Fairfax 2025

[Hoodlum]

23 minutes ago, 73 Reds said:

The genius of the TRS was that Prem & Co. were simply betting on themselves and they completely controlled the outcome.  Far different than placing a bet on, or as a third party.    

it would also be interesting to know if the believed at the time of the TRS purchase that inflation/interest would significantly increase in those next few years, understanding how their insurance business would grow under that environment.  

[villainx]

That was right in Covid?

 

I guess I meant I don’t see other companies doing swaps, even with inside info and buyback capabilities. And even well positioned companies can have share price languish for a long while. 
 

[Hoodlum]

58 minutes ago, villainx said:

That was right in Covid?

 

I guess I meant I don’t see other companies doing swaps, even with inside info and buyback capabilities. And even well positioned companies can have share price languish for a long while. 
 

Not only was the share price low, but the market was about to harden and inflation was about to rise. Rising interest rate provides a big tail wind to insurance companies, especially if you are prepared for it.  It would seem that only Fairfax was fully prepared and acted on this.  The other insurance companies had the same info but didn’t even sell their long bonds in 2021 when there was ample opportunity to do so. 
 

This was from the 2020 Fairfax shareholder letter.  Unfortunately, I did not fully understand the full impact on the insurance business during rising interest rates , combined with the hard market.  Otherwise, I would have entered a bit sooner with a larger allocation of my investments. 
 

“Premium increases accelerated during the year, rising from 12% in the first quarter to 16% in the fourth quarter – mainly due to rate increases. After many years of a soft market, the property and casualty insurance industry is experiencing a hard market accentuated by COVID-19 losses, catastrophe exposures, social inflation and low interest rates. Interest rates were at record lows in 2020 – never seen before even in the depression of the 1930s!”

 

Edited July 27, 2025 by Hoodlum

[Viking]

3 hours ago, 73 Reds said:

The genius of the TRS was that Prem & Co. were simply betting on themselves and they completely controlled the outcome.  Far different than placing a bet on, or as a third party.    

I agree. In 2020 Fairfax was yelling from the rooftops that their shares were historically cheap. That was the year Prem backed up the truck and bought $150 million in shares at a little more than $300/share. They did repurchase 344,000 shares for cancellation at $293/share. They purchased another 458,000 shares for Treasury at $301/share.  But they were short on cash. What to do? Get exposure to 1.96 million more shares at $373/share (late 2020 and early 2021). At the end of 2020 there were 26.2 million shares outstanding to this represented 7.5% of shares outstanding. 

It is easy today to look back and understand and appreciate what Fairfax has done with the FFH-TRS. But back when they announced it - well,  analysts were gobsmacked. They didn’t know what to think about the position or Fairfax for putting it on. It was a complete shocker. And that was because what Fairfax had done was a first in P/C insurance - it had never been done before. And the size of the position was very audacious.

 

I think the brilliance of this investment was the certainty factor. Buffett says certainty is the most important input to the investment decision. And Fairfax knew with 100% certainty that their business was being criminally undervalued - especially the insurance part of the business which had doubled in size (from acquisitions) and was a year into the hard market. They had much better information than everyone else (obviously). 
 

The FFH-TRS has increased in value by about $2.7 billion in 4.5 years (before carrying costs/dividends paid). What is the ROIC from this investment? Does anyone know how to calculate it? I don’t. 
 

Fairfax is in a league of their own when it comes to the FFH-TRS position. The investment and the size of the position was unique. 
 

It was the same thing with the positioning of the fixed income portfolio in late 2021 when they sold all their corporate bonds (at yields below 1%) and took the average duration to 1.2 years. This positioning saved the company +$3 billion (probably more) in what would have been unrealized losses (and would have severely hit book value).
 

Buffett was the only other peer thinking the same way (fixed income was in a historical bubble). Both Buffett and Fairfax knew with a high level of certainty that the US 10 year trading at 0.70% was nuts. 
 

It was the same thing with the Dutch auction when Fairfax bought back 2 million shares at $500/share. When it was still short on cash (capital was going to the insurance subs to grow in the hard market). What to do? Get $900 million from the large Canadian pension funds. 
 

