Fairfax 2025

[nwoodman]

@Viking, thanks for the hard work pulling the pieces together. Based on the current underwriting profile and reserve redundancy, a 15% ROE for 2026 has a high probability of being achieved. Even without leaning on TRS marks, the combination of disciplined underwriting, steady investment income, and clever capital deployment comfortably supports mid-teens returns.

 

The reserve cushion acts as both a shock absorber and an earnings lever, while accounting changes under IFRS 17 may provide a modest smoothing effect in a flat-book scenario. That means Fairfax should reach 15% without unusually benign catastrophe years or extraordinary investment gains. Upside exists if reserve releases are larger, capital redeployment accelerates, or the TRS overlay delivers again.

 

Looking further out, the more important test will come in a soft P&C market. The current hard market makes combined ratios look exceptionally strong across the industry, but the next leg in Fairfax’s multiple expansion likely depends on demonstrating through-cycle CRs and proving that underwriting discipline holds when pricing power fades.

 

We need to be careful what we wish for, but a soft market may ironically be a welcome development for long-term Fairfax shareholders. It would give the market the proof it needs that Fairfax’s underwriting engine is built for all seasons and that could be the real unlock for sustained re-rating.  

 

I am part way thru Marc Adele’s fantastic book on C&F.  This passage made me laugh out loud:

 

“Prem is a value investor in the school of Ben Graham, who famously recommended buying cigar butt companies (his analogy for finding value in seemingly unattractive situations). A better analogy for P&C insurance companies in the late 1990s would have been cigar butt companies where the butt had been dropped in toxic nuclear sludge, rolled in asbestos, then stepped on a couple of times for good measure. Consequently, Fairfax acquired a few clunkers.”

 

It directly follows with this rather salient passage

“Even after the massive restructuring — and all the capital Xerox pumped

into it — C&F was still one of those clunkers. The company continued to have

reserve issues, but probably more critical was that C&F had been stripped of

its specialty businesses and the remaining regional middle-market package

business had suffered years of neglect. The customers, agents, insureds and

employees had been battered by years of restructurings and re-underwriting.

It was a tough starting point.”

There’s still a lot of scar tissue associated with Fairfax even if it’s fading.  In my view, that lingering caution is part of why there’s still a margin of safety here.

 

 

 

Edited August 8, 2025 by nwoodman

[sholland]

23 hours ago, Viking said:

Earnings Estimate For Fairfax For 2025 and 2026

 

Below is my updated earnings estimates for Fairfax for 2025 and initial estimate for 2026. This forecast includes learnings from Fairfax’s AGM (in April) and Q1 and Q2 earnings reports. And general developments since my last update (which was on March 15). My old estimate for 2025 was diluted EPS of $161/share. Yes, I know... I am such a Fairfax fanboy!

 

Let me know your thoughts. Too optimistic? If so, why? Or too pessimistic? If so, Why?

 

Summary

 

For 2025, my current estimate is diluted EPS at Fairfax will be about $183/share. This does not include the increase in excess of fair value over carrying value for Fairfax’s associate and consolidated holdings. I expect ‘excess of FV over CV’ to deliver another $38/share (after tax) in value in 2025. So, my forecast for ‘economic EPS’ for Fairfax in 2025 is about $221/diluted share.

 

For 2026, my initial estimate is diluted EPS at Fairfax will be about $182/share. This does not include the increase in excess of fair value over carrying value for Fairfax’s associate and consolidated holdings. I expect ‘excess of FV over CV’ to deliver another $10/share (after tax) in value in 2026. So, my forecast for ‘economic EPS’ for Fairfax in 2026 is about $192/diluted share.

 

Over the 4-year period, from 2023 to 2026E, diluted EPS at Fairfax is poised to average about $175/share and the increase in ‘excess of FV over CV’ is poised to average about $22/share (after tax). This would put the average increase in ‘economic EPS’ each year from 2023 to 2026E at about $197/diluted share. This amount is likely a good number to use as a baseline (starting point) when trying to estimate ‘economic EPS’ for Fairfax in future years (2027 and further out). With shares trading today at around $1,750, this gives it a PE of about 9x 'normalized economic EPS.' That is very cheap for a company of Fairfax's quality, earnings and prospects.  

