Fairfax 2025

[nwoodman]

15 hours ago, Viking said:

Fairfax is MUCH LESS exposed to the P/C insurance cycle (i.e. a soft market) than other P/C insurance companies. For two important and very different reasons:

• Underwriting income is a much smaller income stream (as a percent) for Fairfax compared to traditional P/C insurance companies.
• At Fairfax, capital can be shifted from P/C insurance to its investment management business. This will allow Fairfax to continue to compound capital at high rates even as the hard market slows. 

This is important to keep in mind in the coming years as the hard market comes to an end.

I’d actually add a third reason to that list, the compositional change in Fairfax’s underwriting portfolio.

 

I am sure you have covered this before but it’s worthwhile reiterating that over the past decade, Fairfax has shifted materially toward global specialty and reinsurance via Allied World, Brit, and Odyssey, and expanded into high-growth regions like the Middle East through Gulf Insurance. These segments are often less correlated with the mainstream North American commercial cycle and can pivot more quickly to profitable niches.

 

That means even within underwriting, Fairfax’s risk is more diversified, by geography, product, and client base, than it was in the past, which further reduces its vulnerability when the current hard market turns. I have a hard time quantifying exactly what this means in terms of combined ratios or defensible gross written premium, but I think it’s lazy thinking by analysts to assume Fairfax has no edge when the market turns soft. The combination of global specialty, reinsurance, and high-growth international platforms gives Fairfax levers that many peers simply don’t have, both to protect margins and to redeploy capital into better opportunities as conditions change.

 

Q1 2025 – Peter Clarke:

 

“Our insurance and reinsurance companies are in great shape, writing over $33 billion of annualized premium worldwide. We benefit greatly from our scale, diversification and exceptional talent and experience of our long-serving presidents and teams that run our insurance and reinsurance companies, and nothing was more evident than that than this quarter.”

 

“Our international operations now make up approximately 20% of our total gross premiums and the long-term prospects of our international operations are excellent and will be a significant source of growth over time, driven by excellent management teams, underpenetrated insurance markets and strong local economies.”

 

Q2 2025 – Peter Clarke on pricing trends:

 

“Just on the pricing front, I think it depends on each company and by geography. But generally, the theme is that on the property business, rates are coming down in some countries, low to single rate increases. But in many, it can be down low single digits to up to 10%.

 

While on the liability side in casualty, we’re still seeing strong rate and anywhere high single digits to up to 20%. In Canada, Northbridge, their commercial lines are about mid-single digit in total with property down, casualty up. Same at Crum & Forster, their liability business is up about 7.5%, property low single digits.

 

Odyssey on the reinsurance side, property is down single digits, casualty up single digits, and probably where we’re seeing most of the rate — negative rate pressure, that’s in Lloyd’s at Brit and Ki, where we’re seeing small single-digit decreases.

 

So at a high level, that’s where it is, but we write $33 billion of premium, and we benefit greatly from that diversification. So there may be some lines that are going down, some lines going up, and we have the flexibility to be able to grow. And of course, number one is discipline. Underwriting focus is #1 for all our companies, and we take a long-term approach. So there’s no top line focus at any one of our companies.”

[Hoodlum]

On 8/12/2025 at 3:24 PM, Parsad said:

 

I think Andy would be too long in the tooth by the time that opportunity arrives.  Andy has essentially handed the reins over to Brian Young as well.

 

While Wade is head of Hamblin-Watsa, he lacks the insurance background.

 

Peter Clarke is already President & COO of Fairfax...so Wade and Brian report to him.  He also has the longest tenure of the three, was compliance officer, is well-versed on the investment and insurance sides, and is already leading the calls...even Paul wasn't leading the calls.

 

So if I was a betting man, it already looks like Peter is the anointed one if something happens to Prem.  And frankly, while no one can ever replace Prem...Peter is an excellent choice!

 

Cheers!

 

I also thought it was revealing in February, when Peter Clarke announced the $10M donation at Huron University.  In the past Prem would have made these type of announcements.  I felt this was another step in having Peter become the face of Fairfax.  

[Hamburg Investor]

2 hours ago, nwoodman said:

I’d actually add a third reason to that list, the compositional change in Fairfax’s underwriting portfolio.

 

I am sure you have covered this before but it’s worthwhile reiterating that over the past decade, Fairfax has shifted materially toward global specialty and reinsurance via Allied World, Brit, and Odyssey, and expanded into high-growth regions like the Middle East through Gulf Insurance. These segments are often less correlated with the mainstream North American commercial cycle and can pivot more quickly to profitable niches.

 

That means even within underwriting, Fairfax’s risk is more diversified, by geography, product, and client base, than it was in the past, which further reduces its vulnerability when the current hard market turns. I have a hard time quantifying exactly what this means in terms of combined ratios or defensible gross written premium, but I think it’s lazy thinking by analysts to assume Fairfax has no edge when the market turns soft. The combination of global specialty, reinsurance, and high-growth international platforms gives Fairfax levers that many peers simply don’t have, both to protect margins and to redeploy capital into better opportunities as conditions change.

 

Q1 2025 – Peter Clarke:

 

“Our insurance and reinsurance companies are in great shape, writing over $33 billion of annualized premium worldwide. We benefit greatly from our scale, diversification and exceptional talent and experience of our long-serving presidents and teams that run our insurance and reinsurance companies, and nothing was more evident than that than this quarter.”