Back to the certainty thing. Fairfax saw that the hard market in insurance had legs. And they probably started to sniff out the beginnings of inflation. Back to that certainty thing… at $500, they knew Fairfax was still being significantly undervalued. 
 

No other P/C insurance company is doing these things. (If some are please let me know who and what it was they did/are doing.) The logic. The creativity. The size. The execution. The results. 

Edited July 27, 2025 by Viking

[73 Reds]

6 minutes ago, Viking said:

I agree. In 2020 Fairfax was yelling from the rooftops that their shares were historically cheap. That was the year Prem backed up the truck and bought $150 million in shares at a little more than $300/share. They did repurchase 344,000 shares for cancellation at $293/share. They purchased another 458,000 shares for Treasury at $301/share.  But they were short on cash. What to do? Get exposure to 1.96 million more shares at $373/share (late 2020 and early 2021). At the end of 2020 there were 26.2 million shares outstanding to this represented 7.5% of shares outstanding. 

It is easy today to look back and understand and appreciate what Fairfax has done with the FFH-TRS. But back when they announced it - well,  analysts were gobsmacked. They didn’t know what to think about the position or Fairfax for putting it on. It was a complete shocker. And that was because what Fairfax had done was a first in P/C insurance - it had never been done before. And the size of the position was very audacious.

 

I think the brilliance of this investment was the certainty factor. Buffett says certainty is the most important input to the investment decision. And Fairfax knew with 100% certainty that their business was being criminally undervalued - especially the insurance part of the business which had doubled in size (from acquisitions) and was a year into the hard market. They had much better information than everyone else (obviously). 
 

The FFH-TRS has increased in value by about $2.7 billion in 4.5 years (before carrying costs/dividends paid). What is the ROIC from this investment? Does anyone know how to calculate it? I don’t. 
 

Fairfax is in a league of their own when it comes to the FFH-TRS position. The investment and the size of the position was unique. 
 

It was the same thing with the positioning of the fixed income portfolio in late 2021 when they sold all their corporate bonds (at yields below 1%) and took the average duration to 1.2 years. This positioning saved the company +$3 billion (probably more) in what would have been unrealized losses (and would have severely hit book value). Buffett was the only other peer thinking the same way (fixed income was in a historical bubble). 
 

It was the same thing with the Dutch auction when Fairfax bought back 2 million shares at $500/share. When it was still short on cash (capital was going to the insurance subs to grow in the hard market). What to do? Get $900 million from the large Canadian pension funds. 
 

No other P/C insurance company is doing these things. (If some are please let me know who and what it was they did/are doing.) The logic. The creativity. The size. The execution. The results. 

When I first heard of the TRS it immediately screamed "sucker bet" - for any counterparties.  As you suggest, no one knows Fairfax better than Prem,  He also knew that he had transitioned away from some of the issues that plagued Fairfax in the 2010s.  And the kicker was, if the share price had continued to fall even after the TRS was put in place, he could have openly bought even more shares of his own company until the public finally woke up.   This was always a win/win for Prem and Fairfax shareholders.  And one way that Fairfax beat Berkshire to the punch.

[Viking]

9 minutes ago, 73 Reds said:

When I first heard of the TRS it immediately screamed "sucker bet" - for any counterparties.  As you suggest, no one knows Fairfax better than Prem,  He also knew that he had transitioned away from some of the issues that plagued Fairfax in the 2010s.  And the kicker was, if the share price had continued to fall even after the TRS was put in place, he could have openly bought even more shares of his own company until the public finally woke up.   This was always a win/win for Prem and Fairfax shareholders.  And one way that Fairfax beat Berkshire to the punch.

@73 Reds, I always liked the FFH-TRS investment. I loved it when operating earnings began spiking in 2022. To your point, that is when Fairfax had the cash to be very aggressive with buybacks - that kind of put them in control of their share price (they could buy back aggressively on any weakness). That is why I am ok with the size of the position today. They know what the company is worth more than I do. If they like it as an investment that works for me.

