Fairfax 2025

[bluedevil]

8 hours ago, Txvestor said:

Except for the pesky deductions of Interest on loans carried on books, minority interests and taxes. Those are also annual expenses before you get to the bottom line. But yeah since equity and investment gains will one day be realized, $200 eps a year for the next 3-4yrs seems possible and even likely. So 2029 $2k BV is within reach and a 2.5x multiple rerate on that would be wonderful. 

 

AND I heard on the call today that the duration on the fixed income portfolio is around 2.5 years, not 4 years.

[Redskin212]

From the MD&A

 

"The company's fixed income portfolio is conservatively positioned with 70% of the fixed income portfolio invested in U.S. treasuries and other government bonds and 19% in high quality corporate bonds, primarily short-dated, with an average term to maturity on the bond portfolio of 3.3 years"

[Hoodlum]

5 minutes ago, Redskin212 said:

From the MD&A

 

"The company's fixed income portfolio is conservatively positioned with 70% of the fixed income portfolio invested in U.S. treasuries and other government bonds and 19% in high quality corporate bonds, primarily short-dated, with an average term to maturity on the bond portfolio of 3.3 years"

 

I couldn't make the call, but according to online transcript Wade had mentioned the following.  Not sure if that was not transcribed correctly or referring to something different.

We have weathered the tariff situation well so far and monitor it closely. We continue to look for ways to benefit and protect our float as events evolve. We ended the quarter with $49,000,000,000 in fixed income investments. The yield is 5.1, and our dividend and interest income run rate is a healthy $2,600,000,000 per annum. Our duration is 2.4 years, including $11,000,000,000 in cash and short term treasuries.

[Redskin212]

I think maybe the 3.3 refers to the $49 billion and the 2.4 refers to the $49 billion + $11 Billion.  

MD&A should be clearer on the definition of the "bond portfolio"

 

I missed the call, but one thing I did notice in the bond portfolio was that they sold the majority of their long-dated bonds (28-30 years), which would lead me to believe the duration is lower than the previous quarter.

[Hoodlum]

5 minutes ago, Redskin212 said:

I think maybe the 3.3 refers to the $49 billion and the 2.4 refers to the $49 billion + $11 Billion.  

MD&A should be clearer on the definition of the "bond portfolio"

 

I missed the call, but one thing I did notice in the bond portfolio was that they sold the majority of their long-dated bonds (28-30 years), which would lead me to believe the duration is lower than the previous quarter.

 

I noticed that as well regarding the long dated bonds.  While a smaller percentage of the bonds, it would have a notable impact on the average duration due to the very long term.

[Hoodlum]

The following update on the Berkeley acquisition by Vacatia looks promising for this Fairfax investment.  Certainly a good start.

 

It’s early days in the timeshare investment, Berkeley, run by Caroline Shinn, but so far, it has exceeded expectations. Berkeley has approximately 125,000 available room nights per month. They started the year at virtually nil occupancy for overnight stays.  In month one, Caroline brought that number to 10%, the next month 20%, and the third month 35%.

 

 

[Junior R]

good earnings ..Maybe back to reaction to earnings later on...

[SafetyinNumbers]

1 hour ago, Redskin212 said:

From the MD&A

 

"The company's fixed income portfolio is conservatively positioned with 70% of the fixed income portfolio invested in U.S. treasuries and other government bonds and 19% in high quality corporate bonds, primarily short-dated, with an average term to maturity on the bond portfolio of 3.3 years"

Duration is lower than average maturity accounting for the coupon. Looks like they kept new float and coupons received in cash. 

[mananainvesting]

Damm, that IRR is crazy for a mortgage loan!

 

[dartmonkey]

15 minutes ago, mananainvesting said:

Damm, that IRR is crazy for a mortgage loan!

 

Aside? Is this a faulty transcription of Poseidon, which I would think would be the second biggest investment? Yes, that seems to be the case. In this day of AI-generated transcriptions, we have to be conscious of how these things sound, to know what some of the words are probably supposed to be (in bold):

 

 

Net gains on investments in the quarter were again very healthy at $952,000,000 All in, our book value per share increased to $11.58 [obviously $1158] in the second quarter, up 10.8% in the first half of the year, adjusted for our $15 dividend. Our insurance and reinsurance companies are in great shape, writing over $33,000,000,000 of annualized premium worldwide. We benefit greatly from our scale and diversification and the exceptional talent and experience of our long serving presidents and the teams that run our insurance and reinsurance operations.

