Fairfax 2025

[villainx]

4 hours ago, Hoodlum said:

I see that Fairfax has started a small position in Yoga Pants. 

 

(For a Canadian company,) that's when you know you messed up badly.

[Hoodlum]

On 11/6/2025 at 7:52 AM, petec said:

Also: McMorrow is 78. Interesting to see what happens when he retires. FFH now control succession. 

 

 

I believe his son Tyler is a Senior Associate in the Debt Management Group at KW.  He is in his late 20's so too young to take over and like you say, Fairfax has more control now.

[Viking]

Fairfax has 5 income streams that flow through to reported earnings. 

• What are they? 
• How big are they? 
• What are we forecasting for 2025 and 2026?
• How have they changed over the past 4 years? 
• What are some of the key take-aways?

These are the questions we will answer below.

 

What are they?

1. Underwriting profit
2. Interest and dividend income
3. Share of profit of associates
4. Non-insurance consolidated companies
5. Net gains (losses) on investments

How big are they?

 

Below is a chart which provides a summary of the size of each of Fairfax’s 5 income streams. Included is:

• For context, the average for the six years from 2016 to 2021. 
• Actuals for the past 4 years: 2021 to 2024.
• My current forecast for 2025 and 2026.

Forecast for 2025 and 2026

 

I am forecasting that Fairfax’s 5 income streams will come in at about $8.1 billion in 2025 ($387/share), which would be a big increase from $6.5 billion in 2024 ($301/share). 

 

 

How have the income streams changed in recent years?

 

There are a couple of things that immediately jump out:

 

1.) The total growth of the 5 income streams over the past 4 years has been significant.

• From $2.5 billion (average from 2016-2021) to $8.1 billion (estimate for 2025), an increase of $5.6 billion or 224%. This is a 4-year CAGR of 34.1%. 

2.) The per share growth of the 5 income streams over the past 4 years has been much better than the total growth.

• From $96/share (average from 2016-2021) to $387/share (estimate for 2025), an increase of $291/share or 303%. This is a 4-year CAGR of 41.7%.
• Fairfax has been very aggressive with share buybacks in recent years and this is delivering significant value to long term shareholders.

3.) Most of the significant growth seen in recent years has been in the four buckets that comprise operating income (underwriting profit, interest and dividend income, share of profit of associates and non-insurance consolidated companies). This is important because operating income is considered to be the highest quality sources of income for a P/C insurance company. They are considered to be high quality because they tend to be predictable and durable.

 

The growth in operating income at Fairfax over the past 4 years has been exceptionally large.

• From $1.25 billion (average from 2016-2021) to $5.50 billion (estimate for 2025).
• From $49/share (average from 2016-2021) to $262/share, an increase of 435%. This is a 4-year CAGR of 52.0%
• Operating earnings now represents about 81% of total income streams at Fairfax, up from 51% (average from 2016-2020). 

The income streams of Fairfax have been transformed over the past 4 years – they are much larger and of much higher quality.

 

This is really important. Let's explore this further. 

 

Operating income

• Underwriting income has increased in importance from 12% of total income streams (average from 2016-2021) to 24% (2026E).
  • Fairfax's P/C insurance business has exploded in size. And its underwriting has improved. This is further confirmation that the quality of this business has improved. 
• Interest and dividend income has increased in importance from 28% of total income streams (average from 2016-2021) to 37% (2026E). Yes, Fairfax has been a big beneficiary of higher interest rates. 
• We can sum the two remaining parts of operating income: share of profit of associates and non-insurance operating companies. I think Fairfax views them as one bucket. David Thomas in his book 'The Fairfax Way' refers to Fairfax creating a third economic engine and I think this bucket might be what he is referring to. This 'bucket' has increased in importance from 10% of total income streams (average from 2016-2021) to 20% (2026E). This was one of the buckets that propelled Berkshire Hathaway's growth over the decades. It appears it is just starting to have the same impact at Fairfax. Importantly, this 'bucket' is not tied to the P/C insurance cycle - it should see even more growth in the coming years as the hard market slows (and Fairfax allocates more capital to investments).

4.) Underwriting income represents about 24% of total income streams.

• For most P/C insurance companies, underwriting income is closer to 45% of their total income streams. 