Edited July 27, 2025 by Viking

[Marco Van Basten]

1 hour ago, 73 Reds said:

When I first heard of the TRS it immediately screamed "sucker bet" - for any counterparties.  As you suggest, no one knows Fairfax better than Prem,  He also knew that he had transitioned away from some of the issues that plagued Fairfax in the 2010s.  And the kicker was, if the share price had continued to fall even after the TRS was put in place, he could have openly bought even more shares of his own company until the public finally woke up.   This was always a win/win for Prem and Fairfax shareholders.  And one way that Fairfax beat Berkshire to the punch.

Not a sucker's bet, since normally the counter-party would be fully hedged and collect a spread on a swap versus its funding costs.  

[SafetyinNumbers]

Another often overlooked aspect of the TRS is that the funding cost is floating so it probably cost them less than the dividend yield when they put it on and when interest rates went up the value rose a lot faster than the borrowing costs. 

[73 Reds]

3 hours ago, Marco Van Basten said:

Not a sucker's bet, since normally the counter-party would be fully hedged and collect a spread on a swap versus its funding costs.  

 

3 hours ago, Marco Van Basten said:

Not a sucker's bet, since normally the counter-party would be fully hedged and collect a spread on a swap versus its funding costs.  

If the counterparty is hedged, someone is taking the opposite side of the hedge.  Macro-speaking there is no free lunch.

[This2ShallPass]

On 7/20/2025 at 5:18 AM, SafetyinNumbers said:

Gift link if anyone wants it: 

 

https://www.theglobeandmail.com/gift/b04eb1bcd666173196423362ad31a8785d529ba1ad1cee14b25891c6ca2ccfbf/O2CNLFZ2JBGHFJOHYRCWASGEKE/
 

Obviously a super cat event would slow down BV growth in the year that it happens but unlike previous years it’s unlikely to result in a loss for the full year given the strong core earnings. Ultimately, it would harden the market and those earnings would be recovered over the next few years. The disclosure on historical cat losses in the ESG report gives a visual representation of how low losses have become measured by cat points as premiums have grown a lot faster than exposure. 
 

The more interesting thing to me is what can go right. No analysts are predicting reserve releases to grow very quickly over the next few years but that seems likely to me which means underwriting profit could beat expectations by a wide margin. 
 

 

Thanks for these charts. It's good to see they have about a $4B(!) cushion to absorb a super cat event. I also agree companies who can absorb these losses and stay afloat will do very well in subsequent years of the inevitable hard market.

 

 

[SafetyinNumbers]

2 hours ago, 73 Reds said:

 

If the counterparty is hedged, someone is taking the opposite side of the hedge.  Macro-speaking there is no free lunch.

The bank swap book goes long the shares and the TRS is the short on the other side. 

[TwoCitiesCapital]

11 hours ago, Hoodlum said:

it would also be interesting to know if the believed at the time of the TRS purchase that inflation/interest would significantly increase in those next few years, understanding how their insurance business would grow under that environment.  

 

To be fair, they've believed this since 2016 when Trump was first elected and they first went to 0 duration. It took 5-years of earning exceptionally low rates on capital and a global pandemic to be right. 

 

It worked out, sure. But I don't think it was a special foresight as much as it was Fairfax was priced as if interest rates would never rise and we know that was unlikely. 

 

3 hours ago, 73 Reds said:

 

If the counterparty is hedged, someone is taking the opposite side of the hedge.  Macro-speaking there is no free lunch.

 

Muddy Waters helped us here

[nwoodman]

@SafetyinNumbers good chat,  you covered a lot of ground.

 

https://podcasts.apple.com/au/podcast/newcomer-investor/id1662369630?i=1000719376026

[SafetyinNumbers]

6 hours ago, nwoodman said:

@SafetyinNumbers good chat,  you covered a lot of ground.

 

https://podcasts.apple.com/au/podcast/newcomer-investor/id1662369630?i=1000719376026

Thanks! I’m hoping it makes more people take a look at SCR. One thing that I realized post recording is that WEF controlling 51% of SCR post MEG deal may be to maintain the tax losses and not just to fund the cash portion of the deal for MEG.