I will now give you some additional detail on the components of our net earnings for the quarter. Our consolidated investment return was solid with a return of 2.6%, driven by increased interest and dividend income, strong net gains on investments, partially offset by the lower profits of associates. Consolidated interest and dividend income of $666,000,000 was up 8.5% year over year, benefiting from a growing investment portfolio and increased dividend income in the quarter. Profits of associates was $131,000,000 down by $90,000,000 compared to the 2024. Profits of associates continues to be driven by Eurobank and Poseidon Corp [not Aside, as in other transcriptions], offset this quarter by losses on the WaterUS [obviously Waterous] fund from mark to market unrealized losses in its portfolio.

[Crip1]

2 hours ago, Redskin212 said:

 

 

I missed the call, but one thing I did notice in the bond portfolio was that they sold the majority of their long-dated bonds (28-30 years), which would lead me to believe the duration is lower than the previous quarter.

It also leads me to believe that they are not anticipating a decline in interest rates anytime soon.

 

-Crip

[LC]

Would you go further to say they expect a rise in rates?

If they expect stable rates wouldn't they want to maintain duration at 4yrs or so? 

[Viking]

Fairfax Q2-2025 Earning Results - 7 High-Level Thoughts 

 

I thought this would be a good time to get out of the weeds. Instead, with our review of Q2 results at Fairfax, we are going to zoom out today and look at the big picture.

 

What did we learn about Fairfax from their Q2, 2025 results?

 

Let me know if you agree/disagree with my list. What did I miss?

 

1.) Fairfax has a very good P/C insurance business

• Combined ratio = 93.3%
• Underwriting profit = $427 million
• Net premiums written growth = 4.8%

Yes, the hard market is slowing. Top line growth in insurance is slowing. Nice to see that Fairfax is being disciplined (although Mr. Market will probably not like it). However, Fairfax will be able to continue to grow their P/C insurance business at above average rates - in addition to growth of NPW - by taking out their minority partners (see comment 5 below).

 

2.) Fairfax’s most important income stream spiked higher in Q2

• Interest and dividend income = $666 million (was $606.5 million in Q1)

Increasing by 10% in one quarter is a big deal. This puts the annual number at about $2.6 billion. It increased because the total investment portfolio continues to grow in size. And Fairfax continues to invest it very well.

• Yield of fixed income portfolio = 5.1% (same as Q1)
• Average duration of fixed income portfolio = 2.4 years (down from 3.3 in Q1)

Fairfax also reduced the average duration of its fixed income portfolio from 3.3 to 2.4 years. They sold U.S. treasury bonds with maturities principally between 28 to 30 years for net proceeds of $1,129.2. Why? Probably because investors are not being compensated appropriately for the inflation risk on long dated US Treasuries. This is prudent risk management on the part of Fairfax - protect the balance sheet. Will analysts hate this move - because it reduces ‘visibility’? Probably. But analysts are focussed on the short term. Fairfax is running the business for the long term - and shareholders should applaud that.

 

3.) A new income stream is breaking out for Fairfax

 

Fairfax already has 4 large income streams: underwriting profit, interest and dividend income, share of profit of associates and investment gains.

 

The fifth income stream is non-insurance consolidated equity holdings. 

 

In recent years Fairfax has been investing heavily in this bucket of equity holdings. Since 2022, it has added Recipe, Grivalia Hospitality, Sleep Country, Meadow Foods and Peak Achievements. To go with legacy holdings AGT Food Ingredients, Dexterra and Sporting Life.

 

I have been (impatiently) waiting 2 years for this bucket of equities to start delivering bottom line results that are in line with its potential - and it appears we might be there.

• Q2 = $126 million

This puts the annual number at about $500 million. This is an important emerging income stream for Fairfax. My guess is it will be Fairfax’s fastest growing income stream moving forward - especially with the hard market in insurance slowing (capital will go to where it earns the best return). And yes, results for this group will have some volatility.