From an earnings perspective, 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 of the total) for Fairfax compared to traditional P/C insurance companies.
• At Fairfax, capital can be easily 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. Most other P/C insurance companies do not have this capability. 

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

Edited November 18, 2025 by Viking

[wondering]

As always, excellent explanation of Fairfax @Viking.  Looking forward 5 years or so, what are the risks to these 5 streams of income.  The following is me playing devils advocate or just raising points to consider (both for and against)

 

Underwriting income

• eventual return of soft market.
• major cat event.  I think it has been mentioned that Fairfax has reduced their exposure to super-cat events.  Does anyone know by how much?

Interest and dividend income

 

• Fairfax has a history of excellent fixed income portfolio management, but lets say they screw it up
• they go the wrong way on duration credit? (Maybe but not likely, currently they have average maturity of 2-3 years, can't remember specifically)
• credit risk (maybe but not likely, holding mostly US govt bonds, maybe the the corporate debt, although I doubt it)

 

Share of profit of associates and non insurance (I am lumping these two together)

 

• Eurobank - major recession in Greece and/or Europe.  Another Euro crises.  (this is beyond my brainpower)
• Poseidon - major world recession.  Interest rates on their debt increasing (I would like that they have considered these risks)
• Recipe, Sleep Country, Peak Performance - major recession in Canada - always possible
• India - major recession or stock market crash in India.  Maybe a temporary hit to earnings, but I would think that Fairfax would be buying opportunistically.

Major capital losses realized or unrealized

 

• major correction in US stock market.  Sure, but again I think Fairfax would be buying opportunistically
• Most of their portfolio is modestly priced.  Maybe Orla would go down significantly.
• Less subject to mark to market writedowns than in years past.

[dartmonkey]

2 hours ago, Viking said:

I am forecasting that Fairfax’s 5 income streams will come in at about $8.1 billion in 2025 ($387/share), which would be a big increase from $6.5 billion in 2024 ($301/share). 

 

 

Very nice summary, thanks. 

 

In last year’s annual report, Watsa predicts 4 more years of $5b operating earnings, translating into $150/share (or about $3b after “taxes, interest expense, corporate overhead and other expenses.” That sounds like a minimum, so it squares well with your prediction of just under $6b in operating earnings.

 

In round numbers, assuming expenses of $2.2b because of $0.2b extra taxes on the extra $1b, that would give us about $3.8b in earnings, or $190/share, assuming 20m shares, meaning the P/E ratio would be just under 9. And I still think that that $5b in operating earnings for the next 4 years may be conservative, as it probably doesn’t take into consideration the compounding that should happen as that 11% earnings yield gets reinvested into new productive assets. 

 

[Viking]

3 hours ago, wondering said:

As always, excellent explanation of Fairfax @Viking.  Looking forward 5 years or so, what are the risks to these 5 streams of income.  The following is me playing devils advocate or just raising points to consider (both for and against)

 

Underwriting income

• eventual return of soft market.
• major cat event.  I think it has been mentioned that Fairfax has reduced their exposure to super-cat events.  Does anyone know by how much?

Interest and dividend income

 

• Fairfax has a history of excellent fixed income portfolio management, but lets say they screw it up
• they go the wrong way on duration credit? (Maybe but not likely, currently they have average maturity of 2-3 years, can't remember specifically)
• credit risk (maybe but not likely, holding mostly US govt bonds, maybe the the corporate debt, although I doubt it)

 

Share of profit of associates and non insurance (I am lumping these two together)

 

• Eurobank - major recession in Greece and/or Europe.  Another Euro crises.  (this is beyond my brainpower)
• Poseidon - major world recession.  Interest rates on their debt increasing (I would like that they have considered these risks)
• Recipe, Sleep Country, Peak Performance - major recession in Canada - always possible
• India - major recession or stock market crash in India.  Maybe a temporary hit to earnings, but I would think that Fairfax would be buying opportunistically.

Major capital losses realized or unrealized

 

• major correction in US stock market.  Sure, but again I think Fairfax would be buying opportunistically
• Most of their portfolio is modestly priced.  Maybe Orla would go down significantly.
• Less subject to mark to market writedowns than in years past.

