Fairfax 2025

[dartmonkey]

9 minutes ago, Jaygo said:

Just curious if the lack of Hurricanes is good or bad for business? 

 

A simple idea is no major cats is good since there are less payouts but does that have a negative effect on premiums moving forward?

 

Maybe this question is less important for Fairfax vs other insurers.

I think for most insurers, no hurricanes is obviously good for this year's returns but bad for long term returns.

 

For Fairfax in particular, I would posit that it is actually good to have some good years and some bad years. In the good years (i.e few hurricanes), they have great underwriting results, and build up their war chest. Then when the market softens and premiums are inadequate, they can redirect their investment elsewhere, something which other insurers that only really do insurance are less able to do.

 

Inevitably there will eventually be hurricanes again, and companies that have kept focusing on insurance despite the soft market will be hurt more than Fairfax, and premiums will rise again, allowing Fairfax to write more policies again. Rinse and repeat. 

 

So I am happy to see that hurricane activity is low so far*, both because I am a human being, and also because in the short term this helps Fairfax, and in the long term, it is good for us to have both good hurricanne years and bad.

 

 

*The ACE index is one way of measuring a year's total activity, with the score currently at 40. As the median date for the year's ACE activity is apparently September 10, we should be on track for a score of <80, which compares well with the 30-y average of 122, and with 162 last year and 134 in 2023. So we are below forecast, despite the fact that the NOAA predicted this would be a bad year. But Grok says that "major forecasting agencies continue to anticipate an above-normal season overall, driven by favorable conditions like warm sea surface temperatures in the tropical Atlantic and Caribbean, reduced wind shear, and a neutral-to-weak La Niña pattern" - so we'd better keep the Champagne on ice for a bit longer.

[Jaygo]

31 minutes ago, dartmonkey said:

so we'd better keep the Champagne on ice for a bit longer.

 

Yeah definitely not saying the season is over. Superstorm Sandy was end of October so lots can happen. 

 

Just curious since my dad used to say that a low snowfall year was great for that years profits and terrible for the next couple years as customers wanted justification for paying for something they barely used. He always preferred a steady season of 17 plowable snowfalls

 

[TwoCitiesCapital]

I'd be more concerned about pricing power if it happened multiple years in a row. 

 

The trend is higher though. 

 

1980s saw a single category 4 hurricane make landfall. 

 

The 1990s saw a single cat 5 hurricane make landfall. 

 

The 2000s saw a single cat 4 hurricane make landfall (Katrina has been downgraded to a cat 3 right before making land). 

 

The 2010s? two Cat 4s and a Cat 5. 

 

The 2020s? Only half done and already four Cat 4s have made landfall. 

 

A single good year isn't going to do anything for pricing when the decades long trend looks like that with the number of Cat 4s and Cat 5s accelerating dramatically.

 

 

Edited September 18, 2025 by TwoCitiesCapital

[SafetyinNumbers]

14 minutes ago, Jaygo said:

 

Yeah definitely not saying the season is over. Superstorm Sandy was end of October so lots can happen. 

 

Just curious since my dad used to say that a low snowfall year was great for that years profits and terrible for the next couple years as customers wanted justification for paying for something they barely used. He always preferred a steady season of 17 plowable snowfalls

 

According to Perplexity, historically, if it’s been this quiet until this point in the season there haven’t been major hurricanes but analogs are only useful until the exception. 
 

It seems like we are set up for an another quarterly beat for Q3 at least. Estimates are pretty low anticipating cat losses and I assume they have a pile of reserves to release which might boost underwriting profit more than expected. Analysts will probably start increasing their estimates in October as they do their Q3 previews which will likely get quants buying. 
 

 

[dartmonkey]

4 hours ago, SafetyinNumbers said:

According to Perplexity, historically, if it’s been this quiet until this point in the season there haven’t been major hurricanes but analogs are only useful until the exception. 
 

It seems like we are set up for an another quarterly beat for Q3 at least. Estimates are pretty low anticipating cat losses and I assume they have a pile of reserves to release which might boost underwriting profit more than expected. Analysts will probably start increasing their estimates in October as they do their Q3 previews which will likely get quants buying. 
 

 

It’s pretty amazing to think that despite the strong share price rise in each of the last 3 years (23%, 58%, 53%) and 2025 to date (24%), it STILL only trades at about 10x next four quarters’ estimated earnings. No supercats, bond rates a bit lower since the end of Q2 so some (possibly unrealized) gains there, strong Eurobank results, etc., so there’s plenty of upside. But in a market trading at such high multiples, it seems like Fairfax should be able to extend its winning streak to at least 4 years. 

[SafetyinNumbers]

2 hours ago, dartmonkey said:

It’s pretty amazing to think that despite the strong share price rise in each of the last 3 years (23%, 58%, 53%) and 2025 to date (24%), it STILL only trades at about 10x next four quarters’ estimated earnings. No supercats, bond rates a bit lower since the end of Q2 so some (possibly unrealized) gains there, strong Eurobank results, etc., so there’s plenty of upside. But in a market trading at such high multiples, it seems like Fairfax should be able to extend its winning streak to at least 4 years. 

Still lots of our shareholders are happy to sell their shares at <10x earnings and have for the past 4 years. In part, maybe because the positions have become so big for some of them including some on this board but it is still interesting.