 

4.) Fairfax (and the team at Hamblin Watsa) continues to invest exceptionally well

 

We got two important updates on the conference call today regarding a couple of Fairfax’s largest investments in recent years.

 

PacWest construction loan portfolio

 

In June of 2023, Kennedy Wilson and Fairfax purchased a $4 billion construction loan portfolio from PacWest. PacWest was caught in the regional bank crisis and they were forced to sell their best assets at a discount. (Of note, Kennedy Wilson also got the loan platform from Pac West - the 40 people who were running the loan portfolio also moved over the Kennedy Wilson.)

 

We got an update today on how this investment has been performing for Fairfax over the past three years.

 

Wade Burton, CIO and VP of Hamblin Watsa on the Fairfax conference call today:

 

“Within the fixed income portfolio, our mortgages continue to perform well. We have been repaid on $1.8 of mortgages from the Pacific Western Bank transaction, where we purchased approximately $4 billion in commitments at 95% of par in 2023. The IRR on the loans repaid thus far is 14.7%. Thanks to the outstanding work of Bill McMorrow, Matt Windisch and their team at Kennedy Wilson, these mortgages are proving to be a fantastic investment for Fairfax.”

 

Blizzard Vacatia (Berkley Group)

 

One of Fairfax’s largest investments in 2025 (January) was the purchase of the Berkley Group, one of the largest independent timeshare companies in the US. With this deal, Fairfax partnered with Caroline Shin and her team at Vacatia. The partnership is called Blizzard Vacatia. Fairfax invested $810 million in various fixed income instruments (with an average yield of 8.6%) and $25 million in equity (50% ownership position).

 

We got an update today on how this investment has been performing for Fairfax YTD.

 

Wade Burton, CIO and VP of Hamblin Watsa on the Fairfax conference call today:

 

“It’s early days in the timeshare investment, Berkeley, run by Caroline Shin, but so far, it has exceeded expectations. Berkeley has approximately 125,000 available room nights per month. They started the year at virtually nil occupancy for overnight stays. In month one, Caroline brought that number to 10%, the next month 20%, and the third month 35%. I’m happy to report year to date operating income has already reached our full year expectations. Again, outstanding and capable partners doing an excellent job for Fairfax shareholders.”

 

5.) Fairfax telegraphed how it will continue to grow its P/C insurance business - even as the hard market slows

 

Minority interests own stakes in Fairfax’s two largest P/C insurance companies:

• Allied World = 16.6%
• Odyssey Re = 9.9%

 As a result, not all of the earnings from these two companies are accruing to Fairfax common shareholders.

 

Taking out the minority shareholders will be an easy way for Fairfax to grow its P/C insurance business - it will boost the total amount of earnings that accrue to its common shareholders.

 

On the Q2 conference call Fairfax confirmed that it would like to take out its minority partners in its two insurance businesses. They will likely to this in two steps: Allied World later this year (my best guess) and Odyssey in 2026 (or perhaps 2027).

 

The timing will likely be determined by the opportunity set that exists in financial markets in general. If a better capital allocation opportunity comes along, perhaps they will delay taking out minority partners.

 

Because of the call option feature (put in place when the deals were initially struck), Fairfax is able to buy out the minority partners at a very favourable price. As a result, these transactions are high certainty, solid return uses of capital for Fairfax.

 

Taking out minority partners will be a way for Fairfax to grow its bottom line (the part that accrues to its common shareholders) even if the hard market slows further in the coming years. Brilliant planning and execution on the part of Fairfax.

6.) Economic results are much better than accounting results

 

Excess of fair value over carrying value for associate and consolidated holdings increased from $1.4 billion to $2.4 billion, or $111/FFH share (pre-tax).

 

The increase in the quarter was $1 billion, or $46/share pre-tax. This amount is not captured in Fairfax’s reported results (EPS, BV or ROE). 
 

This puts the economic value created by Fairfax in Q2 at about $97 share (EPS of $62 plus excess of FV over CV of $35). 

 

7.) Fairfax is exceptionally well positioned today

 

With $3 billion in cash to the holding company, Fairfax is all cashed up. The insurance subs are also overcapitalized (by about $3 billion) - with the hard market slowing, this is another chunk of money that could be sent as a dividend to Fairfax to be redeployed elsewhere. Fairfax is also generating about $1 billion in earnings each quarter.