@wondering, yes, it is important to think about what the risks are to Fairfax. But I separate them into the ‘unusual’ risks and the ‘usual’ risks. 
 

When it comes to ‘unusual’ risks, these are the ones that could take the company down (or severely cripple it). These are the unknowable things. Something bigger than a 1-in-100 year massive insurance event - bigger than a big earthquake on the West Coast of the US or a cat 5 hurricane hitting the north East Coast of the US (in highly populated centres). That would be bad. But I am thinking of something worse. Something we have never seen before that isn’t built into the models. 
 

This risk is the #1 reason I keep my Fairfax core position size to a reasonable level for me (max 35%). 
 

I think this is kind of why Buffett has always been so cautious with how he has structured Berkshire Hathaway. He KNOWS a big , bad one is coming… he just doesn't know when. 
 

You are discussing the ‘usual’ risks. I prefer to talk about the usual ‘risks’ and the resultant ‘opportunities’ at the same time. Part of this also has to do with time frame - what often appears to be a big ‘risk’ in the short term can also be an even bigger ‘opportunity’ in the medium term. To only talk about one and not equally the other doesn't make sense to me (i.e. is not balanced). 
 

In general, I think Fairfax is a much safer investment today than it has ever been in its history. I think this is reflected in the two rounds of upgrades the company has received from ratings agencies in recent years. Higher quality P/C insurance = higher underwriting profit. Higher quality equities/normalized interest rates = higher investment returns. I think the build out of the private non-insurance consolidated companies buckets is important in this regard - it gives the company even more financial flexibility. The company looks much more resilient today than it has ever before. And each year it looks to me like they are building in even more financial resilience.

Edited November 19, 2025 by Viking

[valueinvesting101]

@Viking does above calculation of share of associates, dividend from associates and eventual investment gains double counting some of the earnings? 
 

If associate earned X and then paid 0.2X in dividend then increase in value of the business is driven by growth in the existing business and return on remaining 0.8X of the retained earnings. 

[Viking]

27 minutes ago, valueinvesting101 said:

@Viking does above calculation of share of associates, dividend from associates and eventual investment gains double counting some of the earnings? 
 

If associate earned X and then paid 0.2X in dividend then increase in value of the business is driven by growth in the existing business and return on remaining 0.8X of the retained earnings. 

@valueinvesting101, the historical numbers for each of the 5 items in my model come directly from Fairfax’s consolidated income statement. There is no double counting (that I am aware of). 
 

Dividends from associate holdings are considered return of investment not return on investment. They do not show up in ‘interest and dividend income’ or ‘share of profit of associates’. 
 

Summary of accounting treatment of dividends received by Fairfax from associate holdings (accountants please feel free to chime in):

• Does not show up in the income statement.
• Shows up as a reduction in the carrying value of the holding on the balance sheet
• Shows up in the cash flow statement (operating activities)

I also have a model that calculates the return that Fairfax earns on its investment portfolio. That includes excess of FV over CV for non-insurance associate and consolidated holdings (and excludes underwriting profit). I should have an update out in the next week or so. 

Edited November 19, 2025 by Viking

[jbwent63]

Viking, first thank you for your detailed work on Fairfax. It is much appreciated.

As to the dividends from associates, as they are recorded using equity accounting, then you are correct. Any distributions would be booked as a reduction in the carrying value of the entity. They are listed separately on the cashflow statement under Investing. The share of profits recorded is a non-cash transaction which is why it is shown as a negative (when profit) under Operations on the same statement.

[dartmonkey]

10 minutes ago, jbwent63 said:

As to the dividends from associates, as they are recorded using equity accounting, then you are correct. Any distributions would be booked as a reduction in the carrying value of the entity.

I don't think it matters much whether they are equity accounted or not - the principle is that, if there's a sale of a bond or of a company that has already paid interest or a dividend to Fairfax, the sale is of the company ex-dividend, so the sale price will be lower as a result. In other words, whether income is paid out or retained, if a security is sold, the gain on sale will already account for the previously paid interest/dividend, so there's no double accounting.

[Viking]

Here is a plug I posted on Twitter for David’s new book. Fairfax was founded in 1985. A $1,000 investment with Prem and team back then would now be worth more than $1 million. Yes, an amazing return = CAGR of 19% over 40 yrs. How did they it do it? In his book called ‘The Fairfax Way’, author David Thomas provides many of the answers.