[Xerxes]

On 7/27/2025 at 1:21 PM, Marco Van Basten said:

Not a sucker's bet, since normally the counter-party would be fully hedged and collect a spread on a swap versus its funding costs.  

If one believes that the “sucker” is a constant.
 

And if the 4-5 big banks counterparty are hedging …

 

than that only means that the “sucker” is now sliced into even thinner salamis into the greater market that is selling their commons to the 4-5 big banks. 

[Marco Van Basten]

22 minutes ago, Xerxes said:

If one believes that the “sucker” is a constant.
 

And if the 4-5 big banks counterparty are hedging …

 

than that only means that the “sucker” is now sliced into even thinner salamis into the greater market that is selling their commons to the 4-5 big banks. 

Fair point.  Your response reminded of Bill Zeckendorf's salami technique... Look him up, a brilliant NYC builder who blew up a few times.  His sons built 15 Central Park West in NYC In 2007

[nwoodman]

9 hours ago, SafetyinNumbers said:

Thanks! I’m hoping it makes more people take a look at SCR. One thing that I realized post recording is that WEF controlling 51% of SCR post MEG deal may be to maintain the tax losses and not just to fund the cash portion of the deal for MEG.

Interesting point, will pick it up in the Strathcona thread.

 

 

[Xerxes]

3 hours ago, Marco Van Basten said:

Fair point.  Your response reminded of Bill Zeckendorf's salami technique... Look him up, a brilliant NYC builder who blew up a few times.  His sons built 15 Central Park West in NYC In 2007

Thanks. I bought his book from Amazon. 
But the printer shop didn’t do a good job. It was turn off. So didn’t pursue further 

[Hoodlum]

National Bank analyst, Jaeme Gloyn, has upgraded Fairfax from $2700 to $3000.   

 

 

“Fairfax has also delivered strong performance. Fairfax returned to our top picks list as we maintained the view that Fairfax’s operating income guidance was too conservative. We believed Fairfax would deliver consistent results and deploy excess capital to drive ROE accretion, ultimately, sustaining operating ROE in the mid-teens that warrants a valuation re-rate. So far, this view has played out as expected. Fairfax upgraded their annual operating income expectation to $5-billion (up from $4-billion), and we continue to see consistent underwriting results across the business. Additionally, with $2 billion in cash at the holdco and $3.0-billion in excess capital at its insurance subsidiaries, we expect FFH to complete more ROE accretive transactions in the near term. We believe that while FFH historically traded at a discount to peers BRK and MKL, it is actually FFH that deserves the premium valuation given the company’s outperformance on BVPS growth and average ROE over the past five and 10 years.”

[Thrifty3000]

On 7/27/2025 at 6:03 PM, Viking said:

I agree. In 2020 Fairfax was yelling from the rooftops that their shares were historically cheap. That was the year Prem backed up the truck and bought $150 million in shares at a little more than $300/share. They did repurchase 344,000 shares for cancellation at $293/share. They purchased another 458,000 shares for Treasury at $301/share.  But they were short on cash. What to do? Get exposure to 1.96 million more shares at $373/share (late 2020 and early 2021). At the end of 2020 there were 26.2 million shares outstanding to this represented 7.5% of shares outstanding. 

It is easy today to look back and understand and appreciate what Fairfax has done with the FFH-TRS. But back when they announced it - well,  analysts were gobsmacked. They didn’t know what to think about the position or Fairfax for putting it on. It was a complete shocker. And that was because what Fairfax had done was a first in P/C insurance - it had never been done before. And the size of the position was very audacious.

 

I think the brilliance of this investment was the certainty factor. Buffett says certainty is the most important input to the investment decision. And Fairfax knew with 100% certainty that their business was being criminally undervalued - especially the insurance part of the business which had doubled in size (from acquisitions) and was a year into the hard market. They had much better information than everyone else (obviously). 
 

The FFH-TRS has increased in value by about $2.7 billion in 4.5 years (before carrying costs/dividends paid). What is the ROIC from this investment? Does anyone know how to calculate it? I don’t. 
 