 

Fairfax has built an earnings juggernaut. Importantly, it is just getting started. Compounding is just starting to kick in… This is resulting in exponential growth. This is very hard for investors to grasp (humans think linearly). This will likely cause investors to underestimate future earnings - and that is what we have seen in each of the past 4 years (like a dog chasing its tail, earnings estimates for Fairfax have consistently been too low and subsequently keep getting revised higher).

 

Fairfax has spent the last 39 years building out its investment management business. It has an amazing range of internal capabilities. This will allow the company to be very nimble and opportunistic moving forward.

 

At the same time, Fairfax has developed a large number of relationships with external capital allocators. Fairfax is viewed as being trustworthy and desirable partner. This is resulting in deal flow - Fairfax’s phone is ringing.

 

Volatility is back. Interest rates have normalized. The macro environment is highly uncertain (tariffs being just one factor). Volatility is a wonderful thing for a value investor like Fairfax - it gives them the opportunity to deploy capital at very attractive rates of return.

 

And Fairfax is on a ‘hot streak’ (a reference to Stanley Druckenmiller). For the past 5 years the team at Fairfax has been executing exceptionally well. ‘They are seeing the ball really well…’   

Edited August 1, 2025 by Viking

[73 Reds]

13 minutes ago, Viking said:

Fairfax Q2-2025 Earning Results - 6 High-Level Thoughts 

 

I thought this would be a good time to get out of the weeds. Instead, with our review of Q2 results at Fairfax, we are going to zoom out today and look at the big picture.

 

What did we learn about Fairfax from their Q2, 2025 results?

 

Let me know if you agree/disagree with my list. What did I miss?

 

1.) Fairfax has a very good P/C insurance business

• Combined ratio = 93.3%
• Underwriting profit = $427 million
• Net premiums written growth = 4.8%

Yes, the hard market is slowing. Top line growth in insurance is slowing. Nice to see that Fairfax is being disciplined (although Mr. Market will probably not like it). However, Fairfax will be able to continue to grow their P/C insurance business at above average rates - in addition to growth of NPW - by taking out their minority partners (see comment 5 below).

 

2.) Fairfax’s most important income stream spiked higher in Q2

• Interest and dividend income = $666 million (was $606.5 million in Q1)

Increasing by 10% in one quarter is a big deal. This puts the annual number at about $2.6 billion. It increased because the total investment portfolio continues to grow in size. And Fairfax continues to invest it very well.

• Yield of fixed income portfolio = 5.1% (same as Q1)
• Average duration of fixed income portfolio = 2.4 years (down from 3.3 in Q1)

Fairfax also reduced the average duration of its fixed income portfolio from 3.3 to 2.4 years. They sold U.S. treasury bonds with maturities principally between 28 to 30 years for net proceeds of $1,129.2. Why? Probably because investors are not being compensated appropriately for the inflation risk on long dated US Treasuries. This is prudent risk management on the part of Fairfax - protect the balance sheet. Will analysts hate this move - because it reduces ‘visibility’? Probably. But analysts are focussed on the short term. Fairfax is running the business for the long term - and shareholders should applaud that.

 

3.) A new income stream is breaking out for Fairfax

 

Fairfax already has 4 large income streams: underwriting profit, interest and dividend income, share of profit of associates and investment gains.

 

The fifth income stream is non-insurance consolidated equity holdings. 

 

In recent years Fairfax has been investing heavily in this bucket of equity holdings. Since 2022, it has added Recipe, Grivalia Hospitality, Sleep Country, Meadow Foods and Peak Achievements. To go with legacy holdings AGT Food Ingredients, Dexterra and Sporting Life.

 

I have been (impatiently) waiting 2 years for this bucket of equities to start delivering bottom line results that are in line with its potential - and it appears we might be there.

• Q2 = $126 million

This puts the annual number at about $500 million. This is an important emerging income stream for Fairfax. My guess is it will be Fairfax’s fastest growing income stream moving forward - especially with the hard market in insurance slowing (capital will go to where it earns the best return). And yes, results for this group will have some volatility.