 

“Our international operations now make up approximately 20% of our total gross premiums and the long-term prospects of our international operations are excellent and will be a significant source of growth over time, driven by excellent management teams, underpenetrated insurance markets and strong local economies.”

 

Q2 2025 – Peter Clarke on pricing trends:

 

“Just on the pricing front, I think it depends on each company and by geography. But generally, the theme is that on the property business, rates are coming down in some countries, low to single rate increases. But in many, it can be down low single digits to up to 10%.

 

While on the liability side in casualty, we’re still seeing strong rate and anywhere high single digits to up to 20%. In Canada, Northbridge, their commercial lines are about mid-single digit in total with property down, casualty up. Same at Crum & Forster, their liability business is up about 7.5%, property low single digits.

 

Odyssey on the reinsurance side, property is down single digits, casualty up single digits, and probably where we’re seeing most of the rate — negative rate pressure, that’s in Lloyd’s at Brit and Ki, where we’re seeing small single-digit decreases.

 

So at a high level, that’s where it is, but we write $33 billion of premium, and we benefit greatly from that diversification. So there may be some lines that are going down, some lines going up, and we have the flexibility to be able to grow. And of course, number one is discipline. Underwriting focus is #1 for all our companies, and we take a long-term approach. So there’s no top line focus at any one of our companies.”

+1

And the geographical footprint of FFH is widely underdiscussed in this context not only with insurance, but with its business investments too. FFH was able to invest in the cheapest markets worldwide around 2011; that were Greece and Ireland. The average greek stock had a pe ratio of around 4 and Irish stocks were just as cheap (from memory). So today FFHs main investments span over three continents with a focus on North America, Europe (Greece) and Asia (India). That's totally different worlds and by building expertise over such a long timeframe outside NA, FFH today is able to opportunistically use crashes and mispricings on the stock markets for its (and our) favor. BRK tries to expand to Japan, but those investments are way smaller.

 

[SafetyinNumbers]

4 hours ago, nwoodman said:

I’d actually add a third reason to that list, the compositional change in Fairfax’s underwriting portfolio.

 

I am sure you have covered this before but it’s worthwhile reiterating that over the past decade, Fairfax has shifted materially toward global specialty and reinsurance via Allied World, Brit, and Odyssey, and expanded into high-growth regions like the Middle East through Gulf Insurance. These segments are often less correlated with the mainstream North American commercial cycle and can pivot more quickly to profitable niches.

 

That means even within underwriting, Fairfax’s risk is more diversified, by geography, product, and client base, than it was in the past, which further reduces its vulnerability when the current hard market turns. I have a hard time quantifying exactly what this means in terms of combined ratios or defensible gross written premium, but I think it’s lazy thinking by analysts to assume Fairfax has no edge when the market turns soft. The combination of global specialty, reinsurance, and high-growth international platforms gives Fairfax levers that many peers simply don’t have, both to protect margins and to redeploy capital into better opportunities as conditions change.

 

Q1 2025 – Peter Clarke:

 

“Our insurance and reinsurance companies are in great shape, writing over $33 billion of annualized premium worldwide. We benefit greatly from our scale, diversification and exceptional talent and experience of our long-serving presidents and teams that run our insurance and reinsurance companies, and nothing was more evident than that than this quarter.”

 

“Our international operations now make up approximately 20% of our total gross premiums and the long-term prospects of our international operations are excellent and will be a significant source of growth over time, driven by excellent management teams, underpenetrated insurance markets and strong local economies.”

 

Q2 2025 – Peter Clarke on pricing trends:

 

“Just on the pricing front, I think it depends on each company and by geography. But generally, the theme is that on the property business, rates are coming down in some countries, low to single rate increases. But in many, it can be down low single digits to up to 10%.

 

While on the liability side in casualty, we’re still seeing strong rate and anywhere high single digits to up to 20%. In Canada, Northbridge, their commercial lines are about mid-single digit in total with property down, casualty up. Same at Crum & Forster, their liability business is up about 7.5%, property low single digits.

 

Odyssey on the reinsurance side, property is down single digits, casualty up single digits, and probably where we’re seeing most of the rate — negative rate pressure, that’s in Lloyd’s at Brit and Ki, where we’re seeing small single-digit decreases.

 

So at a high level, that’s where it is, but we write $33 billion of premium, and we benefit greatly from that diversification. So there may be some lines that are going down, some lines going up, and we have the flexibility to be able to grow. And of course, number one is discipline. Underwriting focus is #1 for all our companies, and we take a long-term approach. So there’s no top line focus at any one of our companies.”

I really like this chart as I think it demonstrates that cat loss risk is about the same as it was a decade ago but net premiums written and shareholder’s equity are a lot bigger. 
 

[Tommm50]

16 minutes ago, Haryana said:

Is it fair to compare absolute numbers with relative %?

The exposure tolerance is shown in absolute $ but the cat losses are shown in %.

As the total insurance business has grown a lot bigger the absolute equivalent of those % cat points would be way bigger.

Not necessarily, the cat exposure is from property insurance and reinsurance, if the growth overall is predominately non-property business the cat exposure may not grow nearly as much as the risk tolerance.

