Fairfax 2025

[MMM20]

I didn’t have investing in Ukraine on my bingo card for this year, but I’ll take it at the right price!

[Crip1]

4 hours ago, Hoodlum said:

Fairfax has acquired the 30% of FFH Ukraine, that it did not own, from EBRD.  This is the continuation of buying out minority ownership of its subs. 

 

https://ukranews.com/en/news/1061195-ebrd-exits-from-arx-and-universalna-insurers

 

This would seemingly be a matter of “buying what you know”. Obviously, all things being equal, doing this will work out better than “buying what you think you know”. I doubt that we’ll look back at this as a home run, but there’s not a damned thing wrong with hitting singles and doubles.

 

-Crip
 

[Hoodlum]

Based on the reported results from Chub and RenRe, it looks like they are projecting LA Wldfire losses based off of a total insurance loss of $40-50B.  It will be interesting to see how this has impacted Fairfax.  This would also explain why Chubb is now so bullish for 2025.

 

https://www.artemis.bm/news/renre-works-off-50bn-la-wildfire-industry-loss-chubb-also-appears-to-pick-a-high-figure/

 

Edited Wednesday at 01:08 PM by Hoodlum

[Hoodlum]

22 hours ago, MMM20 said:

I didn’t have investing in Ukraine on my bingo card for this year, but I’ll take it at the right price!

It looks like there will be lots of opportunities for insurance as Ukraine rebuilds after the war. Fairfax will be able to take advantage of this.  
 

https://www.reinsurancene.ws/insurance-key-to-accelerate-investments-and-support-ukraines-recovery-doyle-sobolev/

 

During the discussion, Minister Sobolev emphasised the importance of insurance to help accelerate investments and support Ukraine’s economic recovery.

 

He stated: “What we see is that the reconstruction for Ukraine needs hundreds of billions. We also know that there is not sufficient public money that’s going to cover this bill. So, a lot of the funding is going to have to come from the private sector. But a few steps need to be taken to attract that private sector.

 

“For example, we calculated that for us to achieve sustainable growth until 2030 we need around $100 billion foreign direct investment (FDI). This FDI will not come without insurance on them, and insurance is something very particular.
 

 

Edited Wednesday at 02:21 PM by Hoodlum

[MMM20]

54 minutes ago, Hoodlum said:

It looks like there will be lots of opportunities for insurance as Ukraine rebuilds after the war. Fairfax will be able to take advantage of this.  

 

I don't doubt it - and governments will certainly have to step up - but I would require like a one-year payback to make any sort of investment there. I hope Fairfax has a similar mindset. 

[Dazel]

Fairfax 3.0 is on script the company is powerhouse and every piece they can pick up adds to intrinsic value. Hard to imagine they paid anywhere close to fair value in Ukraine. 

as for wild fires costs I have NO idea.

 

[Hsmpanl]

10 hours ago, Hoodlum said:

Based on the reported results from Chub and RenRe, it looks like they are projecting LA Wldfire losses based off of a total insurance loss of $40-50B.  It will be interesting to see how this has impacted Fairfax.  This would also explain why Chubb is now so bullish for 2025.

 

https://www.artemis.bm/news/renre-works-off-50bn-la-wildfire-industry-loss-chubb-also-appears-to-pick-a-high-figure/

 

Curious why would a high impacted loss from California wildfires explain why they’d be bullish for 2025? Price increases?

[Hoodlum]

21 minutes ago, Hsmpanl said:

Curious why would a high impacted loss from California wildfires explain why they’d be bullish for 2025? Price increases?

 

Yes, that is what I interpreted from that as insurance/reinsurance will need to set this aside.  I am already starting to see some analyst comments that mid-year policy renewal pricing could firm up ahead of the Hurricane season.  Peak wildfire season is not until June/July.   Further larger Cat losses between now and then will just further accentuate this.

 

https://www.artemis.bm/news/reinsurance-capital-to-assume-at-least-30-of-total-insured-losses-from-la-wildfires-moodys/

 

Furthermore, Moody’s explained that the impact on reinsurance pricing from the wildfires “is difficult to determine at this point.”

 

“We think the wildfires are likely to provide some support to property catastrophe pricing during the mid-year reinsurance renewal periods, as the wildfire losses could erode significant portions of annual catastrophe budgets prior to the 2025 Atlantic hurricane season.