Fairfax is in a league of their own when it comes to the FFH-TRS position. The investment and the size of the position was unique. 
 

It was the same thing with the positioning of the fixed income portfolio in late 2021 when they sold all their corporate bonds (at yields below 1%) and took the average duration to 1.2 years. This positioning saved the company +$3 billion (probably more) in what would have been unrealized losses (and would have severely hit book value).
 

Buffett was the only other peer thinking the same way (fixed income was in a historical bubble). Both Buffett and Fairfax knew with a high level of certainty that the US 10 year trading at 0.70% was nuts. 
 

It was the same thing with the Dutch auction when Fairfax bought back 2 million shares at $500/share. When it was still short on cash (capital was going to the insurance subs to grow in the hard market). What to do? Get $900 million from the large Canadian pension funds. 
 

Back to the certainty thing. Fairfax saw that the hard market in insurance had legs. And they probably started to sniff out the beginnings of inflation. Back to that certainty thing… at $500, they knew Fairfax was still being significantly undervalued. 
 

No other P/C insurance company is doing these things. (If some are please let me know who and what it was they did/are doing.) The logic. The creativity. The size. The execution. The results. 

I have to admit that even though I was buying FFH in the depths of the 2020 panic, I did not yet have strong conviction until a year or so later. I was downright nervous about 2 things - and I don’t think I was alone:

 

1) I was worried they were dangerously close to violating debt covenants.

 

2) I felt their equities were concentrated in businesses that were highly susceptible to failure should the virus effects be worse or longer term than what actually transpired. (Restaurants, a shipping business with huge China-based clients, an Indian travel agency, etc.)

 

it wasn’t until I saw the massive buybacks, the ability to sell off parts of their insurers to friends to raise quick cash, etc that I had the confidence to really back up the truck. The stock was in the $400s by that point, but I don’t regret being a little slow to the party. 

[73 Reds]

44 minutes ago, Thrifty3000 said:

I have to admit that even though I was buying FFH in the depths of the 2020 panic, I did not yet have strong conviction until a year or so later. I was downright nervous about 2 things - and I don’t think I was alone:

 

1) I was worried they were dangerously close to violating debt covenants.

 

2) I felt their equities were concentrated in businesses that were highly susceptible to failure should the virus effects be worse or longer term than what actually transpired. (Restaurants, a shipping business with huge China-based clients, an Indian travel agency, etc.)

 

it wasn’t until I saw the massive buybacks, the ability to sell off parts of their insurers to friends to raise quick cash, etc that I had the confidence to really back up the truck. The stock was in the $400s by that point, but I don’t regret being a little slow to the party. 

As mentioned before, the TRS was what convinced me.  And of course, Viking!

[Crip1]

2 hours ago, 73 Reds said:

As mentioned before, the TRS was what convinced me.  And of course, Viking!

I have a tendency to harvest my flowers and water my weeds. Had it not been for Viking, there's a solid chance I'd have harvested some of my Fairfax when it it US$1K or thereabouts. The fact that I didn't has allowed me to be notably closer to retirement than I'd have been otherwise.

 

-Crip

[73 Reds]

48 minutes ago, Crip1 said:

I have a tendency to harvest my flowers and water my weeds. Had it not been for Viking, there's a solid chance I'd have harvested some of my Fairfax when it it US$1K or thereabouts. The fact that I didn't has allowed me to be notably closer to retirement than I'd have been otherwise.

 

-Crip

Viking convinced me to increase my investment in Fairfax at least ten-fold.  Initially it was just a stock that looked too damn cheap.  His targeted, yet detailed analysis is second to none.  I don't have the patience to pore through years worth of 10Ks (yeah, blasphemy on an investment board) and his analysis cuts to the chase.  

[villainx]

I go off the vibe here and I increased position 5x.

 

Just kidding about vibe, but I'm not as rigorous as I should be.

[SafetyinNumbers]

2 hours ago, villainx said:

I go off the vibe here and I increased position 5x.

 

Just kidding about vibe, but I'm not as rigorous as I should be.

Fairfax has been back of the napkin math since @kodiak  encouraged me to take a look in January 2021.