[villainx]

Heading to Vancouver, any Fairfax associated things to check out?  I see there's several The Keg.  

 

Edit: Should look here, right? https://www.recipeunlimited.com/en/our-brands.html

 

 

Edited August 15, 2025 by villainx

[MungerWunger]

5 minutes ago, villainx said:

Heading to Vancouver, any Fairfax associated things to check out?  I see there's several The Keg.  

 

 

You can also check out the mattresses at Sleep Country 

Edited August 15, 2025 by MungerWunger

[longlake95]

Go to Golf town, and drop some $$$ on a new putter, like I did yesterday.

 

Better yet, buy a whole new set. 

Edited August 15, 2025 by longlake95

[villainx]

13 hours ago, MungerWunger said:

mattresses at Sleep Country 

 

Is shipping to NE USA reasonable?  

 

[djokovic1]

22 hours ago, SafetyinNumbers said:

I really like this chart as I think it demonstrates that cat loss risk is about the same as it was a decade ago but net premiums written and shareholder’s equity are a lot bigger. 

 

Love this chart, thanks for sharing! Would it be correct to say, that in part the non insurance related growth and compounding (especially the last 4-5 years) has de-risked the cat risk. Berkshire would be an extreme example of this.

[Cigarbutt]

4 hours ago, djokovic1 said:

 

Love this chart, thanks for sharing! Would it be correct to say, that in part the non insurance related growth and compounding (especially the last 4-5 years) has de-risked the cat risk. Berkshire would be an extreme example of this.

i think this is a reasonable way to state it.

See the following as a proxy of cat risk market growth since 1995:

Since 1995-7, insured losses have grown 6-7x.

Compare to following:

Common SE has grown 30-35x.

Combine that with what seems to be some kind of shift in cat risk exposure philosophy since around 2017:

https://www.insurancebusinessmag.com/au/news/breaking-news/fairfax-reacts-to-almost-1-billion-in-catastrophe-losses-84017.aspx

FFH's exposure to cat risk has risen exponentially over the years but less so than its underlying equity and the growth in the cat exposure since 2017 is even more closer to linear than exponential.

[djokovic1]

Thanks! Makes sense.

[Cigarbutt]

18 hours ago, djokovic1 said:

Thanks! Makes sense.

i would even add that the relative move away from cat exposure is likely a profitable one on a long-term basis because of the relative unpredictability and explicit variability in results.

The following shows potential cat results if only minor changes are made to cat 'models':

With typical and reasonable years, primary insurers pick up 90% of losses but with 'standard deviated' results, reinsurers eventually pick up a significant part of the 'excess' losses. FFH is much more of a reinsurer than the typical large players among comparable P+C peers. By moving away (relatively) from this market, FFH could suffer less financially at times and could even grow more opportunistically.

[Viking]

End of the P/C insurance hard market - Is it time for investors to head for the hills?

 

As the hard market slows we will begin to hear the drumbeat of the doomers - they will confidently tell you that it is time to sell your P/C insurance stocks. The drumbeat will likely get louder and louder over the next year.

 

So with this post let’s explore the P/C insurance cycle to see what we can learn.

 

The P/C insurance market is not rational

 

Like financial markets, the P/C insurance market is not rational.

 

How do we know it is not rational?

 

Because it constantly cycles between hard to soft to hard to soft markets. The cycles are long. And they usually go to extremes.

 

If the P/C insurance market was rational it would not cycle to the extent that it does.

 

What causes the insurance cycle?

 

Just like financial markets, what causes the insurance cycle is greed and fear.

• Greed = The end result is a soft market (product is sold at or below cost, generating low or negative returns).
• Fear = The end result is a hard market (product is sold above or well above cost, generating good or very good returns).

Doesn’t this make P/C insurance a pretty shitty business?

 

No. If all the players were rational then P/C insurance would be a shitty business - it would be impossible for anyone to make any money (outsized profits would quickly get competed way).

 

The fact that many of the players are not rational is what makes P/C insurance such a great business. The rational actors are able to profit greatly from the folly of the irrational actors.

 

Investors should welcome the insurance cycle.

 

Having a good mental model can help

 

Ben Graham provides investors with a great mental model (called Mr. Market) to help them understand and make money from investing in financial markets.

 

Mr. Market (the stock market) often engages in irrational behaviour. Some days he is pessimistic, willing to sell his stocks at very low prices. Other days he is euphoric, willing to buy your stocks at very high prices. The prices he quotes often have nothing to do with the fundamentals of the business. The more extreme his behaviour (the higher the volatility) the better for you - the more you can profit.

 

“Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful.” Warren Buffett - BRK 1987AR

 

Is there a parallel for the P/C insurance market?

 

Is there a good mental model we can use to help us understand the P/C insurance market cycle?

 

Yes. Paul Ingrey and his P/C insurance clock.

 

With his P/C insurance clock Paul explains how the insurance underwriting cycle works. It is a behavioural model - and is built on the simple assumption that P/C insurance companies will engage in irrational behaviour (like they always have in the past).