[Munger_Disciple]

55 minutes ago, SafetyinNumbers said:

Still lots of our shareholders are happy to sell their shares at <10x earnings and have for the past 4 years. In part, maybe because the positions have become so big for some of them including some on this board but it is still interesting.

 

Yes, and the group includes Prem.

[SafetyinNumbers]

22 minutes ago, Munger_Disciple said:

 

Yes, and the group includes Prem.

 

It seems like he did buy the shares he sold on margin. Maybe that’s true for the rest too. 

[Munger_Disciple]

2 hours ago, SafetyinNumbers said:

 

It seems like he did buy the shares he sold on margin. Maybe that’s true for the rest too. 

 

Possibly some of them did so, and others might have simply reduced their exposure (without margin). 

[SafetyinNumbers]

7 hours ago, Munger_Disciple said:

 

Possibly some of them did so, and others might have simply reduced their exposure (without margin). 

It’s been helpful for the buyback.

[yesman182]

I know someone mentioned earlier this year that Fairfax was added to Value Line. I just noticed that Fairfax has been added to Value Line’s list of 12 stocks for “long term gains” . I don’t usually read this part of the report, so I am not sure how long it has been listed here. 

[Hamburg Investor]

14 hours ago, SafetyinNumbers said:

Still lots of our shareholders are happy to sell their shares at <10x earnings and have for the past 4 years. In part, maybe because the positions have become so big for some of them including some on this board but it is still interesting.

I would bet, that not only „in part“, but over 50 (maybe even a lot more) percent of all sells on this board are only, as the position got too big.
 

I sold, when FFH grew to over 50 percent of my portfolio, I had to trim it back, so that it „only“ was 44 percent after selling. I see a hell of people here writing, that FFH is their biggest position by far, oftentimes highlighting, that they never had such a big position in any investment. My biggest position ever before FFH was BRK, which was maybe 30 percent.
 

At one point you’re getting close to a single bet, if the rest of the portfolio doesn’t mirror FFHs returns. I don’t have new money to invest, so all I can do is sell parts and reinvest - or putting nearly all eggs into one basket.

 

Anyway, with what was left after tax (around 80 percent) I bought shares of another insurance company. The idea was to diversify and buy another insurance investment, which I already had started a smaller position before: Protector Forsikring.
 

They started to go to a new country (France) and roes were already around 30 percent. Price was at a higher multiple back than compared to FFH (normalized around double FFHs pe ratio, so 15).
 

I am quiet happy, as Protector is up 105 percent since I bought in October 2024 and roe is up to 47 percent. They are now close to 9 percent of my portfolio. PB ratio is 6.5, which feels a whole (!) lot.
 

That is not cheap (while one could ask, if a pe ratio below 20 isn‘t okay for a business with roe of 30). Anyway, expecting a roe of 30 percent on average means it should double 4 times in a decade (dividends reinvested). That’s a 16 folder, and even if valuations would drop to 50 percent from todays valuation, that would be still 8fold.

The question is, if they can hold the roe, but they have done so for over 15 years (31 percent medium) on average and I trust them. So why not? 

 

 

 

Edited September 19, 2025 by Hamburg Investor

[Hamburg Investor]

50 minutes ago, yesman182 said:

I know someone mentioned earlier this year that Fairfax was added to Value Line. I just noticed that Fairfax has been added to Value Line’s list of 12 stocks for “long term gains” . I don’t usually read this part of the report, so I am not sure how long it has been listed here. 

Wow, 4 insurance companies (some names I don’t know, so maybe even 5?).
 

Davis was right; insurance is a good idea…

[TwoCitiesCapital]

On 8/4/2025 at 5:57 PM, TwoCitiesCapital said:

My only guess is that they expect long rates to rise as the front end comes down - which would be consistent with the last cut. 

 

But the last cut occurred before labor market deterioration, so I am skeptical it happens again. That's really the only reason I can see for them reducing it now. 

 

10-year yields started Wednesday at ~4% and are now 4.13%. Hardly a noteworthy move other than it happening with one rate cut occurring and two more projected. 

 

Seems like we're mirroring the last cut and the yield curve is steepening. Nobody wants to own longer then debt - what happens in the next recession? 

[gary17]

1 hour ago, Hamburg Investor said:

Wow, 4 insurance companies (some names I don’t know, so maybe even 5?).
 

Davis was right; insurance is a good idea…

 

2 hours ago, yesman182 said:

I know someone mentioned earlier this year that Fairfax was added to Value Line. I just noticed that Fairfax has been added to Value Line’s list of 12 stocks for “long term gains” . I don’t usually read this part of the report, so I am not sure how long it has been listed here. 

 

Markel  has a 85%  up potential !

[giulio]

https://www.ft.lk/front-page/Union-Assurance-exits-Fairfirst-Insurance-in-Rs-2-6-b-deal/44-781875#

Fairfax bought the remaining 22% in Fairfisrt (Sri Lanka) it did not own. Now 100% ownership, small investment at c. $9m.

[Hoodlum]

31 minutes ago, giulio said:

https://www.ft.lk/front-page/Union-Assurance-exits-Fairfirst-Insurance-in-Rs-2-6-b-deal/44-781875#

Fairfax bought the remaining 22% in Fairfisrt (Sri Lanka) it did not own. Now 100% ownership, small investment at c. $9m.