 

4.) Fairfax (and the team at Hamblin Watsa) continues to invest exceptionally well

 

We got two important updates on the conference call today regarding a couple of Fairfax’s largest investments in recent years.

 

PacWest construction loan portfolio

 

In June of 2023, Kennedy Wilson and Fairfax purchased a $4 billion construction loan portfolio from PacWest. PacWest was caught in the regional bank crisis and they were forced to sell their best assets at a discount. (Of note, Kennedy Wilson also got the loan platform from Pac West - the 40 people who were running the loan portfolio also moved over the Kennedy Wilson.)

 

We got an update today on how this investment has been performing for Fairfax over the past three years.

 

Wade Burton, CIO and VP of Hamblin Watsa on the Fairfax conference call today:

 

“Within the fixed income portfolio, our mortgages continue to perform well. We have been repaid on $1.8 of mortgages from the Pacific Western Bank transaction, where we purchased approximately $4 billion in commitments at 95% of par in 2023. The IRR on the loans repaid thus far is 14.7%. Thanks to the outstanding work of Bill McMorrow, Matt Windisch and their team at Kennedy Wilson, these mortgages are proving to be a fantastic investment for Fairfax.”

 

Blizzard Vacatia (Berkley Group)

 

One of Fairfax’s largest investments in 2025 (January) was the purchase of the Berkley Group, one of the largest independent timeshare companies in the US. With this deal, Fairfax partnered with Caroline Shin and her team at Vacatia. The partnership is called Blizzard Vacatia. Fairfax invested $810 million in various fixed income instruments (with an average yield of 8.6%) and $25 million in equity (50% ownership position).

 

We got an update today on how this investment has been performing for Fairfax YTD.

 

Wade Burton, CIO and VP of Hamblin Watsa on the Fairfax conference call today:

 

“It’s early days in the timeshare investment, Berkeley, run by Caroline Shin, but so far, it has exceeded expectations. Berkeley has approximately 125,000 available room nights per month. They started the year at virtually nil occupancy for overnight stays. In month one, Caroline brought that number to 10%, the next month 20%, and the third month 35%. I’m happy to report year to date operating income has already reached our full year expectations. Again, outstanding and capable partners doing an excellent job for Fairfax shareholders.”

 

5.) Fairfax telegraphed how it will continue to grow its P/C insurance business - even as the hard market slows

 

Minority interests own stakes in Fairfax’s two largest P/C insurance companies:

• Allied World = 16.6%
• Odyssey Re = 9.9%

 As a result, not all of the earnings from these two companies are accruing to Fairfax common shareholders.

 

Taking out the minority shareholders will be an easy way for Fairfax to grow its P/C insurance business - it will boost the total amount of earnings that accrue to its common shareholders.

 

On the Q2 conference call Fairfax confirmed that it would like to take out its minority partners in its two insurance businesses. They will likely to this in two steps: Allied World later this year (my best guess) and Odyssey in 2026 (or perhaps 2027).

 

The timing will likely be determined by the opportunity set that exists in financial markets in general. If a better capital allocation opportunity comes along, perhaps they will delay taking out minority partners.

 

Because of the call option feature (put in place when the deals were initially struck), Fairfax is able to buy out the minority partners at a very favourable price. As a result, these transactions are high certainty, solid return uses of capital for Fairfax.

 

Taking out minority partners will be a way for Fairfax to grow its bottom line (the part that accrues to its common shareholders) even if the hard market slows further in the coming years. Brilliant planning and execution on the part of Fairfax.

 

6.) Fairfax is exceptionally well positioned today

 

With $3 billion in cash to the holding company, Fairfax is all cashed up. The insurance subs are also overcapitalized (by about $3 billion) - with the hard market slowing, this is another chunk of money that could be sent as a dividend to Fairfax to be redeployed elsewhere. Fairfax is also generating about $1 billion in earnings each quarter.

 

Fairfax has built an earnings juggernaut. Importantly, it is just getting started. Compounding is just starting to kick in… This is resulting in exponential growth. This is very hard for investors to grasp (humans think linearly). This will likely cause investors to underestimate future earnings - and that is what we have seen in each of the past 4 years (like a dog chasing its tail, earnings estimates for Fairfax have consistently been too low and subsequently keep getting revised higher).