 

PDF version of the clock

• https://www.archgroup.com/wp-content/uploads/00464-Ingrey-Underwriting-Cycle-Clock-FINAL.pdf

Text version of the clock

• https://www.archgroup.com/the-underwriting-lifecycle/

The insurance cycle exists because of ‘stupidity.’ Paul Ingrey said he put the P/C insurance clock together to remind people of how stupid they are (at 37:30 of podcast linked below).

 

The clock was built by Paul to explain to investors where the insurance market cycle is at (at a point in time).

 

Who is Paul Ingrey?

 

The podcast below is from 2018. It is a great introduction to Paul Ingrey - one of the greats in the P/C re/insurance world.

 

No Change Without Fear With Paul Ingrey

• https://podcast.notunreasonable.com/126848/episodes/629958-no-change-without-fear-with-paul-ingrey

Summary of podcast:

“For reinsurance people, this interview is electric.

 

“Paul Ingrey founded three of the most successful reinsurance companies of the last 40 years: Prudential Re (Everest Re), F&G Re (10% of staff became CEOs) and Arch Re (as we know it today). Thousands of people in the industry can trace their employment back to Paul's unique mix of discipline and charisma.

 

“Being successful in insurance, like with many things, isn't complicated (write business in hard markets and not in soft markets) but it's devilishly hard to pull off. Paul is perhaps the original master of the cycle.

 

“In the show we cover a complete modern history of insurance cycles, starting in the mid-60s, Paul's insurance cycle clock (see here), stories of the founding of each of the companies that would define his legacy and more.”

 

Of note, Paul Ingrey served on the Board of Fairfax for about 2 years from 2001 to 2002.

 

“…we welcome Paul Ingrey to the Board. Paul has had one of the best track records in the reinsurance business, having founded and run F&G Re (part of U.S. F&G, now St. Paul’s) for 14 years with a cumulative combined ratio of 91%. We look forward to Paul’s wise counsel in the years to come.” Prem’s shareholder letter - Fairfax 2000AR

 

“Due to possible conflicts arising from his position as Chairman and CEO of Arch Reinsurance, Paul Ingrey retired from our Board during the year, but we hope to welcome him back when he retires again.” Prem’s shareholder letter - Fairfax 2002AR

 

Volatility

 

"Be fearful when others are greedy, and greedy when others are fearful." Warren Buffett

 

Volatility in financial markets is a wonderful thing. It allows rational investors to make outsized returns over time.

 

Volatility in P/C insurance markets is also a wonderful thing. It allows rational P/C insurance companies to make outsized returns over time.

 

How to exploit volatility in the P/C insurance business

 

Our chart below summarizes what is usually the best way to allocate capital through the insurance cycle.

 

In a soft market (when margins are under pressure), be very disciplined with underwriting (minimal organic growth). The goal is to preserve capital. P/C insurance company valuations tend to be depressed in a soft market so this can be a good time to grow by acquisition (later in a soft market).

 

In a hard market (when margins are expanding), get aggressive with underwriting new business (strong organic growth). The goal is to aggressively deploy capital. P/C insurance company valuations tend to be rich in a hard market so this is generally not a good time to grow by acquisition.

 

 

What do many P/C insurance companies actually do?

 

In a soft market many P/C insurance companies keep growing organically (some aggressively). Over time, this begins to impair their capital base (writing unprofitable business eventually sucks). This also means they do not have the money to grow by acquisition later in a soft market.

 

At the beginning of a hard market they are capital constrained - so they have a limited ability to grow organically. But as the hard market plays out their capital base gets fixed and they attempt to grow by acquisition (paying high prices).

 

This approach has a parallel in financial markets - it is like buying high and selling low. Except because of how pricing in P/C insurance works, you just don’t know that you are buying high in a soft market (or you don’t care - i.e. it becomes some else’s problem in the future).

 

Yes, that is a very hard way to make money over time.

 

The winners in P/C insurance are the contrarians

 

Just like with investing, the winners in P/C insurance are the contrarians. It is the rational actors. The companies with great discipline. And a long term focus.

 

Let’s go back to the question we asked at the start of this post.

 

As we approach the end of the hard market, is it time for investors to head for the hills and sell their P/C insurance stocks?

 

Soft markets are not to be feared. Well run P/C insurance companies welcome the insurance cycle. They don’t fear it. They exploit it. Soft markets sow the seeds of the next hard market.

 

Well run P/C insurance companies will do well over the insurance cycle. Poorly run insurance companies underperform over the insurance cycle.

 

So you need to figure out if you own one of the well run P/C insurance companies.

 

But there is more…

 

We need to broader out our analysis

 

Our analysis above only discussed underwriting. But as everyone knows, all P/C insurance companies have two businesses:

• P/C insurance (underwriting)
• Investment management

Now when it comes to investment management, almost all P/C insurance companies follow the same model - they put their investment portfolio primarily in bonds. And they match the average duration of the investment portfolio with the average duration of their insurance liabilities. The investment portfolio is put on autopilot. AND THE RETURNS ARE (USUALLY) NOT VOLATILE.

 

Soft market? Hard market? The P/C insurance market cycle doesn’t matter for most P/C insurance companies when it comes to what they do with their investment portfolio.

 

The genius of Warren Buffett

 

Warren Buffett has always understood what it takes to have a well run P/C insurance business.

• Be very disciplined with underwriting in a soft market.
• Drive strong organic growth a hard market.
• Be very opportunistic with acquisitions.