 

I suspect there are many of these smaller minority buybacks that are happening in the background when the opportunity arises.   I also see that the Fairfax rating increases continues to spread to other global insurance subs as well.  As we heard from the Odyssey Re CEO, this will help at renewal time with better opportunities.

 

https://www.businesswire.com/news/home/20250919923093/en/AM-Best-Revises-Issuer-Credit-Rating-Outlook-to-Positive-for-Singapore-Reinsurance-Corporation-Limited

 

AM Best has revised the outlook to positive from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICR of “a” (Excellent) of Singapore Reinsurance Corporation Limited (Singapore Re) (Singapore). The outlook of the FSR is stable.
 

The Credit Ratings (ratings) reflect Singapore Re’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. In addition, the ratings factor in rating enhancement from the company’s ultimate parent, Fairfax Financial Holdings Limited (Fairfax) [TSX: FFH].

The rating enhancement from Fairfax factors in explicit and implicit support from the group, including access to shared resources and services across various business functions. Despite Singapore Re’s operations accounting for a small component of Fairfax’s consolidated revenue and earnings, the company is considered strategically important to the group’s international expansion strategy and provides access to local and regional business.

 

[Hsmpanl]

16 hours ago, SafetyinNumbers said:

 

It seems like he did buy the shares he sold on margin. Maybe that’s true for the rest too. 

Prem's sale was back in May 2024 at ~$750 per share right? I believe the reason listed was "estate planning". I'm not as familiar with the Canadian tax regime but Ajit sold a bunch of BRK last year as well and speculation was concerns about a tax on unrealized gains that was being proposed. Wouldn't be surprised if something like that was in play, and either way I'm happy FFH was able to acquire those shares at the price they did.

[Viking]

2 hours ago, Hoodlum said:

 

I suspect there are many of these smaller minority buybacks that are happening in the background when the opportunity arises.   I also see that the Fairfax rating increases continues to spread to other global insurance subs as well.  As we heard from the Odyssey Re CEO, this will help at renewal time with better opportunities.

 

https://www.businesswire.com/news/home/20250919923093/en/AM-Best-Revises-Issuer-Credit-Rating-Outlook-to-Positive-for-Singapore-Reinsurance-Corporation-Limited

 

AM Best has revised the outlook to positive from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICR of “a” (Excellent) of Singapore Reinsurance Corporation Limited (Singapore Re) (Singapore). The outlook of the FSR is stable.
 

The Credit Ratings (ratings) reflect Singapore Re’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. In addition, the ratings factor in rating enhancement from the company’s ultimate parent, Fairfax Financial Holdings Limited (Fairfax) [TSX: FFH].

The rating enhancement from Fairfax factors in explicit and implicit support from the group, including access to shared resources and services across various business functions. Despite Singapore Re’s operations accounting for a small component of Fairfax’s consolidated revenue and earnings, the company is considered strategically important to the group’s international expansion strategy and provides access to local and regional business.

 

 

The takeout of Singapore Re in 2022 is looking like a great purchase for Fairfax. Not massive in size. Was done right before the hard market in reinsurance started. This long term relationship ending in purchase epitomizes so many of the things that Fairfax does so well. 

Edited September 19, 2025 by Viking

[Munger_Disciple]

1 hour ago, Hsmpanl said:

Prem's sale was back in May 2024 at ~$750 per share right? 

 

No, it was closer to $1,100 USD per share ($1,512.89 CAD per share to be exact) for total proceeds of $304mm USD.

Edited September 19, 2025 by Munger_Disciple

[SafetyinNumbers]

1 hour ago, Hsmpanl said:

Prem's sale was back in May 2024 at ~$750 per share right? I believe the reason listed was "estate planning". I'm not as familiar with the Canadian tax regime but Ajit sold a bunch of BRK last year as well and speculation was concerns about a tax on unrealized gains that was being proposed. Wouldn't be surprised if something like that was in play, and either way I'm happy FFH was able to acquire those shares at the price they did.

At the time, Canada had proposed increasing the inclusion rate for capital gains to two thirds from half which would have increased the effective tax rate from 27% to 36%. It was ultimately not enacted.

Edited September 19, 2025 by SafetyinNumbers

[Hsmpanl]

2 hours ago, SafetyinNumbers said:

At the time, Canada had proposed increasing the inclusion rate for capital gains to two thirds from half which would have increased the effective tax rate from 27% to 36%. It was ultimately not enacted.

Yeah, that combined with the sizable buyback at $1700 last month gives a ton of confidence that Prem still sees value here. FFH is only a ~12% position for me and I’ve continued to add.

[Viking]

Capital Allocation: How good is the management team at Fairfax?

 

Today we are going to get into the weeds of capital allocation. We are going to get into position size. To see what it will teach us about Fairfax.

 

The post today has been broken into the following 5 parts:

• Part 1: Introduction
• Part 2: Is management any good?
• Part 3: Sizing a capital allocation position/decision
• Part 4: Fairfax - Six examples of capital allocation decisions
• Part 5: Summary

——————

 

Part 1: Introduction

 

Capital allocation is the most important responsibility of a management team. Why? Capital allocation decisions are what drive the long-term performance of a company and important metrics like reported earnings, growth in book value and return on equity. In turn, these metrics drive the multiple given to the stock by Mr. Market and, finally, the share price and investment return for shareholders.