 

The narrative for Fairfax is upside down

 

Fairfax is well known for a few of the big mistakes made that it has made. What is not well know are the many important things that the company got right. And given its outstanding performance over the past 40 years, it got way more right than it got wrong.

 

What did it get right? 

 

The answers go way beyond the numbers. It includes the people, structure and culture - and a moat that has been slowly increasing in size around the company over the past 40 years:

• Prem Watsa (founder and CEO) - Driven, optimistic, risk taker, unconventional, ‘right’ temperament, able to attract and retain talent, nice and more…
• High quality management - Fairfax is stacked with quality people in all parts of the organization. We get to hear from many of them (past and present).
• A proven organizational structure.
• Decentralized operations - Run by entrepreneurs.
• Centralized capital allocation - Run by a best-in-class team.
• Long term focus.
• A strong culture - Its employee retention has been amazing.

David’s book explores all of these topics and more. It is a treasure trove of information on the company. It is a great resource for investors. I really enjoyed and got great value from reading the book (I learned a lot). David, well done and thank you!

 

—————

 

The 19% return over 40 years is in US$ and assumes all dividends were reinvested.

[mengan]

On 11/6/2025 at 4:01 PM, 73 Reds said:

But not at the expense of existing shareholders.  Never pay more than necessary.  In fact, in a case like KW where curent management's days may be numbered, there is no reason to redistribute wealth in the name of fair and friendly. 

 

People remember you being cheap. Sooner or later, that will impact deal flow in a negative way. Deal flow over the long term is much more important. So if there is any reason to be "fair and friendly" that is aligned with shareholder interest, that would be it.

[mengan]

On 11/7/2025 at 11:05 PM, Thrifty3000 said:

Because they’re facing a very real existential threat playing out over the next two decades,

 

where the cost of repairing/replacing all things insurable will decline precipitously (along with insurance profits),

 

 

huh? Insurance has been around for thousands of years. As long as there are humans around, there will be a need for insurance.

Edited November 21, 2025 by mengan

[mengan]

On 11/12/2025 at 2:45 AM, Txvestor said:

There could easily be a large cat event mopping up a lot of capital, interest rates could collapse weakening their interest income stream esp.

Those are one-time events. If you do a DCF, you will see that the perpetual cash generation over the long term overwhelmingly determines the intrinsic value of a company, not short term fluctuations. 

[djokovic1]

@Parsad

 

I just went through the Fairfax Way and these two excerpts directly from Prem would argue that you should value Fairfax at much higher than book value if you agree that they should compound at 15-20% for the next 5 years. My logic being (similar to Prem's) that the fair multiple of Fairfax should be much higher than book value if they are compounding at much higher rates (15-20%) than cost of capital.

 

 

IMG_3280.HEIC IMG_3278.HEIC

[John Hjorth]

12 minutes ago, djokovic1 said:

@Parsad

 

I just went through the Fairfax Way and these two excerpts directly from Prem would argue that you should value Fairfax at much higher than book value if you agree that they should compound at 15-20% for the next 5 years. My logic being (similar to Prem's) that the fair multiple of Fairfax should be much higher than book value if they are compounding at much higher rates (15-20%) than cost of capital.

IMG_3280.HEIC 1.91 MB · 1 download IMG_3278.HEIC 1.92 MB · 3 downloads

 

V. Prem Watsa should just focus on doing his very best at running Fairfax Financial Holdings, in stead of commenting on the Fairfax stock market price, and then eventually everything will eventually turn out to be great for the Fairfax shareholders holding on.

Edited November 22, 2025 by John Hjorth

[djokovic1]

1 minute ago, John Hjorth said:

V. Prem Watsa should just focus on doing his very best at running Fairfax Financial Holdings, in stead of commenting on the Fairfax stock market price, and then eventually everything will eventually turn out to be great for the Fairfax shareholders holding on.

To be fair, thats basically what he does. In addition as the book correctly suggests, giving helpful hints for when the stock is deeply undervalued which he backs with his own purchases / buybacks. 

 

The last thing I would fault him for is being promotional. He is in fact the exact opposite and the perfect 'Outsider' as described by Will Throndike.

