

I think you have to answer the ‘what is Fairfax worth’ question first… to have a strong opinion on whether they should exit the position. If you think Fairfax is fairly valued today then I understand the desire to see them exit the position (i.e. they are not being compensated for the risk). 

I agree @Viking They are in the best position to assess the intrinsic value of Fairfax and clearly their actions seem to indicate it remains significantly undervalued given the rise in intrinsic value. Separately, if someone feels that Fairfax is fairly valued today and they shouldn’t hold the TRS, then arguably that investor should also not hold Fairfax stock. (I get that TRS is excess leverage so should demand additional margin of safety)

 

also great quarter as you had predicted!

[ValueMaven]

Love that they keep the buyback going !!

[gfp]

1 minute ago, ValueMaven said:

Love that they keep the buyback going !!

 

for a quarter where the share count went up from 21.581m to 21.5918 million shares?

[Munger_Disciple]

7 minutes ago, gfp said:

 

for a quarter where the share count went up from 21.581m to 21.5918 million shares?

 

[Txvestor]

2 hours ago, Viking said:

Fairfax holds the FFH-TRS position as an investment. As such, my guess is they will hold the position as long as they continue to see it as a good investment. They still hold the position so I think we can conclude they think their stock remains undervalued at its current price. 
 

I think you have to answer the ‘what is Fairfax worth’ question first… to have a strong opinion on whether they should exit the position. If you think Fairfax is fairly valued today then I understand the desire to see them exit the position (i.e. they are not being compensated for the risk). 

You pretty much nailed it. Just need to remember to include that pesky minority interest until they buy it off. 
Speaking on which, is that just an accounting feature? Cuz as i recollect they raise those funds as preferred shares with a guaranteed coupon. So even though the earnings are adjusted lower is that real? Anyone know?

 

 

[SafetyinNumbers]

1 hour ago, Txvestor said:

You pretty much nailed it. Just need to remember to include that pesky minority interest until they buy it off. 
Speaking on which, is that just an accounting feature? Cuz as i recollect they raise those funds as preferred shares with a guaranteed coupon. So even though the earnings are adjusted lower is that real? Anyone know?

 

 

Is this a question about the minority interest for Allied World and Odyssey Re or the TRS?

[Viking]

2 hours ago, djokovic1 said:

also great quarter as you had predicted!

When I worked for Kraft and Saputo I was always pretty good at forecasting. The key was understanding the big movers. The important thing wasn’t to get all the big movers exactly right (that is impossible). It was more important to be thoughtful about the build for each of the big movers (understanding the important puts and takes for each). Forecasts for some big movers will end up being too high. But others will end up being too low. Collectively the final number often comes in (at the end of the year) being pretty accurate. Of course, to do this you have to understand your business. (And of course, it also helps to be a little lucky  )

Edited August 1, 2025 by Viking

[Viking]

Two quick things that jumped out to me:

 

Interest and dividend income

• Came in at $666 million. Is that the new run rate? Or was there a big one time payment in Q2. 
• It was $606 million in Q1. That is a very big change quarter over quarter.

Operating Income from non-insurance consolidated companies (Recipe, Sleep Country, Peak Achievement, Meadow Foods, Dexterra, AGT etc)

• Came in at $126 million for the quarter. Is that a ‘normalized’ run rate?
• If so, that would put this income stream at $500 million on an annual basis. Is the wait finally over? For the past two years, when it comes to this bucket of earnings, it has felt like Charlie Brown continuously getting the football pulled away by Lucy…

Edited August 1, 2025 by Viking

[Parsad]

15 minutes ago, Viking said:

Two quick things that jumped out to me:

 

Interest and dividend income

• Came in at $666 million. Is that the new run rate? Or was there a big one time payment in Q2. 
• It was $606 million in Q1. That is a very big change quarter over quarter.

 

Yes, looks to be the case:

 

Consolidated interest and dividends of $666.3 and $1,272.8 in the second quarter and first six months of 2025 increased from $614.0 and $1,203.8 in the second quarter and first six months of 2024, with higher interest income earned principally due to net purchases of other government and corporate and other bonds during 2024 and net purchases of first mortgage loans during 2024 and the first six months of 2025

 

15 minutes ago, Viking said:

Operating Income from non-insurance consolidated companies (Recipe, Sleep Country, Peak Achievement, Meadow Foods, Dexterra, AGT etc)

• Came in at $126 million for the quarter. Is that a ‘normalized’ run rate?
• If so, that would put this income stream at $500 million on an annual basis. Is the wait finally over? For the past two years, when it comes to this bucket of earnings, it has felt like Charlie Brown continuously getting the football pulled away by Lucy…

 

Looks like it might be thanks to three of the newer acquisitions:

 

Non-insurance companies' revenue and expenses increased to $2,181.0 and $2,061.1 in the second quarter of 2025 from $1,538.1 and $1,484.6 in the second quarter of 2024, primarily reflecting the acquisition of Sleep Country (October 1, 2024) in the Restaurants and retail operating segment, and the consolidations of Meadow Foods (November 29, 2024) and Peak Achievement (December 20, 2024) in the Other operating segment.