 

Capital allocation is a skill. This is important because it means it can be learned (and mastered) over time.

• Skill defined: “an ability to do an activity or job well, especially because you have practiced it.” Cambridge Dictionary

When done well, capital allocation does two important things:

• Delivers a solid return.
• Improves the quality of the company.

Therefore, the fundamental task of an investor is to determine if management, over time, is making intelligent decisions regarding capital allocation.

 

When it comes to capital allocation, an investor needs to answer two questions:

 

1.) Is management any good? Yes or no.

2.) If so, how good are they?

• On a scale from one to 10, what number are they?
• Scale: 1 = terrible, 5 = average and 10 = exceptional.

 

Of the two questions, the first is the easiest to answer. But the answer to the second question is much more important.

 

The first question can largely be answered by looking at business performance over a 5-year period. For a P/C insurance company, the best way to evaluate business performance is to look at the 5-year change in book value and the stock price. Yes, this is a blunt tool.

 

To answer the second question, we need to get much more granular with our analysis.

 

That is what we will do later in this post.

 

—————

 

Part 2: Is management any good?

 

To answer this question we will look at the 5-year change (2019 to 2024) in BVPS and the share price. To provide context, we will do this for 7 well run P/C insurance companies.

 

Which company has delivered the highest 5-year CAGR in BVPS?

 

Fairfax Financial, at 16.9%. It is much higher than the #2 performer, Berkshire Hathaway at 11.6%.

 

 

Which company has delivered the highest 5-year CAGR in total shareholder return?

 

Fairfax Financial, at 25.2%. It is much higher than the #2 performer, WR Berkley at 15.1%.

 

Fairfax had the highest growth in BVPS. It makes sense that it also has had the highest increase in total shareholder return.

 

 

Summary

 

Of the 7 high quality P/C insurance companies listed above, looking at 5-year change in BVPS and share price, Fairfax has been the top performer over the past 5 years (2019 to 2024). And it is not close.

 

This suggests Fairfax is quite good at capital allocation. And much better than P/C insurance peers.

 

But just how good is Fairfax?

 

That is the question we will try an answer next.

 

—————

 

Part 3: Sizing a capital allocation position/decision

 

Capital allocation - the importance of properly sizing a decision/position

 

Today we are going to look at one very specific part of capital allocation - how to size a position/decision.

 

We can summarize the capital allocation/investment process as follows:

1. Find a good/great opportunity (in your circle of competence).
2. Exploit/buy it (with a margin of safety).
3. Get the position size right (size/concentrate capital in your best ideas).
4. Exploit/hold it - as long as ‘the story’ remains intact.

‘Get the position size right’ is very difficult.

 

Position size matters so much because of the outsized impact it can have on economic results. Getting position size right is one of the ways a company can outperform peers. Get it wrong? Things can get ugly fast. GOAT can turn to goat.

 

The really interesting thing, given its importance, is how little this aspect of capital allocation is discussed. Are management teams evaluated (at least in part) based on how well they size their capital allocation decisions? No, they are not.

 

As a result, position size is one of those topics that pretty much everyone agrees is really important. But it is also something that is not to be discussed in polite company. It is the elephant in the room.

 

This is especially true for P/C insurance companies. When was the last time you read an analyst report and they discussed management, capital allocation and how good they were are position sizing? Never.

 

But ignorance is a good thing when it comes to investing. The opposite of ignorance is knowledge. And knowledge is what gives an open minded investor an edge. And having an edge is what leads to outperformance.

 

What is position size?

 

Stanley Druckenmiller is one of the GOAT’s of investing. I like Druckenmiller’s description of position size the best:

 

“Sizing is 70% to 80% of the equation. Part of the equation is seeing the investment, part of the investment is seeing myself in a good trading rhythm. It’s not whether you’re right or wrong, it’s how much you make when you’re right and how much you lose when you’re wrong…” Stanley Druckenmiller

 

Now don’t get me wrong… I am not suggesting we all should become ‘traders’ like Druckenmiller.

 

I love this quote so much because it provides an easy to understand way to think about position size. It is simple and concise:

• Position size is really important - if you want to earn above average returns.
• How often you are right or wrong is not what matters (for returns).
• How much you make when you are right is what really matters. This gets to the critical importance of properly sizing your capital allocation decisions/positions around your best ideas.

Of course, Buffett is the master a sizing his capital allocation decisions. All of the investing greats were very good at properly sizing their positions. It was a skill they all learned and honed over time.

 

—————

 

Keep reading the next post in this thread for Parts 4 and 5 (the article is too long to fit in one post).

Edited September 22, 2025 by Viking

[Viking]

Part 4: Fairfax - Six examples of capital allocation decisions

 

Ok. Let’s pivot from theory to the real world. Let’s look at an actual company.

 

Fairfax Financial

 

How good is the management team at Fairfax at sizing their capital allocation decisions?

 

To help us answer this question we will look at six of Fairfax’s capital allocation decisions from the past 5 years:

1. P/C insurance - Aggressively grow P/C insurance business in hard market.
2. Fixed Income - Profit from greatest bond bull market in history / Avoid carnage of greatest bond bear market in history.
3. Share buybacks - Aggressively buy back shares when they are trading at their cheapest valuation in history.
4. Fairfax total return swaps - Get creative to exploit a wonderful opportunity.
5. Eurobank - Exercising patience and letting a large legacy holding run.
6. Asset sales - Capitalizing on volatility / Exploiting Mr. Market.