[John Hjorth]

28 minutes ago, djokovic1 said:

To be fair, thats basically what he does. In addition as the book correctly suggests, giving helpful hints for when the stock is deeply undervalued which he backs with his own purchases / buybacks. 

 

The last thing I would fault him for is being promotional. He is in fact the exact opposite and the perfect 'Outsider' as described by Will Throndike.

 

Thank you, @djokovic1,

 

I'm personally one of those 'patient' shareholders holding on during the 'drougt, lost Fairfax decade', finally getting compensated and rewarded handsomely for my past patience so far, so I'm still highly skeptical towards the Fairfax future, compared the overall sentiment towards Fairfax here on CofB&F.

 

Disclosure : By now a ~3.5 percent position, with no intentitons by now to add. I may miss out on something beatiful because of that stance, I'm actually well aware of it.

 

On a personal level I personally admire boundlessly what Prem is doing in his own name with regards to helping, giving others, a chance in life, likely after a rough start in the ovarial lottery. He's a good man, in short - A role model to study in that respect!

Edited November 22, 2025 by John Hjorth

[SafetyinNumbers]

3 hours ago, John Hjorth said:

 

Thank you, @djokovic1,

 

I'm personally one of those 'patient' shareholders holding on during the 'drougt, lost Fairfax decade', finally getting compensated and rewarded handsomely for my past patience so far, so I'm still highly skeptical towards the Fairfax future, compared the overall sentiment towards Fairfax here on CofB&F.

 

Disclosure : By now a ~3.5 percent position, with no intentitons by now to add. I may miss out on something beatiful because of that stance, I'm actually well aware of it.

 

On a personal level I personally admire boundlessly what Prem is doing in his own name with regards to helping, giving others, a chance in life, likely after a rough start in the ovarial lottery. He's a good man, in short - A role model to study in that respect!

John,

 

What do you base your outlook for Fairfax on? What’s your expected return and why?

[Parsad]

4 hours ago, djokovic1 said:

@Parsad

 

I just went through the Fairfax Way and these two excerpts directly from Prem would argue that you should value Fairfax at much higher than book value if you agree that they should compound at 15-20% for the next 5 years. My logic being (similar to Prem's) that the fair multiple of Fairfax should be much higher than book value if they are compounding at much higher rates (15-20%) than cost of capital.

 

 

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It may be true for Fairfax going forward because of their quality of underwriting and change in how they allocate investments now, but wasn't accurate in the past when they were buying poor insurance companies to turn around and making large macro bets. 

 

So you can either be optimistic about the future or continue to use a margin of safety and safeguard your capital when you allocate it.  I prefer the latter.  By the way, I learned that directly from Prem!  Cheers!

[villainx]

3 hours ago, Parsad said:

So you can either be optimistic about the future or continue to use a margin of safety and safeguard your capital when you allocate it.

 

Can be both too!  I try to stay/enjoy being optimistic and I'm trying harder to pick my spots.  Wait for Mr. Market's gifts.

 

 

 

 

[djokovic1]

14 hours ago, Parsad said:

So you can either be optimistic about the future or continue to use a margin of safety and safeguard your capital when you allocate it.  I prefer the latter.  By the way, I learned that directly from Prem!  Cheers!

fair enough. I’m just more optimistic as I don’t have the baggage of the 2000-2020 period. And I think their underwriting has significantly improved and they will not hedge equities again.

[Viking]

What is the Total Return Fairfax is Generating on its Investment Portfolio? Past, Present and Future.

 

In this post we explore the returns Fairfax has generated on its investment portfolio. What we learn will help us evaluate the management team and to value the company. 

 

Our analysis breaks down into seven parts:

• Part 1: Introduction
• Part 2: How Fairfax Invests
• Part 3: Methodology for Measuring Returns
• Part 4: Past Performance Review (2017-2024)
• Part 5: Future Estimates (2025-2026)
• Part 6: Normalized Rate of Return
• Part 7: Conclusion

————

 

Part 1: Introduction

 

Fairfax has built an exceptional business model

 

This is no exaggeration. Over the past 39 years, Fairfax’s per share market value (in US$) has grown at a compound annual growth rate (CAGR) of 19.2%. Among roughly 6,000 publicly listed companies since 1985, Fairfax ranks as the 8^th best performer – an extraordinary achievement. (Source: Fairfax AGM, April 2025)

 

 

Two questions arise:

• How has Fairfax delivered such outstanding long-term returns?
• How is the company positioned today? 