But what makes Buffett unique is what he did with the investment management part of the business. Buffett figured out that equities can deliver a much better return than bonds over time. I know, what a freaking genius.

 

This benefits Berkshire Hathaway in two important ways:

1. Investing in equities boosts the return of the investment portfolio (compared to what is earned by other P/C insurance companies).
2. In a soft market capital that is not needed in the P/C insurance business can be shifted to equities. This allows BRK to maintain a high ROE even in a soft insurance market. And when the next hard market starts (years later), all the excess capital that has built up can be used to turbo-charge the growth of the P/C insurance business.

Warren Buffett took the P/C insurance model to its logical conclusion:

• Exploit volatility (the insurance cycle) in the P/C insurance business.
• Exploit volatility (invest in equities) in the investment management business.

Don’t just do it with insurance. Do it also with investment management.

 

The result of this union has been magical for investors in Berkshire Hathaway. From 1965 to 2024 (59 years), the per share market value of Berkshire Hathaway has delivered a compound annual gain of 19.9%.

 

What Buffett is doing is kind of like shooting fish in a barrel.

 

But here is the crazy thing… Buffett isn’t secretive about what he is doing. For 59 years he has been educating investors (and competitors) on his business model. And Buffett is a great communicator… you would have to be an idiot to not understand him.

 

We all know markets are wickedly efficient. If someone invents a better mousetrap… their advantage will not last long. Because competitors will copy what they are doing and this will in short order compete away and advantage that exists.

 

So most P/C insurance companies are copying Buffett’s business model. Right?

 

No. Actually almost no other P/C insurance company is copying Buffett.

 

Honest. Its true.

 

Why don’t all P/C insurance companies copy Warren Buffett’s model?

 

Charlie Munger was asked this same question. And he had no answer (if I remember his response correctly). Which says something because Charlie was a pretty sharp guy and not shy to let you know what he was thinking.

 

My guess is most P/C insurance companies don’t follow Buffett’s model for one simple reason: they are not running the business for the long term. Because they can’t.

 

It can be explained: Volatility

 

Wall Street hates volatility. It defines volatility as risk (which is absurd). Wall Street also is obsessed with the short term (and smooth results). And yes, Wall Street is that same manic-depressive called Mr. Market. It really is a delicious cocktail. And these are the basic building blocks that determine how almost all P/C insurance companies run their business. Wall Street is in control.

 

So even though Buffett’s model is obviously the best one to use - if your goal is to maximize per share value creation for shareholders over the long term - well, pretty much no one uses it. Because they can’t.

 

Crazy but true.

 

The key is family control

 

Buffett had this. Having control allowed Buffett to ignore Wall Street.

 

Markel is going to be a great case study for my theory in the coming years. They were a family controlled organization… and when they were their returns for shareholders smoked. They are no longer a family controlled company…. and their returns for shareholders in recent years have started to stagnate. Of interest, who is Markel looking to for guidance to right their ship? Wall Street. Yikes! (Looks to me like they are letting the fox into the henhouse… but what do I know?).

 

What about Fairfax Financial?

 

This is where our story gets really interesting.

 

Unlike Markel, Fairfax is still a family controlled company. Prem Watsa owns more than 9% of Fairfax and he has voting control of more than 40%. He also is in the process of grooming the next generation to continue the family’s stewardship of the company. Bottom line, Fairfax will remain a family controlled business in the coming decades.

 

Let’s shift from theory to the real world.

 

How has Fairfax fared over the past 10 years?

 

We can split the past 10 years into the following:

• From 2014 to 2019, P/C insurance was in a soft market.
• From 2020 to 2024, P/C insurance was in a hard market.

Let’s look at two key metrics for a P/C insurance company: net premiums written (NPW) and total investment portfolio

 

In the soft market from 2014 to 2019:

• NPW increased from $6.1 to $13.3 billion, or a total of $7.2 billion. This was a 5-Year CAGR of 16.8%.
• Total investments increased from $26.2 to $39.0 billion, or a total of $12.8 billion. This was a 5-Year CAGR of 8.3%.

Bottom line, Fairfax dramatically grew its P/C insurance business (and its investment portfolio) in a very soft P/C insurance market. How? By making many acquisitions (Brit, international and Allied World) at reasonable prices.

 

In the hard market from 2019 to 2024:

• NPW increased from $13.3 to $25.3 billion, or a total of $12 billion. This was a 5-Year CAGR of 13.7%.
• Total investments increased from $39.0 to $67.4 billion, or a total of $28.4 billion. This was a 5-Year CAGR of 11.6%.

Bottom line, Fairfax dramatically grew its P/C insurance business (and its investment portfolio) in a very hard P/C insurance market. How? By growing organically.

 

How has Fairfax done over the past 10 years?

• NPW increased from $6.1 to $25.3 billion, or a total of $19.2 billion. This was a 10-Year CAGR of 15.3%.
• Total investments increased from $26.2 to $67.4 billion, or a total of $41.2 billion. This was a 10-Year CAGR of 9.9%.

Bottom line, Fairfax dramatically grew its P/C insurance business (and its investment portfolio) in both soft and hard P/C insurance markets. Just what you would expect from a very well run P/C insurance company. Importantly, over the past 10 years, Fairfax has also improved the quality of its P/C insurance business. It is not just much bigger - it is also higher quality.