 

 

Will retained earnings be re-invested in a way that builds value for shareholders?

 

Perhaps the hardest piece to forecast with Fairfax today is what they will be doing with the substantial amount of earnings that they are currently generating (about $4.5 billion per year). And the impact the re-investment of current earnings will have on future earnings. Both the size - how much. And the speed - how fast. 

 

When it comes to re-investing earnings, Fairfax has lots of very good options:

• Grow insurance - Continuation of the hard market? Bolt-on acquisitions?
  • Buy out minority partners in insurance (Allied World/Odyssey)?
• Buy fixed income securities?
• Buy equities?
• Buy back a meaningful amount of Fairfax stock? 

What Fairfax does will determine which of Fairfax’s 5 income streams will grow the most. Because we don’t know what Fairfax will actually do when we build our forecast, we have to guess which income streams will benefit and by how much. Please keep this in mind when you review our forecast – it is a guess at a point in time. As results come in each quarter, we will update our forecast to reflect the new news.   

 

Looking at the last 5 years, the management team at Fairfax has done an outstanding job with capital allocation. My guess is they will continue to make good decisions (on balance) and this will benefit shareholders in the coming years – likely providing a tailwind to my forecasts for 2025 and beyond.

 

What are the key assumptions we have used to build our forecast?

 

To estimate future EPS, BVPS and ROE for Fairfax, an investor needs to think about three things:

1. Combined ratio – How good is the P/C insurance business?
2. Total return on the investment portfolio – How good is the team at Hamblin Watsa?
3. Capital allocation – How good is the senior management team?

 

 

Note, when calculating the total return for the investment portfolio, I am including the change each year for ‘excess of FV over CV’ for associate and consolidated holdings. As stated earlier, this is value that is being created by Fairfax and it needs to be incorporated into models.

 

Interest rates: I am assuming interest rates remain roughly at current levels (at August 2, 2025). Of course, this will not be the case. The average duration of Fairfax’s fixed income portfolio (about 2.4 years) is less than the average duration of their insurance liabilities (a little under 4 years?). Changes in interest rates will offset (in ‘net gains/losses on investments’ and ‘effects of discounting and risk adjustment- IFRS 17’) but not perfectly. Bottom line, with IFRS 17, changes in interest rates will result in less volatility in Fairfax’s reported final results moving forward – but there will be some volatility. The investment community should like that (the less volatility part).

 

Below is a 6-year snapshot of earnings for Fairfax. It communicates in a concise manner the dramatic transformation that has happened at the company, beginning in 2021. There has been a spike in operating income per share – from an average of $39/share from 2016-2020, to $235/share in 2024. This much higher amount has become the new baseline for the company. For 2025, my estimate has operating income coming in at $229/share, which is a 487% increase from the average from 2016-2020. ‘Normalized earnings’ at Fairfax have moved to a much higher level – and, importantly, this higher level looks durable/sustainable.

 

 

What are analysts’ current earnings estimates for Fairfax?

 

At Aug 6, 2025, analysts’ average diluted EPS estimates for Fairfax are:

• 2025 = US$185
• 2026 = US$187

These estimates do not include changes in the value of ‘excess of FV over CV’ for associate and consolidated holdings. Yes, analysts today understand Fairfax much better than they did a year or two ago. As a result, their average diluted EPS estimates are much more accurate than they were. 

 

Here are the most important assumptions that went into each line item in our forecast:

 

1.) Underwriting profit: Estimate = $1.55 billion in 2025.

• Net premiums written growth of 5% in 2025. 
  • Yes, the hard market is slowing. 
• Combined ratio (CR) of 94% in 2025.
  • Catastrophe losses: 2025 will finish the year higher than 2024.
  • Reserve releases: continuation of the positive trend observed in 2024.

2.) Interest and dividend income: Estimate = $2.6 billion in 2025.

• Tailwinds:
  • The size of the fixed income portfolio continues to increase (from $47 to $50 billion.
  • Interest income from $810 million investment in Blizzard Vacatia Equity Partners.
  • Continued growth of mortgage loan portfolio (managed by Kennedy Wilson).
• Headwinds:
  • Lower short-term interest rates.
• The average yield of the fixed income portfolio was about 5.1% in 2024. For 2025 we estimate the average yield will be about 5.1%.