 

Fairfax has spent the last 39 years building out its investment management business. It has an amazing range of internal capabilities. This will allow the company to be very nimble and opportunistic moving forward.

 

At the same time, Fairfax has developed a large number of relationships with external capital allocators. Fairfax is viewed as being trustworthy and desirable partner. This is resulting in deal flow - Fairfax’s phone is ringing.

 

Volatility is back. Interest rates have normalized. The macro environment is highly uncertain (tariffs being just one factor). Volatility is a wonderful thing for a value investor like Fairfax - it gives them the opportunity to deploy capital at very attractive rates of return.

 

And Fairfax is on a ‘hot streak’ (a reference to Stanley Druckenmiller). For the past 5 years the team at Fairfax has been executing exceptionally well. ‘They are seeing the ball really well…’   

@Viking thanks as always for your valued overview and perspective.    What struck me was your comment that interest and dividend income was the most important income stream in Q2.   Leaves me wondering whether that remains management's goal or is the objective to methodically build up other streams of income so that interest and dividends eventually take a back seat to more direct and hands-on investment income.  How closely will Fairfax follow in the steps of Buffett and Berkshire?  With the right patience and discipline (as you say, sorry Mr. Market) who knows what may be possible? 

[Hamburg Investor]

31 minutes ago, Viking said:

Fairfax Q2-2025 Earning Results - 6 High-Level Thoughts 

 

I thought this would be a good time to get out of the weeds. Instead, with our review of Q2 results at Fairfax, we are going to zoom out today and look at the big picture.

 

What did we learn about Fairfax from their Q2, 2025 results?

 

 

Thank you @Viking, agree. That are really important points this quarter.

Below I marked the topics, that I personally find being more "news" than the others and/or have questions or remarks. 

31 minutes ago, Viking said:

2.) Fairfax’s most important income stream spiked higher in Q2

• Interest and dividend income = $666 million (was $606.5 million in Q1)

Increasing by 10% in one quarter is a big deal. This puts the annual number at about $2.6 billion.

So the yearly run rate grows from 4.0bn to 4.6bn - correct?

31 minutes ago, Viking said:

 

3.) A new income stream is breaking out for Fairfax

 

The fifth income stream is non-insurance consolidated equity holdings. 

• Q2 = $126 million

This puts the annual number at about $500 million. This is an important emerging income stream for Fairfax. My guess is it will be Fairfax’s fastest growing income stream moving forward - especially with the hard market in insurance slowing (capital will go to where it earns the best return). 

So what is this worth? A company producing 0.5bn earnings/year and growing strong? I think a multiple like 12 wouldn't be aggressive. But I am unsure, if/how the 126mn dollar should be adjusted and applied to EBITDA; like at Markel Ventures.).

31 minutes ago, Viking said:

 

PacWest construction loan portfolio

 

Wade Burton, CIO and VP of Hamblin Watsa on the Fairfax conference call today:

 

The IRR on the loans repaid thus far is 14.7%. 

 

 

 

Blizzard Vacatia (Berkley Group)

 

Fairfax invested $810 million in various fixed income instruments (with an average yield of 8.6%) and $25 million in equity (50% ownership position).

 

“Berkeley has approximately 125,000 available room nights per month. They started the year at virtually nil occupancy for overnight stays. In month one, Caroline brought that number to 10%, the next month 20%, and the third month 35%. I’m happy to report year to date operating income has already reached our full year expectations. Again, outstanding and capable partners doing an excellent job for Fairfax shareholders.”

 

6.) Fairfax is exceptionally well positioned today

 

With $3 billion in cash to the holding company, Fairfax is all cashed up. The insurance subs are also overcapitalized (by about $3 billion) - with the hard market slowing, this is another chunk of money that could be sent as a dividend to Fairfax to be redeployed elsewhere. Fairfax is also generating about $1 billion in earnings each quarter.

 

Fairfax has built an earnings juggernaut. Importantly, it is just getting started. Compounding is just starting to kick in…

 

At the same time, Fairfax has developed a large number of relationships with external capital allocators. Fairfax is viewed as being trustworthy and desirable partner. This is resulting in deal flow - Fairfax’s phone is ringing.