 

 

What have we learned?

 

Fairfax business model is unique in the P/C insurance industry. Family control appears to be a sustainable competitive advantage for the company. It allows the company to run the business (insurance and investments) for the long term.

 

In terms of business model, Fairfax today looks like a much younger Berkshire Hathaway:

• Exploit volatility (the insurance cycle) in the P/C insurance business.
• Exploit volatility (invest in equities) in the investment management business.

Fairfax has a high quality P/C insurance business: My guess is it currently has a ‘normalized’ combined ratio of about 94%, which is very good.

 

At the same time, its investment management business is executing exceptionally well: My guess is Fairfax is currently generating a ‘normalized’ return on its investment portfolio of about 8%, which is outstanding.

 

And when it comes to capital allocation, Fairfax has been best-in-class among P/C insurance companies over the past 5 years. As Stanley Druckenmiller would say, the management team at Fairfax has been on a ‘hot streak.’

 

Bottom line, Fairfax has never been better positioned an it is today to continue to drive per share value for long term shareholders. Regardless of where we are at in the insurance cycle.

 

 

Edited August 19, 2025 by Viking

[Marco Van Basten]

@Viking, do you know why Paul Ingrey left Fairfax board?  Thank you.

[Cigarbutt]

2 hours ago, Marco Van Basten said:

@Viking, do you know why Paul Ingrey left Fairfax board?  Thank you.

In the above post, i think 2021-2 is meant to be 2001-2. Paul Ingrey left FFH's Board as he was chosen to lead Arch Capîtal around 2001.

Such a long time ago...

[Maverick47]

8 hours ago, Viking said:

In terms of business model, Fairfax today looks like a much younger Berkshire Hathaway:

• Exploit volatility (the insurance cycle) in the P/C insurance business.
• Exploit volatility (invest in equities) in the investment management business.

Excellent post @Viking (as they all are)!

 

I appreciate that you also explored the question of why other competitors have not elected to follow a similar business model, and I think you are spot on with attributing the long term timeframe of family controlled companies as being one of the main reasons.  The short to medium tenures of CEOs of most other insurance companies just isn’t long enough for either them or their boards to withstand the pressures to produce less volatile results over those shorter terms.

 

By definition, the insurance business will expose them to volatility in underwriting, so the main way for them to minimize total volatility of their results is to keep the volatility of the investment operations as low as possible, meaning emphasis on bonds over equities.

 

I will throw out one possible other type of competitor that may have more of an appetite for aggressive investment strategies:  mutual insurance companies, such as State Farm.  With no shareholders to satisfy, they also can take a longer term view…and don’t need to pay dividends or return capital in the form of stock buybacks.  State Farm has accumulated a good amount of policyholder surplus beyond what would be needed to support their premium volume.  They invest quite a bit of it in hundreds of different equities.  One might be inclined to describe their equity holdings as similar to a self created index fund.  Without the pressure of shareholder owners however, they tend to run the underwriting side of their business in a less disciplined manner than much of their competitors…they are willing to underprice their policies.

 

The good news is that the US based personal auto and homeowners lines of business that State Farm concentrates on do not overlap in any material way with the lines of business or geographies that Fairfax writes, so they do not pose any material threat to Fairfax from an underwriting standpoint.

 

Liberty Mutual is another interesting case study.  They write a lot of premium globally…I think a bit more than Fairfax.  Their supporting equity does not appear to be as generous as Fairfax’s, and they don’t invest much of it in public equities…but they do place a good sized bet on alternative investments such as private equity funds.  Is there any advantage over public equities in doing so?

 

I have wondered whether the market value of such investments might be more amenable to marking to a private equity fund’s internal models of a market value?  That could result in some reduced volatility of those investments, at least as compared with publicly traded equities.  
 

However, I don’t think their overall investment performance comes anywhere close to approaching that of Fairfax, even with those alternative investments in the mix, and their bond portfolio management when interest rates rose also significantly underperformed Fairfax’s approach.

[Viking]

3 hours ago, Cigarbutt said:

In the above post, i think 2021-2 is meant to be 2001-2. Paul Ingrey left FFH's Board as he was chosen to lead Arch Capîtal around 2001.

Such a long time ago...

@Cigarbutt, thanks for catching my error with dates… yes, was supposed to be 2001-2002. I edited my post. (I do appreciate people pointing these mistakes out).  
 

And yes, Paul left Fairfax’s board after he joined Arch Re, likely a direct competitor to Fairfax’s reinsurance businesses.

 

“Due to possible conflicts arising from his position as Chairman and CEO of Arch Reinsurance, Paul Ingrey retired from our Board during the year, but we hope to welcome him back when he retires again.” Prem’s shareholder letter - Fairfax 2002AR

 

It is too bad Paul did not stay retired. He would have been a great long-term get for Fairfax and their Board. But I think it says something about Fairfax:

1.) That they were targeting people of Paul’s quality for their Board. 
2.) They were able to get him to join. Yes, it was short. But Paul had a pretty good reason for leaving. 
 

My guess is Paul’s views on how to manage the P/C insurance cycle are now part of Fairfax’s DNA. Be very disciplined when the market soft. And very aggressive when the market is hard. 