 

Edited Wednesday at 11:50 PM by Hoodlum

[LC]

Insurance is a pretty great business to be in - it gets all these free benefits from human nature.

 

People see all these headlines about catastrophes the past few years, with big total loss numbers...it triggers some part of human nature to say, sure it's OK to spend X on insurance. Not  to mention the news media loves to report on doom & gloom, further putting the message in front of people.

And then once you buy insurance, it's only purchases you make that you work to actively avoid using. 

 

So you've got human nature, the media, society-at-large...all working to support your volume and pricing.

 

And then you've got the individual policyholders all working to help keep your loss ratios down. 

 

Sure there is competition, but everyone really rises when the tide comes in.

Edited yesterday at 12:25 AM by LC

[gfp]

I mean, I feel like most people buy insurance because they are required to by a law or a lender protecting their collateral.

[Hsmpanl]

You’re not wrong GFP, but I definitely bought an umbrella policy after hearing some horror stories… (maybe I’m just a sucker though)

 

Agree about insurance being a great business if you are rational and underwrite conservatively. Have a ton of confidence in Berk and Chubb, getting there (finally) on FFH.

[Hsmpanl]

2 hours ago, Hoodlum said:

 

Yes, that is what I interpreted from that as insurance/reinsurance will need to set this aside.  I am already starting to see some analyst comments that mid-year policy renewal pricing could firm up ahead of the Hurricane season.  Peak wildfire season is not until June/July.   Further larger Cat losses between now and then will just further accentuate this.

 

https://www.artemis.bm/news/reinsurance-capital-to-assume-at-least-30-of-total-insured-losses-from-la-wildfires-moodys/

 

Furthermore, Moody’s explained that the impact on reinsurance pricing from the wildfires “is difficult to determine at this point.”

 

“We think the wildfires are likely to provide some support to property catastrophe pricing during the mid-year reinsurance renewal periods, as the wildfire losses could erode significant portions of annual catastrophe budgets prior to the 2025 Atlantic hurricane season.

 

Key is to have small losses on the Cat events that the industry benefits from. $1.5B seems like a lot but if a Chubb sees it as a good thing I’m here for it.

[Hoodlum]

9 minutes ago, Hsmpanl said:

Key is to have small losses on the Cat events that the industry benefits from. $1.5B seems like a lot but if a Chubb sees it as a good thing I’m here for it.

it has been known that Chubb was more exposed to the LA fires than others.  We will see how Fairfax does.  

[gfp]

11 hours ago, Hsmpanl said:

You’re not wrong GFP, but I definitely bought an umbrella policy after hearing some horror stories… (maybe I’m just a sucker though)

 

Agree about insurance being a great business if you are rational and underwrite conservatively. Have a ton of confidence in Berk and Chubb, getting there (finally) on FFH.

 

Oh yeah!  We bought a huge umbrella policy from USAA right after the first time we were sued!  Ignorance was bliss but umbrella coverage with your main carrier is really pretty cheap

[dealraker]

15 minutes ago, gfp said:

 

Oh yeah!  We bought a huge umbrella policy from USAA right after the first time we were sued!  Ignorance was bliss but umbrella coverage with your main carrier is really pretty cheap

Just make sure you do $5 mil with the umbrella at least.  We've seen a few $5 mil personal injuries here in my area a few times now.   Up your homeowners deductible if needed for a bit of funds but keep that umbrella high.  

[73 Reds]

30 minutes ago, gfp said:

 

Oh yeah!  We bought a huge umbrella policy from USAA right after the first time we were sued!  Ignorance was bliss but umbrella coverage with your main carrier is really pretty cheap

Umbrella insurance coverage is indeed a cost-effective way to protect yourself but equally important is proper planning - particularly if you are engaged in business with entities such as LLCs.  For optimal protection maintain a separate LLC for each business venture and even separate real estate holdings.  All it takes is one lawsuit to recognize how important this can be.

[gfp]

34 minutes ago, 73 Reds said:

Umbrella insurance coverage is indeed a cost-effective way to protect yourself but equally important is proper planning - particularly if you are engaged in business with entities such as LLCs.  For optimal protection maintain a separate LLC for each business venture and even separate real estate holdings.  All it takes is one lawsuit to recognize how important this can be.