Fairfax tends to be underfollowed by investors. As a result, many struggle to answer either question. 

 

The key to Fairfax’s success lies in its two business engines and their impact on earnings:

• Property & Casualty (P/C) Insurance: Generates an underwriting profit, measured by the combined ratio. This is pretty straight forward. 
• Investment management: Generates a total return on its portfolio, measured by the rate of return. This is more complex.

 This post focuses on Fairfax’s total return on its investment portfolio – both in absolute dollars and as a percentage return – starting with historical data and ending with future estimates. 

 

————

 

Part 2: How Fairfax Invests

 

Let’s get the big picture.

 

Portfolio Size: As of December 31, 2024, Fairfax managed an investment portfolio valued at approximately $69 billion.

 

Investment Allocation:

• Fixed Income: $47 billion (68%)
• Equities (broadly defined): $22 billion (32%)

How does this compare with peers?

 

Most P/C insurers heavily favour fixed income, typically allocating about 95% to bonds and 5% elsewhere. Fairfax’s 32% allocation to equities is notably different, more akin to a much younger Berkshire Hathaway. How Fairfax invests is unique among peers. 

 

Why a big equity allocation?

 

Because equities deliver higher long-term returns than bonds - historically proven. With a sizeable equity stake, Fairfax aims to generate better portfolio returns, driving stronger earnings and ultimately a higher stock price to benefit long-term shareholders.

 

Why don’t peers follow suit?

 

Likely due to their lower tolerance for short-term volatility. Fairfax embraces this volatility for the greater return payoff.

 

To summarize, Fairfax’s unique portfolio mix and large equity exposure should, in theory, lead to superior investment returns compared to typical P/C insurers. Do the numbers back this up?

 

————

 

Part 3: What Methodology Should We Use to Measure Returns?

 

Before diving into the numbers, we need to clarify our approach by answering three questions:

 

Economic or Accounting Return?

Most focus on accounting returns—they’re simpler and safer. But Warren Buffett advocates for economic return, as it better captures real shareholder value creation over time. We agree and will focus on economic returns here.

 

What Inputs Will We Use?

We calculate Fairfax’s total economic return using five key quarterly-reported inputs:

• Interest and Dividend Income: From fixed income and dividend-paying market to market equities.
• Share of Profit of Associates: Fairfax’s share of pre-tax earnings from stakes in companies it partially owns including Eurobank, Poseidon, EXCO Resources, Fairfax India (their associate holdings).
• Non-Insurance Consolidated Companies: Pre-tax earnings from companies Fairfax owns including Recipe, Sleep Country, Peak Achievement, Grivalia Hospitality, TC India, Meadow Foods, AGT Food Ingredients and Dexterra.
• Net Gains (Losses) on Investments: Both realized and unrealized gains on stocks and bonds, including insurance-related gains.
• Annual Change in Excess of Fair Value over Carrying Value: For non-insurance associate and consolidated holdings. Economic value being created that is not captured in reported earnings. 

What Time Frame?

 

For investors - unlike speculators - a longer-term horizon matters. Warren Buffett recommends five years; we extend that to eight years (2017-2024) plus two future years (2025-2026) for a full decade view. This helps smooth out short-term volatility.

 

————

 

Part 4: Fairfax’s Investment Returns, 2017 to 2024

 

We analyze two four year periods:

 

2017 to 2020:

Average annual return from investments: $1.91 billion or ~5.0%
This was a challenging period for the company. Key headwinds included:

• Ultra-low interest rates globally depressed fixed income yields and interest income.
• Equity portfolio underperformed, due to short positions and too many struggling holdings. (The last short position was removed in late 2020.) 

Despite the significant headwinds, Fairfax was still able to achieve a respectable return of 5.0%. Net gains on investment (at 62%) were the biggest driver. 

 

 

2021 to 2024:

 

Average annual return from investments: $4.68 billion or ~8.2%

Tailwinds replaced headwinds:

• Rising interest rates lifted bond yields and interest income, with Fairfax’s short-duration fixed income portfolio well positioned.
• Legacy underperforming equity holdings were fixed. New equity investments performed well.