3.) Share of profit of associates: Estimate = $770 million in 2025.

• Earnings at Eurobank and Poseidon/Atlas should continue to chug along.
• Headwind in 1H not expected to continue in 2H:
  • Unrealized loss of $157.7 million on Waterous III investment in Greenfire.
• Two more headwinds for 2025:
  • Shift of Peak Achievement to a consolidated holding ($57m). 
  • Sale of Stelco ($18m).

4.) Effects of discounting and risk adjustment (IFRS 17):

• The two key drivers for this bucket are the trend in net written premiums of the insurance business and changes in interest rates.
• Net written premiums growth of 5% in 2025 should be a small tailwind. 
• We assume Treasury yields remain constant at June 30 levels.

This bucket is difficult to model – therefore, my confidence level in my estimates is low. 

 

Important. Plug number. For actuals, we are combining Bucket 4 (impacts from IFRS 17) and Bucket 5 (life insurance and run-off) together. We do not get either of these numbers from Fairfax. However, we can back in to the total for these two buckets (because they give us all the other numbers we use in our earnings model).  

 

5.) Life insurance and runoff: Estimate = a loss of $150 million in 2025.

• Adverse reserve development at runoff should be offset by earnings from the life insurance business in Greece.

6.) Non-insurance consolidated operations (Other revenue – expenses): 

• Estimate = $270 million in 2025. 
• This income stream has a number of significant tailwinds for 2025:
  • Acquisitions: Sleep Country (closed Oct 1, 2024).
  • Shift from associates: Peak Achievements and Meadow Foods (Q4, 2024).

This bucket is poised to grow nicely in the coming years. 

 

7.) Interest expense: Estimate = $828 million in 2025.

• Run rate: Q2 2025 = $208 million 

8.) Corporate overhead and other: Estimate = $470 million in 2025.

• An increase from 2024, which was $450 million.

 9.) Net gains on investments: Estimate = $2.4 billion in 2025

• Key drivers in 1H-2025:
  • FFH-total return swaps
  • Increase in value of remaining mark to market holdings.
  • Benefit from decline in bond yields.
  • Realized gain on sale of Sigma in Q1 = $178.7 million

10.) Gain on sale/deconsol of insurance sub: Estimate = $0 in 2025

 

This is where I put the large asset sales/revaluations. These items are very lumpy and therefore difficult to forecast precisely for any one year. Sometimes these gains show up as a separate line item and other times they show up in investment gains. I like to break them out at the start of the year as a separate line item. Over the past 5 years, large one-time gains from asset sales/revaluations have averaged about $500 million per year – so using an estimate of $400 million for 2026 seems like a reasonable and conservative estimate.

 

Bottom line, this bucket is a wild card. But Fairfax has a long history of surfacing the significant value that is residing/hidden on its balance sheet. When they do, we see significant realized gains (from both insurance and non-insurance holdings).

 

11.) Income taxes: Estimate = 21% for 2025

 

Fairfax’s tax rate was 24.4% in 2024. We expect investment gains to be a significant driver of earnings in 2025 – and these are taxed at a lower rate.

 

12.) Non-controlling interests: Estimate = 7% for 2025 

 

As Fairfax continues to take out its minority P/C insurance partners this number should shrink. In 2024, Fairfax took out its minority partner in Brit. Later in 2025 it is likely they will increase their ownership in Allied World. As minority P/C insurance partners are taken out, non-controlling interest should continue to shrink in size.

 

13.) Effective Shares Outstanding (year-end): Estimate = 21.4 million for 2025

 

We focus on effective shares outstanding as this is what Fairfax highlights in their reporting. Fairfax finished 2024 with effective shares outstanding = 21.7 million. This was down 1.3 million in 2024 (from 23.0 million at 2023YE). In 2025, we estimate Fairfax will reduce effective shares outstanding by 300,000 which is a slower pace compared to 2024.

 

Additional notes:

• ‘Underwriting profit’: Includes insurance and reinsurance; does not include life insurance and run-off.
• ‘Interest and dividends’ and ‘share of profit of associates’: Includes insurance, reinsurance and life insurance and run-off.