 

Cheers!

[gfp]

Thanks for sharing that @nwoodman - how do you calculate $84 Billion in investments?  I never had the number that high

[nwoodman]

1 hour ago, gfp said:

Thanks for sharing that @nwoodman - how do you calculate $84 Billion in investments?  I never had the number that high

Good point.  That number should $70.3.  I will re-run those numbers after work. It was the wrong number but it has raised something interesting about the methodology though. 

Edited August 1, 2025 by nwoodman

[djokovic1]

Consolidated interest and dividend income increased to $666m for the quarter (up 10% YoY). This is the stable sticky fixed income yield (for ~4 years), which on an annualized basis is ~$125/share. The underwriting profit of $425m annualized is $80/share. So the rough napkin math has the annualized earnings power before equity investments = $125 + $80 = ~$200 / share. With a stock price of US$ 1,770 that is a multiple of $1770/$200 = 9x on a repeatable earnings base before accounting for any earnings from equity investments and on the other side interest and central costs. Of course underwriting profits will vary YoY but they have now shown a track record of consistent profitability. Further, fixed income earnings power and underwriting earnings power will keep growing YoY by ~15-20% as the ROE is reinvested into growth, buybacks and M&A.

[Txvestor]

25 minutes ago, djokovic1 said:

Consolidated interest and dividend income increased to $666m for the quarter (up 10% YoY). This is the stable sticky fixed income yield (for ~4 years), which on an annualized basis is ~$125/share. The underwriting profit of $425m annualized is $80/share. So the rough napkin math has the annualized earnings power before equity investments = $125 + $80 = ~$200 / share. With a stock price of US$ 1,770 that is a multiple of $1770/$200 = 9x on a repeatable earnings base before accounting for any earnings from equity investments and on the other side interest and central costs. Of course underwriting profits will vary YoY but they have now shown a track record of consistent profitability. Further, fixed income earnings power and underwriting earnings power will keep growing YoY by ~15-20% as the ROE is reinvested into growth, buybacks and M&A.

Except for the pesky deductions of Interest on loans carried on books, minority interests and taxes. Those are also annual expenses before you get to the bottom line. But yeah since equity and investment gains will one day be realized, $200 eps a year for the next 3-4yrs seems possible and even likely. So 2029 $2k BV is within reach and a 2.5x multiple rerate on that would be wonderful. 

[Txvestor]

5 hours ago, SafetyinNumbers said:

Is this a question about the minority interest for Allied World and Odyssey Re or the TRS?

The minority interests. 

[nwoodman]

4 hours ago, nwoodman said:

Good point.  That number should $70.3.  I will re-run those numbers after work. It was the wrong number but it has raised something interesting about the methodology though. 

I had another crack at this. I still can’t fully reconcile bottom-up ROE with reported ROE, I’m off by about 80bps,  but it’s close enough to be confident in the mechanics.

 

The table follows the format @SafetyinNumbers posted and uses figures from H1 2025 (first 6 months).

 

What really stood out was just how much of a short-term ROE handbrake IFRS 17 creates, especially for a capital allocator like Fairfax. The standard imposes a mechanical expense based on the size and duration of the float, but it doesn’t capture the returns Fairfax generates with it.

 

For a passive bond-heavy insurer, that might be fine. But for Fairfax actively redeploying float into prefs, TRS, and equity-linked structures it creates a structural underreporting of true ROE at least in the short term.  I am sure it washes thru in the end but it would be easy to draw the wrong conclusion while:

-Growing premium volume

-Writing longer-dated liabilities

-Expanding float faster than investment income can catch up

 

 

 

 

 

Edited August 1, 2025 by nwoodman

[SafetyinNumbers]

10 hours ago, Txvestor said:

You pretty much nailed it. Just need to remember to include that pesky minority interest until they buy it off. 
Speaking on which, is that just an accounting feature? Cuz as i recollect they raise those funds as preferred shares with a guaranteed coupon. So even though the earnings are adjusted lower is that real? Anyone know?

 

 

I think they give the preferred class of shares so many rights that they are considered common equity for accounting purposes which in effect understates earnings. Buying in the minority interests should be accretive like we recently saw with Brit. 

[dartmonkey]

6 hours ago, nwoodman said:

What really stood out was just how much of a short-term ROE handbrake IFRS 17 creates, especially for a capital allocator like Fairfax. The standard imposes a mechanical expense based on the size and duration of the float, but it doesn’t capture the returns Fairfax generates with it.

 

Wow, yes, at -$903m, that's a big expense, in the context of $2304m in net earnings for the first half. Could you or one of the other people better versed in IFRS accounting provide some explanation of what the idea behind this charge is and how it applies to Fairfax in a different way from other insurers?