Fairfax achieved a much better return of 8.2%. The company also diversified its investment returns, reducing reliance on investment gains.

 

 

————

 

Part 5: Future Estimates (2025 and 2026)

 

2025: Estimated total return from investments $7.56 billion or ~10.5%

 

Reasons: Strong first 9 months, fixed income yields around 5.1%, and high-quality equity portfolio driving outsized gains.

 

2026: Estimated total return $5.87 billion or ~7.6% (likely conservative)

 

In 2025, at $2.6 billion, investment gains are elevated; 2026’s forecast of $1.4 billion for investment gains is likely understated (and we already know Fairfax will book a gain of about $250 million when the sale of Eurolife’s life insurance business closes in Q1, 2026). 

 

Fairfax is generating very good returns on its investment portfolio. The sources of the returns are diversified – and becoming more so. 

 

 

————

 

Part 6: A Normalized Rate of Return?

 

What is a reasonable normalized return to expect going forward?

 

We estimate Fairfax can sustainably generate about 8% per year on its investment portfolio (economic return basis).

 

Why 8%? Because Fairfax’s management has demonstrated best-in-class capital allocation over the past five years, positioning them well for future success.

 

Comparing to peers:

 

Typical P/C insurance peers earn about 5.5% annually on their portfolios—mostly fixed income. Fairfax’s 8% return therefore represents a meaningful advantage of approximately 2.5% per year.

 

————

 

Part 7: Conclusion

 

Fairfax manages a substantial $69 billion portfolio, uniquely invested with a significant equity component (32%). This strategic difference drives superior returns:

• 5.0% average return during the tough 2017-2020 period
• 8.2% average return more recently (2021-2024)
• Estimated 10.5% return in 2025

A normalized expectation of 8% economic return going forward is reasonable and represents a clear advantage over peers. Fairfax is very well positioned.

 

This investment performance explains part of Fairfax’s 19.2% CAGR in per-share market value over 39 years. The advantage comes from how they invest, coupled with skillful capital allocation and leverage (2.9x investments to common shareholders’ equity).

Edited November 23, 2025 by Viking

[SafetyinNumbers]

1 hour ago, djokovic1 said:

fair enough. I’m just more optimistic as I don’t have the baggage of the 2000-2020 period. And I think their underwriting has significantly improved and they will not hedge equities again.

I think you are willing to make a forecast while the more pessimistic holders are basing their decision on historical valuation. 
 

 

[Viking]

Why does Fairfax invest in equities? To earn a higher return (compared to if it just invested in bonds). Does it? Yes. In our previous post we provided the proof (the historical numbers). 2025 is shaping up to be a fantastic year for Fairfax with investments. How good? Fairfax is tracking to earn $7.56 billion on its investment portfolio. This is a rate of return of about 10.5% (on an average portfolio of about $72 billion). We can break the return down further:

• Fixed income (including gains from bonds) = 6.0%
• Equities/investment gains (excluding bonds) = 20.1% 

Fairfax's stellar return on its equity portfolio in 2025 is not a one hit wonder. Returns have been strong for each of the past 5 years. More importantly, Fairfax has been slowly upgrading the quality of its equity portfolio over the past 6 or 7 years. Their hard work is showing up in (better) reported results. Importantly, having a higher quality portfolio suggests future results will continue to be strong. Welcome to new Fairfax. At some point Mr. Market will figure it out. 

 

The return on the equity portfolio makes sense

Fairfax's largest equity holdings are having stellar years in 2025, lead by Eurobank, FFH-TRS and Orla Mining. But many other smaller holdings are also having great years (CIB, Altius, Dexterra etc).

 

But the story is even better

My numbers below do not capture all the value creation that is happening at Fairfax these days. My numbers do capture excess of FV over CV for associate and consolidated holdings. But they do not capture all the value creating that is happening at some of the private holdings (like BIAL and Poseidon). And Fairfax has been aggressively building out the size of its private holdings in recent years.

 

Another interesting angle: Leverage (thank you insurance float)

Leverage of investments to common shareholders' equity is about 2.9x.

 

Edited November 23, 2025 by Viking