Thanks @Viking for sharing your work. I thought it would be interesting to compare your work against Fairfax’s outlook.

[Junior R]

maybe todays drop is due to Burton, Wade Sebastian selling shares 6,067 yesterday

[Santayana]

15 minutes ago, Junior R said:

maybe todays drop is due to Burton, Wade Sebastian selling shares 6,067 yesterday

I think trying to find a reason for a 1% move in anything is being way too short sighted.

[Junior R]

5 minutes ago, Santayana said:

I think trying to find a reason for a 1% move in anything is being way too short sighted.

lol

[Viking]

3 hours ago, sholland said:

Thanks @Viking for sharing your work. I thought it would be interesting to compare your work against Fairfax’s outlook.

 

@sholland, I think Fairfax includes what I call 'non-insurance consolidated ops' in their calculation of operating income (under 'share of profit of associates and consolidated non-insurance income'). 

 

If this is accurate, this would add $270 million to 2025E and $450 million to 2026E. This also would put them comfortably over their 2025E of $5 billion.

 

I probably should start to include 'non-insurance consolidated ops' in my calculation of operating income. What do board members think? Yes? or no?

Edited August 8, 2025 by Viking

[villainx]

48 minutes ago, Santayana said:

I think trying to find a reason for a 1% move in anything is being way too short sighted.

 

If you don't think that's the reason, then what is it?!??!!!!!

 

[Santayana]

10 minutes ago, villainx said:

 

If you don't think that's the reason, then what is it?!??!!!!!

 

Like I said, I don't think there's a point in trying explain a 1% move in anything.

[Hsmpanl]

21 minutes ago, Santayana said:

Like I said, I don't think there's a point in trying explain a 1% move in anything.

We newer Fairfax holders have been spoiled... Since buying in January I thought this was a one way rocketship and any marginal decline has me searching for answers and worried about the health of my new favorite holding.

[dartmonkey]

On 8/7/2025 at 11:10 AM, Viking said:

Will retained earnings be re-invested in a way that builds value for shareholders?

 

Perhaps the hardest piece to forecast with Fairfax today is what they will be doing with the substantial amount of earnings that they are currently generating (about $4.5 billion per year). And the impact the re-investment of current earnings will have on future earnings. Both the size - how much. And the speed - how fast. 

 

When it comes to re-investing earnings, Fairfax has lots of very good options:

• Grow insurance - Continuation of the hard market? Bolt-on acquisitions?
  • Buy out minority partners in insurance (Allied World/Odyssey)?
• Buy fixed income securities?
• Buy equities?
• Buy back a meaningful amount of Fairfax stock? 

What Fairfax does will determine which of Fairfax’s 5 income streams will grow the most. Because we don’t know what Fairfax will actually do when we build our forecast, we have to guess which income streams will benefit and by how much. Please keep this in mind when you review our forecast – it is a guess at a point in time. As results come in each quarter, we will update our forecast to reflect the new news.  

 

This is the part of your analysis that I am having trouble following. If Fairfax makes $4.5b in earnings, and distributes $300m in dividends, that's a lot of value being added every year. Is your model assuming some return on that extra $4.2b in retained earnings, or are you just extrapolating growth in earnings based on previous years' growth, under the assumption that a lot of that growth was also from retained earnings6

[djokovic1]

Does someone have an understanding if Tariffs affect Fairfax’s insurance operations? I am ignorant on this aspect.

[SafetyinNumbers]

10 minutes ago, Hsmpanl said:

We newer Fairfax holders have been spoiled... Since buying in January I thought this was a one way rocketship and any marginal decline has me searching for answers and worried about the health of my new favorite holding.

Hurricane season is usually a difficult period for FFH shares (see below) with it underperforming XFN (Canadian financials ETF) 8 out of the last 10 years. I thought this year would be different because of the exceptionally strong Q2 but so far it’s not.
 

The next potential external catalysts are being added to the RBC Focus List on Sept 1 and/or S&P/TSX 60 index announcement on Sept 5. I think the focus list add has better odds than the index add but hard to call either likely.
 