Edited August 19, 2025 by Viking

[Viking]

For those insurance nerds on the board, here are links to a couple of good articles on the P/C insurance cycle. One is recent and the other is a little older. But they are both super interesting. Insurance really is a unique (and crazy) business. 
 

Forecasting Underwriting Cycle: A wild goose chase or a quantum leap?

Dhrubo Banerjee - Swiss Re

April 24, 2025

 

https://vle.actuaries.org.uk/pluginfile.php/160525/mod_resource/content/1/Forecasting%20Underwriting%20Cycle%20-%20A%20wild%20goose%20chase%20or%20a%20quantum%20leap.pdf

 

—————
 

THE UNDERWRlTlNG CYCLE - BY DAVlD SKURNICK

CAS UNDERWRlTlNG CYCLE SEMINAR

APRIL 19, 1993

 

https://www.casact.org/sites/default/files/database/forum_93sforum_93sf377.pdf

Edited August 19, 2025 by Viking

[mengan]

On 8/8/2025 at 12:45 AM, Viking said:

@djokovic1, I think we are very similar in how we are looking at things. 
 

1.) For 2025, I think my estimate for investment gains might be light. But I did lean out a little with underwriting, interest and dividend income and share of profit of associates. Bottom line, investment gains could surprise to the upside each year moving forward (Fairfax is sitting on so many material assets they could monetize). 
 

A big part of the returns from the equity portfolio are showing up in the excess of FV over CV bucket. My estimate for investment returns are 10.1% for 2025 and 8.0% for 2026 (and I include excess of FV over CV). 
 

2.) What do they do with significant earnings from 2025?

• Blizzard Vacatia investment in January ($835 million).
• Grow size of fixed income portfolio (in addition to Blizzard Vacatia).
• Equity investments: Buy out minority owner in Recipe. Buy out minority holders in KRIF. Materially increase size of investment with Waterous. Increase size of investment in Metlen, Cleveland Cliffs and Foran.
• buy back stock. 
• Move to 100% ownership in Allied World - Q4?

The big ‘investment’ is taking out the minority partner in Allied World (if it happens). This will reduce ‘non-controlling interests’ and increase ‘net earnings attributable to Fairfax shareholders.’ I took down ‘non-controlling interest’ for 2026. 
 

Recipe is getting a bunch of attention. As a result, their earnings should increase nicely in 2026. The large Waterous investment is long term in nature and it is a commodity investment (oil) so it will be volatile and will likely take a few years to come together. 
 

Anyways there are some examples of things I built into my 2026 forecast. I am likely light on the net impact - I have been every year for the past 4.

 

 

Seems they did. Just noticed. Converted bonds to equity and then added additional shares beginning of August.

 

Metlen re-domiciled in the UK and did a capital restructuring, resulting in a 10% squeeze out of old shareholders. The remaining share count is 129.02M.

 

Fairfax now owns 9.25% of the new UK based Metlen PLC.

[Viking]

18 hours ago, Maverick47 said:

Excellent post @Viking (as they all are)!

 

I appreciate that you also explored the question of why other competitors have not elected to follow a similar business model, and I think you are spot on with attributing the long term timeframe of family controlled companies as being one of the main reasons.  The short to medium tenures of CEOs of most other insurance companies just isn’t long enough for either them or their boards to withstand the pressures to produce less volatile results over those shorter terms.

 

By definition, the insurance business will expose them to volatility in underwriting, so the main way for them to minimize total volatility of their results is to keep the volatility of the investment operations as low as possible, meaning emphasis on bonds over equities.

 

I will throw out one possible other type of competitor that may have more of an appetite for aggressive investment strategies:  mutual insurance companies, such as State Farm.  With no shareholders to satisfy, they also can take a longer term view…and don’t need to pay dividends or return capital in the form of stock buybacks.  State Farm has accumulated a good amount of policyholder surplus beyond what would be needed to support their premium volume.  They invest quite a bit of it in hundreds of different equities.  One might be inclined to describe their equity holdings as similar to a self created index fund.  Without the pressure of shareholder owners however, they tend to run the underwriting side of their business in a less disciplined manner than much of their competitors…they are willing to underprice their policies.

 

The good news is that the US based personal auto and homeowners lines of business that State Farm concentrates on do not overlap in any material way with the lines of business or geographies that Fairfax writes, so they do not pose any material threat to Fairfax from an underwriting standpoint.

 

Liberty Mutual is another interesting case study.  They write a lot of premium globally…I think a bit more than Fairfax.  Their supporting equity does not appear to be as generous as Fairfax’s, and they don’t invest much of it in public equities…but they do place a good sized bet on alternative investments such as private equity funds.  Is there any advantage over public equities in doing so?

 

I have wondered whether the market value of such investments might be more amenable to marking to a private equity fund’s internal models of a market value?  That could result in some reduced volatility of those investments, at least as compared with publicly traded equities.  
 

However, I don’t think their overall investment performance comes anywhere close to approaching that of Fairfax, even with those alternative investments in the mix, and their bond portfolio management when interest rates rose also significantly underperformed Fairfax’s approach.