—————

 

1.) P/C insurance - Aggressively grow P/C insurance business in hard market.

 

A hard market is the best of times for a P/C insurance company. Prices are high. And terms and conditions are favourable. Because of this one-two punch, business written in a hard market tends to be very profitable.

 

But hard markets are created by fear. Well run P/C insurance companies are able to exploit this fear and significantly grow their business in a hard market.

 

Fairfax’s top priority from a capital allocation perspective over the past 5 years has been to capitalize on the hard market in P/C insurance.

 

Net premiums written at Fairfax have increased from $13.3 billion in 2019 to $25.3 billion in 2024, an increase of $12 billion or 91%. The 5-year CAGR has been 13.7%.

 

Fairfax has been able to almost double the size of its P/C insurance business over the past 5 years (from a total $ perspective). That is a significant amount of organic (and highly profitable) growth when market conditions were at their best. Fairfax, and the P/C insurance team, has sized this capital allocation decision exceptionally well.

 

 

—————

 

2.) Fixed Income - Profit from greatest bond bull market in history / Avoid carnage of greatest bond bear market in history.

 

In 2021, the 40-year historic bubble in bonds reached its blow-off top. Bond prices reached all-time highs and conversely bond yields reached all-time lows. Mr. Market was feeling positively euphoric when it came to fixed income investments - especially those that were long dated. 10-year US treasuries were trading at a yield of less than 1% for much of 2020 and 2021.

 

Long duration bonds, with crazy low yields in 2020 and 2021, provided no margin of safety. Especially later in 2021, when it was clear that the economy was expanding and inflation was quickly becoming a big problem.

 

What did Fairfax do in late 2021?

 

1.) They sold their large portfolio of corporate bonds that were yielding about 1%, locking in large, realized gains:

 

“During 2021, we sold $5.2 billion in corporate bonds, mainly acquired in March/April of 2020, at a yield of approximately 1%, for a gain of $253 million.” Fairfax 2021AR

 

2.) They shortened the average duration of their fixed income portfolio ($37 billion in size at the time) to 1.2 years. And shifted the composition of the portfolio to higher quality holdings, mostly treasuries:

 

“At the end of 2021, our fixed income portfolio, inclusive of cash and short-term treasuries, which effectively comprised 72% of our investment portfolio, had a very short duration of approximately 1.2 years and an average rating of AA-.” Fairfax 2021AR

 

The team at Fairfax made these moves just months before the Fed (and other global central banks) unleashed hell on fixed income markets by spiking short interest rates. With hindsight, Fairfax's timing was close to perfect.

 

Having a very short duration portfolio at the end of 2021 had two key benefits:

• It protected Fairfax’s balance sheet from interest rate risk - a rapid increase in interest rates would cause the value of bonds to plummet. This would then cause book value to fall. Long duration bonds were especially vulnerable.
• It provided valuable optionality - this would allow Fairfax to quickly take advantage of rising interest rates and dislocations in credit markets.

What happened?

 

When interest rates spiked in 2022 and 2023, Fairfax avoided taking billions in unrealized losses on their bond portfolio. And the earn through from higher rates was immediate - spiking interest income. With their strong financial position, Fairfax was able to fully and aggressively exploit the hard market in P/C insurance. The ratings agencies also upgraded Fairfax’s credit ratings.

 

What about P/C insurance peers?

 

When the bond bubble was raging, they were busy dancing to the music (Chuck Prince would have been proud of them). They kept blindly matching the average duration of fixed income portfolio with the average duration of their insurance liabilities. When interest rates spiked in 2022 and 2023, many P/C insurance companies  got their heads handed to them - book value fell at many companies from 15 to 30%.

 

Yes, it was not a solvency issue for these companies (although it could have been if losses from insurance had spiked at the same time). But the significant hit to their balance sheets was real. The earn through from higher rates was slow. And it hampered their ability to fully capitalize on the hard market in P/C insurance.

 

Summary

 

Fairfax was able to profit from the biggest bond bubble in history. And deftly largely side-step the biggest bond bear market in history. The financial benefits to Fairfax of these actions can be measured in the billions (the money made and then the losses avoided). Fairfax, and the fixed income team, sized this capital allocation decision exceptionally well (first selling $5.2 billion in corporate bonds and then shifting a $37 billion bond portfolio to 1.2 years average duration).

 

PS: One other P/C insurance company had a very low average duration with their fixed income portfolio in late 2021. Who was it? Berkshire Hathaway. Why? At that time, holding duration was a very low return and very high risk strategy. Therefore, it made no sense. Of course Buffett understood this - and he acted accordingly.

 

—————

 

3.) Share buybacks - Aggressively buy back shares when they are trading at their cheapest valuation in history.

 

Share buybacks are one of the capital allocation options available to management. They can be very beneficial for shareholders if they are done in a responsible manner (purchased at attractive prices) and sustained over many years.

 

Share buybacks are such a good decision because of the certainty factor – of all the capital allocation options available to management, share buybacks carry the highest degree of certainty.

 

“When companies with outstanding businesses and comfortable financial positions find their shares selling far below intrinsic value in the marketplace, no alternative action can benefit shareholders as surely as repurchases.” Warren Buffett – Berkshire Hathaway 1984AR 

 

Why are share buybacks so good?