The RBC focus list has a 5% weighting in IFC and 0% in FFH while their analyst has a market perform on IFC and a buy on FFH. To me it makes sense to make the switch or move each to 2.5%. There was a meaningful amount of money indexed to the focus list when I was on the prop desk and I assume it’s only grown since then. 

The index add seems unlikely because AQN has stuck around 20bp and it seems with the sector weightings being as they are the committee rather wait until its hand is forced. For long term holders, the longer it takes the better as the index add will result in bigger multiple expansion all else being equal.

 

 
 

[LC]

1 hour ago, Viking said:

@sholland, I think Fairfax includes what I call 'non-insurance consolidated ops' in their calculation of operating income (under 'share of profit of associates and consolidated non-insurance income'). 

 

If this is accurate, this would add $270 million to 2025E and $450 million to 2026E. This also would put them comfortably over their 2025E of $5 billion.

 

I probably should start to include 'non-insurance consolidated ops' in my calculation of operating income. What do board members think? Yes? or no?

 

How did you previously account for this? 

 

My understanding is you have two options:

 

1) What you suggest bolded above, to consolidate these operations into Fairfax's overall income statement (either 100% for wholly owned associates, or on a pro-rata basis for partially owned associates)

 

2) Adjust FFH's carrying value of these operations on their balance sheet

 

I presume you guys have been accounting for this via option 2)? 

 

I think ultimately the  choice comes down to whether you believe these are an integral part of Fairfax's operations on a go-forward basis, and whether Fairfax has meaningful control over operating decisions. 
 

It may be worthwhile to do the analysis by segment as well, rather than fully consolidating everything - as to not muddy the waters, so to speak :D

[Pellom]

I thank you all for your hearty analyst work. 

 

I assume you all are mostly right, build in a reasonable 10-20% downside margin of safety, and come back to "just keep buying."

 

Really, truly, this thread and this forum is an indispensable resource for me. 

[Santayana]

1 hour ago, SafetyinNumbers said:

Hurricane season is usually a difficult period for FFH shares (see below) with it underperforming XFN (Canadian financials ETF) 8 out of the last 10 years. I thought this year would be different because of the exceptionally strong Q2 but so far it’s not.
 

Exactly, "it's Q3" is as good as an explanation as anything for being down on a given day.

[Hoodlum]

1 hour ago, Hsmpanl said:

We newer Fairfax holders have been spoiled... Since buying in January I thought this was a one way rocketship and any marginal decline has me searching for answers and worried about the health of my new favorite holding.

 

While totally unrelated to Fairfax, Sunlife reported they would miss their 2025 Earning Estimate due to Medicaid changes in the US.  Sunlife shares dropped 8%.  Whenever other financials drop, Fairfax will usually get lumped in as well.  That could be part of the reason.

[73 Reds]

1 minute ago, Haryana said:

 

Did he really sell all of his Fairfax shares? Maybe, he doesn't like holding them as he keeps getting more in compensation?.

https://www.theglobeandmail.com/investing/markets/stocks/FFH-T/pressreleases/33993853/public-market-insider-selling-at-fairfax-financial-holding-ffh/

"This represents a $15,518,472 divestment of the company's shares and an account share holdings change of -100.0%." 

Is there any way to find out who the buyer was (maybe Fairfax itself)?

[SafetyinNumbers]

13 minutes ago, Haryana said:

 

Did he really sell all of his Fairfax shares? Maybe, he doesn't like holding them as he keeps getting more in compensation?.

https://www.theglobeandmail.com/investing/markets/stocks/FFH-T/pressreleases/33993853/public-market-insider-selling-at-fairfax-financial-holding-ffh/

"This represents a $15,518,472 divestment of the company's shares and an account share holdings change of -100.0%." 

He’s still got 25k options

[sholland]

4 hours ago, djokovic1 said:

Does someone have an understanding if Tariffs affect Fairfax’s insurance operations? I am ignorant on this aspect.

These are the only two mentions of tariffs in last Fridays conference call. 

[Parsad]

8 hours ago, Haryana said:

There we go, thanks.

Executive sales are nothing to worry about, as usually, it is their income; but if they buy out of pocket, that is highly bullish. 

 

He could be doing some estate planning, but it is a bit unusual.  