 

@Maverick47, I always appreciate your posts. Please keep them coming. Having worked in the insurance industry, you have a perspective I will never have. Much of what I post is a 'thesis' that is constantly evolving... and your thoughts (and those of others) helps me to understand if I am on the right track (or not) with my thinking.

 

It is clear to me that the primary focus for almost all P/C insurance companies is to minimize volatility (both insurance and investments). Maximizing per share value for shareholders over the long term comes after this - and I don't know that this is even their next top objective.

 

Fairfax has a very different approach. Maximizing per share value for shareholders over the long term is their primary focus. Volatility is something to be exploited (with insurance and investments). Yes, it makes for more lumpy results. But it also delivers much higher returns over time. Especially in todays environment. Fairfax has been materially outperforming peers in recent years. And I think it will continue. The interesting thing is they probably will not be rewarded by Mr. Market for the outperformance (with a high multiple). But that is ok too. It will just make it easy for Fairfax to be a long term hold.

 

But I must admit, it is a bit of a head scratcher to me that Mr. Market is unable to grasp the significance of Fairfax's business model (and how uniquely well the company is positioned today) and why it is better than that of P/C insurance peers. But it is not unlike what happened to Berkshire Hathaway for many decades (when its business model was misunderstood and under appreciated by Mr. Market). Berkshire Hathaway became a compounding machine and most investors missed making the big money (when it should have been obvious how things were going to play out). All that was required for an investor was to get their position size right and then to exercise patience. Not complicated (but VERY hard to actually do).   

 

Fairfax continues to be such an interesting investment. Even after 5 years. What a crazy (good) situation. We all should be counting our lucky stars. And giving our thanks to the employees of Fairfax - their collective efforts over the past 5 years or so have been outstanding. 

Edited August 19, 2025 by Viking

[Hoodlum]

KCC updated their hurricane models to determine where the potentials are for $100B hurricane losses.  The number of hurricanes in one seasons has little impact on losses as usually there is just one large hurricane that provides this large loss and that can happen at anytime. 

 

https://www.reinsurancene.ws/kcc-identifies-us-coastal-cities-at-risk-of-100bn-hurricane-losses/

 

KCC notes that losses do not necessarily rise with the number of storms; for example, the six hurricanes that hit the US in 2020 resulted in insured losses close to the long-term average.

 

Historically, years with unusually high losses tend to feature one or two catastrophic storms, such as Hurricane Andrew in 1992 or Hurricane Ian in 2022.

 

Over the past 25 years, major U.S. metropolitan areas have largely avoided direct hurricane hits. Karen Clark & Company’s simulations show that while 16 major hurricanes have made landfall, none have struck Miami, Houston, or other high-value population centers.

Edited August 22, 2025 by Hoodlum

[Cigarbutt]

1 hour ago, Hoodlum said:

KCC updated their hurricane models to determine where the potentials are for $100B hurricane losses...

It's basically just 'models' and historical perspective but they do offer an interesting take related to the growth of insured exposures:

The cat exposure lines are "stochastic": the financial risk exposures are somehow random but still very hard to predict. from year to year.

[sholland]

1 hour ago, Hoodlum said:

KCC updated their hurricane models to determine where the potentials are for $100B hurricane losses.  The number of hurricanes in one seasons has little impact on losses as usually there is just one large hurricane that provides this large loss and that can happen at anytime. 

 

https://www.reinsurancene.ws/kcc-identifies-us-coastal-cities-at-risk-of-100bn-hurricane-losses/

 

KCC notes that losses do not necessarily rise with the number of storms; for example, the six hurricanes that hit the US in 2020 resulted in insured losses close to the long-term average.

 

Historically, years with unusually high losses tend to feature one or two catastrophic storms, such as Hurricane Andrew in 1992 or Hurricane Ian in 2022.

 

Over the past 25 years, major U.S. metropolitan areas have largely avoided direct hurricane hits. Karen Clark & Company’s simulations show that while 16 major hurricanes have made landfall, none have struck Miami, Houston, or other high-value population centers.

Thanks for this.  For those wanting more detail, the link to the white paper is attached below.

https://www.karenclarkandco.com/news/publications/

 

[Hoodlum]

59 minutes ago, sholland said:

Thanks for this.  For those wanting more detail, the link to the white paper is attached below.

https://www.karenclarkandco.com/news/publications/

 

Thanks. While not a lot of greater detail is outlined in the publication, it is easier to read and provides a summary of a 100 year event for Miami.  If they were to extend their model to beyond 100 years then we could see a much larger hurricane impact for the North East US. 

 

The Great Miami Hurricane of 1926

On September 11th, 1926, a hurricane formed in the central tropical Atlantic, gradually strengthening while tracking northwest across the Atlantic, and eventually passing north of the Leeward Islands, Puerto Rico, Turks and Caicos, and the Bahamas on the way to Florida.

 

On September 18th, the eye of the hurricane, with estimated winds of 145 mph, passed directly over Miami.

 

The population of Miami was around 100,000 when the Great Miami Hurricane hit. Today, it is over six million.

 

If this storm were to occur today, over $5 trillion in total property value would be impacted by hurricane-force winds.

 

While building codes and construction practices have improved since 1926, given the storm’s strength and landfall location, the insured losses today from a repeat of the Great Miami Hurricane would exceed $200 billion.

 

Edited August 22, 2025 by Hoodlum