 

Bulkheads baby!  There's a reason Pacificorp can be bankrupted without taking down BHE, much less BRK.A..  An LLC for every project and a chase ink rewards card sign up bonus for every LLC.  A chicken in every pot

 

sorry for off-topic - back to Fairfax   

[TwoCitiesCapital]

I can't speak for the LA fires, but there was a fire on the rooftop of my condo building last year. Destroyed the rooftop with fire and then my unit and small portion of the common areas (stairways, hallways, elevator banks) were damaged by the ensuing water from the fire department.

 

All in all, I'd say less than 10% of the building sq footage was impacted, but was a multimillion claim. 

 

Our insurance premiums went up 40+% at renewal. I can only imagine what that is going to look like for LA home and business owners... 

[Hoodlum]

CIBC analyst today increased their target from $2200 to $2400. 
 

 

[Viking]

So we have heard from Chubb, WRB and Travelers. What have we learned? The hard market, that started in late 2019, is continuing. Investment income continues to expand. From a margin perspective, is this goldilocks for P/C insurers right now? 
 

I know, I know… I can hear you now… ‘It won’t last.’ and ‘Too good to be true.’ 
 

Of course, nothing lasts forever. But many people had the same concerns a year ago and they were wrong. Being years too early on a call is the same thing as being wrong. 

Edited 13 hours ago by Viking

[Maverick47]

10 hours ago, Viking said:

So we have heard from Chubb

Just one observation about Chubb’s earnings call transcript wherein Evan Greenberg trumpeted that their high net worth property business ran an “outstanding” 83.6% combined ratio in calendar year 2024.

 

When I read this I immediately thought of Richard Feynman’s comment about the first principle of scientific exploration is “not to fool yourself” followed by the observation that one should realize that “you are the easiest person to fool”.

 

A typical combined ratio target to earn a 15% return on allocated capital over the long run for Homeowners business across the entire country in the US would be roughly 90%.  So that by itself sounds like Chubb indeed has reason to crow about their results.  
 

However,  insurers should consider whether some geographies or market segments might be riskier for Homeowners business than the average, and if so, more capital should be allocated to that book of Homeowners business than the average, requiring a combined ratio lower than the 90% in order to achieve a desired 15% return.

 

Is there a reason to suspect that Chubb might have a riskier geographic or market segment profile than the Homeowners business countrywide?

 

As a thought experiment, where might one expect high net worth Homeowners customers to reside?  I suspect one might expect them to be much more heavily concentrated and over-represented in ocean coastal areas such as in Florida, New York (Long Island) and Connecticut, as well as in California where they might be more exposed to hurricanes, wildfires and fires following an earthquake than average or below average net worth customers in other areas.  These catastrophic causes of loss all tend to be events that happen very infrequently.  While premiums are being charged for these risks to the high net worth customers, when the events don’t happen in a given calendar year, it will make Chubb’s reported combined ratio look more favorable as compared to the results of competitors whose books of homeowners business aren’t as exposed to those risks, but which also aren’t charging additional premiums for them.

 

I don’t know exactly what Chubb’s countrywide high net worth homeowners target combined ratio truly should be, but I guarantee you it should be lower than 90%.  I wouldn’t be surprised if it should really be near 85% on a risk adjusted basis.

 

So I would suggest that Chubb may have modestly outperformed their true risk adjusted CR target for high net worth home insurance customers in 2024, but with their estimated $1.5 billion wildfire loss in Q1 of 2025, I’d be willing to bet their full year 2025 high net worth Home combined ratio will be a good amount higher than 85%.

 

If you then combine actual 2024 and potential 2025 results together, I would further not be surprised if their two year CR for that market segment ends up exceeding 85%.

 

Hardly the sort of result that I personally would want to highlight as being “outstanding”…but then again, Evan Greenberg’s insurance background is mostly commercial in nature, and to be fair, most Homeowners insurance competitors also don’t generally understand how the results of this line of business should be viewed.  I  guess I’m not surprised to see him fooling himself about his company’s Homeowners results, but it’s too bad that he is in a position to also fool others (including potential and actual current investors).

 

Alex Morris’s recent book “Buffett & Munger Unscripted” that @John Hjorth recommended in the Books section has Buffett recognizing something similar in regards to underpricing super-cat reinsurance business (page 235 in that book) where he comments that “When you are selling insurance against very infrequent events, you can totally misprice them but not know about it for a long time.”