 

Wade was accumulating shares till May 2024 and December 2024 in his RRSP, and then sold a little at a time until the big sale yesterday. 

 

He also sold all of the shares in his RRSP, which I can't see being really anything for estate planning, since it's a registered investment.

 

Still has the roughly 26K in FFH stock options, a bunch of preferred shares and about 363 FIH options.  Cheers!

[sholland]

@Viking Yes, I believe consolidated non-insurance income should be part of operating income, and I have updated my image below.

@Haryana You may be correct, but Fairfax presents underwriting profit in their financial statements without adjustments for IFRS and run-off/life-insurance.  So for purposes of comparing Viking’s estimates to management’s operating income outlook I believe adjustments for IFRS and run-off/life-insurance should not be part of operating income. 

[petec]

23 hours ago, Parsad said:

 

He could be doing some estate planning, but it is a bit unusual.  

 

Wade was accumulating shares till May 2024 and December 2024 in his RRSP, and then sold a little at a time until the big sale yesterday. 

 

He also sold all of the shares in his RRSP, which I can't see being really anything for estate planning, since it's a registered investment.

 

Still has the roughly 26K in FFH stock options, a bunch of preferred shares and about 363 FIH options.  Cheers!

 

Interesting that he would sell the common and not the prefs!

 

May not be bad, but isn't good.

[Viking]

On 8/8/2025 at 11:51 PM, Parsad said:

 

He could be doing some estate planning, but it is a bit unusual.  

 

Wade was accumulating shares till May 2024 and December 2024 in his RRSP, and then sold a little at a time until the big sale yesterday. 

 

He also sold all of the shares in his RRSP, which I can't see being really anything for estate planning, since it's a registered investment.

 

Still has the roughly 26K in FFH stock options, a bunch of preferred shares and about 363 FIH options.  Cheers!

@Parsad, if I was in Wade’s shoes, and I wanted to sell some Fairfax for estate planning reasons I probable would start with my RRSP. Actually that is what I have been doing.

RRSP’s are wonderful accounts but too much is not a wonderful thing. One day they will be taxed at +50% (at death).
 

It is great to grow an RRSP to a couple of million. But much more than that and it becomes pretty much impossible to ever wind down in a tax efficient manner. Especially if you plan on working into later in life. 
 

All of my Fairfax is held in my TFSA and non-registered accounts today (those are the accounts I want to grow the fastest). I put my best ideas in those accounts. Today I hold very little Fairfax in my RRSP/LIF’s (this is where I do my tactical trades with Fairfax).

Edited August 10, 2025 by Viking

[Parsad]

8 hours ago, Viking said:

@Parsad, if I was in Wade’s shoes, and I wanted to sell some Fairfax for estate planning reasons I probable would start with my RRSP. Actually that is what I have been doing.

RRSP’s are wonderful accounts but too much is not a wonderful thing. One day they will be taxed at +50% (at death).
 

It is great to grow an RRSP to a couple of million. But much more than that and it becomes pretty much impossible to ever wind down in a tax efficient manner. Especially if you plan on working into later in life. 
 

All of my Fairfax is held in my TFSA and non-registered accounts today (those are the accounts I want to grow the fastest). I put my best ideas in those accounts. Today I hold very little Fairfax in my RRSP/LIF’s (this is where I do my tactical trades with Fairfax).

 

He had a relatively nominal amount (419 shares in his RRSP) compared to outside (6,067) shares, so I'm not sure it was anything to do with tax efficiency with the RRSP.  

 

You could donate a portion of the RRSP shares (non-profit or into a Family charitable trust) and offset much of the increased tax you would pay as you liquidate the RRSP.  That's what I have planned.  Let it compound tax free for as long as I can.  Cheers!

[Viking]

24 minutes ago, Parsad said:

 

He had a relatively nominal amount (419 shares in his RRSP) compared to outside (6,067) shares, so I'm not sure it was anything to do with tax efficiency with the RRSP.  

 

You could donate a portion of the RRSP shares (non-profit or into a Family charitable trust) and offset much of the increased tax you would pay as you liquidate the RRSP.  That's what I have planned.  Let it compound tax free for as long as I can.  Cheers!