 

Warren Buffett highlights two benefits for shareholders:

1. Higher per share intrinsic value – ‘Basic arithmetic’, according to Buffett.
2. Higher multiple - Communicates to existing and prospective shareholders that management is rational and running the business in a manner that is friendly to/aligned with shareholders.

It is counterintuitive, but for long term shareholders a low share price can be a big benefit - if the company is buying back shares and in a significant quantity. Especially if it persists for years.

 

What did Fairfax do?

 

Effective shares outstanding have been reduced from 26.8 million at December 31, 2019, to 21.7 million at December 31, 2024. This has been a decrease of 19.2% over the past 5 years.

 

Fairfax spent a total of $3.4 billion - this was a significant amount of capital. Fairfax paid an average price of $663/share. At June 30, 2025, Fairfax’s book value was $1,058/share. Fairfax’s intrinsic value is much higher than its book value. Over the past 5 years (2020 to 2024), Fairfax was able to buy back a significant number of shares (19.2%) at an average price far below their intrinsic value. The value creation over the past 5 years has been enormous (in the $ billions). The management team at Fairfax has sized this capital allocation decision exceptionally well.

 

 

To reinforce the sigificant benefit of Fairfax’s share buybacks, let’s go back to our first point.

 

Total amounts (like net premiums written) matter to shareholders. However, what matters much more are the per share amounts (net premiums written per share).

 

Net premiums written per share have increased from $495 per share in 2019 to $1,166 in 2024, an increase of $671/share or 136%. Per share, the 5-year CAGR has been 18.7%. This is much better than the 5-year CAGR for total net premiums written of 13.7%.

 

 

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4.) Fairfax total return swaps - Get creative to exploit a wonderful opportunity.

 

In late 2020/early 2021, Fairfax purchased total return swaps giving it exposure to 1.96 million Fairfax shares at an average price of $373/share.

 

In short, this was an investment for Fairfax. In itself.

 

At the end of 2020, Fairfax had 26.2 million effective shares outstanding - so this position gave it exposure to 7.5% of shares outstanding. This was a significant investment (in terms of exposure).

 

How has the investment performed?

 

Since inception (over the past 4.7 years), the investment has delivered to Fairfax a total return of about $2.6 billion (before carrying costs). The FFH-TRS has become one of Fairfax’s best-ever investments.

 

Fairfax has begun to unwind the position. In late 2024, the position was reduced from 1.96 million to 1.76 million shares. (Of interest, Fairfax bought back the 204,000 shares from the counterparty and retired them.)

 

This investment is a great example of how creative Fairfax can be when it comes to capital allocation. At $2.6 billion, the financial benefit from investment this has been significant. The management team at Fairfax has sized this capital allocation decision exceptionally well.

 

 

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5.) Eurobank - Exercising patience and letting a large legacy holding run.

 

Over the past 5.7 years, Fairfax’s investment in Eurobank has increased in value by $3.6 billion, a CAGR of 26.4%. Eurobank has quietly grown into Fairfax’s largest equity investment. Has Eurobank become Fairfax’s best-ever equity investment?

 

What happened?

• Exceptional management - Over the past 7 years, the management team at Eurobank has been putting on a clinic. Their most recent great decision was the purchase of Hellenic Bank (at a price of 4 x earnings). 
• Strong economic performance: The depression in Greece ended. For two elections in a row, Greece has elected a pro-business government to a majority. Animal spirits have been unleashed. And Greece has had one of Europe’s best performing economies.
• Increase in interest rates: Central banks around the world ended their disastrous zero interest rate policies. Higher interest rates have spiked earnings for banks. 
• Patient controlling shareholder (Fairfax): Eurobank was given time to work through their issues. This also allowed them to think strategically and manage the business for the long-term.

This investment is a great example of the benefits of doing nothing (in terms of position size). Fairfax has exercised great patience with this investment. This patience has allowed the position to mushroom in size from $1.3 billion at December 31, 2019, to $4.5 billion at September 17, 2025. The management team at Fairfax has sized this capital allocation decision exceptionally well.

 

 

Excess of fair value over carrying value

 

At September 17, 2025, the market value (MV) of Fairfax’s position in Eurobank was $4.5 billion. At June 30, 2025, the carrying value (CV) of Fairfax’s position in Eurobank was $2.5 billion. The excess of MV over CV is about $2 billion or $90 per Fairfax share (pre-tax). This is economic value that has been created by Fairfax in recent years that has not been captured/reflected in its accounting results (EPS, BV and ROE).

 

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6.) Asset sales - Capitalizing on volatility / Exploiting Mr. Market

 

Why sell an asset?

 

There are a number of good reasons to sell an asset. Perhaps another company - who is willing to pay up - values an asset at a much higher value than you do. There also can be important strategic reasons to sell an asset.

 

Asset sales have been a very important part of Fairfax’s capital allocation framework over its entire existence, realizing significant value for Fairfax and its shareholders. Fairfax is unique among P/C insurance companies in how active it has been in using this important tool in the capital allocation toolbox.

 

Below we will review three asset sales that Fairfax has executed in recent years:

 

Pet insurance (2022) - Capitalizing on the mania in cats and dogs

 

Pets have been a rapidly growing business segment in North America for the past 30 years. Covid took this growth to a higher level. Especially the services part of the business (veterinary services, pet insurance, supplies etc). On the service side, the business model was shifting to a ‘one stop shop’ model for pet owners – get all your pet needs taken care by one provider. The big players in the industry (like JAB Holding) were in a race to consolidate (to get scale) and the price for good assets went through the roof – reaching mania/bubble proportions.

 

In June 2022, Fairfax announced that it had sold its pet insurance business (which resided in Crum & Forster) to JAB Holding for $1.4 billion. With the sale, Fairfax realized a gain of $1.2 billion pre-tax and $934 million after-tax.

 

For a little background, Fairfax purchased Hartville Group for $34 million in 2013 and Pet Health for $89 million in 2014 and then sold the combined entity in 2022 for $1.4 billion. That is nuts. Fairfax has a long history of buying small insurance businesses and patiently incubating/growing them over a decade or more and then selling them for very large gains: First Capital, ICICI Lombard, Riverstone UK and now C&F pet insurance. Very impressive.

 

Resolute Forest Products (2022) - Exiting a big mistake and capitalizing on the bubble in lumber

 

In July 2022, Fairfax sold Resolute Forest Products (RFP) to Paper Excellence Group (a global diversified manufacturer of pulp and specialty, printing, writing and packaging papers) for total consideration of $665.6 million ($20.50/share).

 

Fairfax got a premium price for the asset - Fairfax sold it for $20.50/share at the peak of the bull market in lumber. For perspective, back in March 2020, RFP shares traded as low as $1.20/share. Fairfax owned 30.5 million shares, so RFP’s market cap in March of 2020 was a total of $37 million. Two short years later Fairfax sold it for total proceeds of $665.6 million. Wow! Pre-pandemic, RFP’s shares traded at an average of about $6/share. In the historic lumber bull market of 2021, RFP’s shares traded at an average of about $12/share. Bottom line, at $20.50, Fairfax got an outstanding price for this company.

 

With the sale, Fairfax also exited a big mistake - Fairfax got one of their worst ever equity purchases off their books. RFP also owned some pretty crappy businesses: newsprint, paper and tissue. And the ‘good’ business, lumber, was getting hit by higher mortgage rates. Bottom line, Fairfax sold what was overall (still) a very challenged business. 

 

Like with pet insurance, this is a great example of the significant benefits that can come from active management - sell an asset at a bubble high price and flip the proceeds into other assets selling at bear market low prices.

 

 

Stelco (2024) - Capitalizing on the consolidation wave happening in the North American steel market

 

Taking advantage of the consolidation happening in the North American steel industry, Stelco was sold to Cleveland-Cliffs in Q4, 2024, at a nosebleed-high price. The timing of the sale was perfect - in 2025, President Trump has imposed steep tariffs on Canadian steel, which severely hurts the business of a Canadian steel producer like Stelco.

 

What kind of a return did Fairfax generate on its 6-year investment in Stelco?

 

In November 2018, Fairfax invested $193 million in Stelco. Over the past 6 years, Fairfax earned a total return of $544 million on its investment in Stelco, or 282% = 6-year CAGR of 25%.

 

 

Summary of asset sales

 

With the three assets sales profiled above, we can clearly see the benefits of active management. In each example, Fairfax was able to exploit volatility / Mr. Market.

 

Fairfax was able to execute both the pet insurance and RFP sales in 2022 in the middle of a bear market (in both stocks and bonds). Fairfax was then able to reinvest the significant proceeds into other assets that were selling at steep discounts and support the growth of the P/C insurance subsidiaries in the hard market. The sale of Stelco was also timed perfectly.

 

In each the three examples, the management team at Fairfax got a premium valuation for the asset being sold. The management team at Fairfax sized each of these capital allocation decision exceptionally well.

 

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Part 5: Summary of capital allocation and position size

 

What are the key take aways/learnings from our 6 examples?

 

1.) Large size - Each example involved a significant amount of capital. Fairfax bet big.

 

2.) High return - Each example has delivered a minimum of $1 billion in value creation. Most delivered $2 billion. Some have delivered $3 billion. Each capital allocation decision has delivered an outstanding result/return.

 

3.) High frequency - Fairfax has been right a lot.

 

Context matters. At the end of 2019, common shareholders’ equity at Fairfax was $13 billion. One exceptional capital allocation decision moves the needle for the company - is very impactful. But being right 6 different times? When you stack them up - one on top of the other - the impact on Fairfax and its business results has been magic.

 

But there is much more to this story.

 

4.) Breadth - All parts of the organization are very good at sizing their capital allocation decisions.

• Head office
• Across P/C insurance and investment management businesses.
• Within investment management - across fixed income and equities.

5.) Complementary nature - Fairfax’s structure and business model allows the benefits from one decision to be leveraged with another.

• Example: Sell assets at a premium valuation and use the proceeds to grow P/C insurance in the hard market and buy back stock when it is trading at a very low valuation.

6.) Low risk - Each of the 6 decisions were very low risk / high return decisions for Fairfax. That demonstrated exceptional risk management. (Risk is defined as permanent loss of capital and not short term price volatility.)

• Fairfax is a P/C insurance company. Aggressively growing its P/C insurance business in a generational hard market was a very low risk decision.
• Taking the average duration of the bond portfolio to 1.2 years in late 2021 was exceptional risk management. Conversely, buying/holding long duration bonds in late 2021 was a very high risk thing to do (and is what most other P/C insurance companies were doing).
• When done well (like Fairfax has), share buybacks are an extremely low risk capital allocation activity - the company has a big informational advantage over Mr. Market (in terms of the business fundamentals, prospects and valuation).
• Fairfax total return swaps - Like with buybacks, Fairfax had a big informational advantage over Mr. Market when they entered into this position at a crazy low price of $373/share.
• Eurobank - Greece electing a pro-business government to a majority, an improving economy and rising interest rates de-risked this investment greatly.
• Selling assets at a nosebleed/bubble high prices is a very low risk capital allocation decision.

7.) Simple - Each of the 6 decisions that Fairfax made was a simple one. They were 1-foot hurdles for the company. Capital allocation is hard. Keeping it as simple as possible is important.

 

8.) Fairfax has been doing much more on the capital allocation / position sizing front than what has been covered in our 6 examples. We could have included another 10 or 15 examples in our analysis. And while they were not as large/impactful as the 6 we profiled they all have been impactful to Fairfax and its business results.

 

What did we learn?

 

In the words of the prophet Mae West: “Too much of a good thing can be wonderful." Warren Buffett - Berkshire Hathaway 1993AR

 

Fairfax is very skilled at position sizing. Across the entire organization. And it looks like they are getting better. As a result, I think we can conclude that they are very good/skilled at capital allocation.

• They have the knowledge - They know what to do.
• They have the skill - They know how to do it.
• They have the desire - It is part of the company’s culture. They want and are rewarded for doing it.

In short, how to do capital allocation well has become a habit at Fairfax.

 

How good are they at capital allocation?

 

Based on what we have seen over the past 5 years, I would give Fairfax a rating of 9 out of 10.

 

Not a 10?

 

No.

 

Who would get a 10?

 

The pre-2000 version of Warren Buffett/Berkshire Hathaway.

 

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Summary - Fairfax and properly sizing a capital allocation decision:

 

“Sizing is 70% to 80% of the equation. Part of the equation is seeing the investment, part of the investment is seeing myself in a good trading rhythm. It’s not whether you’re right or wrong, it’s how much you make when you’re right and how much you lose when you’re wrong…” Stanley Druckenmiller

 

Over the 5-year period from 2019 to 2024, Fairfax has delivered:

• BVPS CAGR = 16.9%
• Share price CAGR = 25.2%

This performance has been significantly better than other P/C insurance peers.

 

This performance has happened because Fairfax is very good at capital allocation. One of the reasons is Fairfax is very skilled at sizing its decisions.

 

Fairfax is like a star athlete that is just entering their prime.

 

Is that how the stock is valued?

 

No. the stock is valued at the low end of P/C insurance peers. That is a great set-up for a long term investor.

 

Growing earnings + expanding multiple + lower share count = usually results in good to very good returns over time

 

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Why do most P/C insurance companies fail at position sizing?

 

1.) Lack of skill.

 

2.) Structure.

• Timeframe - Wall Street works very short term. Quarterly. This makes it impossible to size positions properly.
• Ownership structure is also an impediment. Make what looks like a short term dumb decision and you could be out of a job. This is too risky for most management teams of publicly traded companies. Better to fail traditionally than to succeed unconventionally.

Of the two, structure is the more important. It doesn’t allow it (or reward it). In short, the structure ensures the skill will never be developed.

 

The 2 exceptions are Berkshire Hathaway and Fairfax. Both have a controlling shareholder. So structure is not an impediment - it is an enabler. The focus is on per share value creation for shareholders over the long term. Position size is recognized as an important and critical piece in the capital allocation puzzle - a valued skill that needs to be appreciated, developed and used properly.

[Maverick47]

47 minutes ago, Viking said:

Why do most P/C insurance companies fail at position sizing?

 

1.) Lack of skill.

 

2.) Structure.

• Timeframe - Wall Street works very short term. Quarterly. This makes it impossible to size positions properly.
• Ownership structure is also an impediment. Make what looks like a short term dumb decision and you could be out of a job. This is too risky for most management teams of publicly traded companies. Better to fail traditionally than to succeed unconventionally.

@Viking Great thought provoking review and analysis!

 

I like this question and your answers, and am thinking that a similar question and answers could be applied to individual investors and their investment decisions.   Individual investors also have to pay attention to sizing their positions, with an eye towards minimizing risk, which ought best to be defined, as you do here, not in terms of price volatility, but the prospect of permanent loss of capital.

 

Individual investors do not have to risk losing their jobs as personal capital allocators if they happen to miss quarterly targets, so, just as the ownership structure of Fairfax and Berkshire confers upon them a significant source of immunity to the perils of short-termism thinking in capital allocation, so too the individual ownership of one’s own investment assets may well provide each of us as investors with a very real advantage over professional portfolio managers.  
 

Perhaps we can apply some of the lessons gleaned from Fairfax’s sizing of their capital allocation decisions and apply them to a certain extent to the sizing of our own capital allocations.  I think it’s fair to say that none of these individual capital allocations would have killed Fairfax as a company had they turned out less favorably than they did, so avoiding making a personal investment allocation in a company such as Fairfax that could “kill” one’s own investment portfolio if things don’t turn out the way we expect is also going to be a valuable consideration in our own sizing decisions.