 

Volatility is back. Volatility is a wonderful thing for a value investor like Fairfax - it gives them the opportunity to deploy capital at very attractive rates of return.

 

And Fairfax is on a ‘hot streak’ (a reference to Stanley Druckenmiller). For the past 5 years the team at Fairfax has been executing exceptionally well. ‘They are seeing the ball really well…’   

 

Pac West is just breathtaking!

Blizzard Vacatia sounds very good, but I don't understand the dynamics of the business (10%, 20%, 35%). Is someone able to explain what that development means? Do we see normal seasonality in their business? Or is it as they just start so need to find customers, build up structure, Marketing etc first and that needs time? What is to be expected here in earnings for the full year? Any ideas?

What's the investable cash FFH has? Is it like 3bn (holding) plus 3bn (insurance subs) + 1bn per quarter, so like 7bn end of q3? My guess would be, that we should subtract a number (2bn, maybe 3bn), as FFH - as Buffett - might be happy having cash on hand as a lifejacket, when things suddenly go into the wrong direction. A than they might find partners or other leverage again. Any thoughts about that "elephant gun"?

 

Bottom line for me: I think earnings of subs, load of elephant gun and the earnings run rate accelerating being the most fascinating stuff this quarter.

[Viking]

2 hours ago, 73 Reds said:

@Viking thanks as always for your valued overview and perspective.    What struck me was your comment that interest and dividend income was the most important income stream in Q2.   Leaves me wondering whether that remains management's goal or is the objective to methodically build up other streams of income so that interest and dividends eventually take a back seat to more direct and hands-on investment income.  How closely will Fairfax follow in the steps of Buffett and Berkshire?  With the right patience and discipline (as you say, sorry Mr. Market) who knows what may be possible? 

 

@73 Reds, I call 'interest and dividend income' the most important for two reasons:

1. It is the largest income stream. Depending on what you measure it against, it is about 40% to 45% of all income streams. 
2. It is also the one most revered by analysts/investors. Because it is considered stable and predictable = low volatility.

I think Fairfax has come to appreciate this income stream over the past couple of years. Its size and consistency is generating an enormous amount of cash flow each year - that can opportunistically invested into the best available opportunities.

 

But at its core, I think Fairfax is a total return investor (with a long term focus).

 

But having said that, Fairfax has been aggressively adding to their 'non-insurance consolidated holdings.' The Recipe take-private in 2022 was very opportunistic - they got the business for a good (great?) price (they did not have to pay a premium to take it private - they bought it at the tail end of covid when full-serve restaurants in Canada were still on sale). Grivalia Hospitality and Peak were businesses they already owned - they just took out their partners. Meadow Foods and Sleep Country were the new purchases.

 

Is the goal to become a conglomerate like Berkshire Hathaway? I am pretty confident the answer here is a hard no. I think Fairfax wants to continue to grow its P/C insurance business. I also think they like to have a variety of income streams (and assets) and some that are not correlated with P/C insurance. It provides some nice diversification for the company.

 

Fairfax is focussed on growing per share value for long term shareholders. They want to do this primarily as a P/C insurance company. And when it comes to capital allocation they are very open minded - the range of proven capabilities they have is amazing. How Fairfax allocates capital is very different than Warren Buffett/Berkshire Hathaway.

 

Sorry, not sure if I answered your question... 

Edited August 1, 2025 by Viking

[Parsad]

9 hours ago, Viking said:

 

 

7.) Fairfax is exceptionally well positioned today

 

With $3 billion in cash to the holding company, Fairfax is all cashed up. The insurance subs are also overcapitalized (by about $3 billion) - with the hard market slowing, this is another chunk of money that could be sent as a dividend to Fairfax to be redeployed elsewhere. Fairfax is also generating about $1 billion in earnings each quarter.

 

Fairfax has built an earnings juggernaut. Importantly, it is just getting started. Compounding is just starting to kick in… This is resulting in exponential growth. This is very hard for investors to grasp (humans think linearly). This will likely cause investors to underestimate future earnings - and that is what we have seen in each of the past 4 years (like a dog chasing its tail, earnings estimates for Fairfax have consistently been too low and subsequently keep getting revised higher).

 

Fairfax has spent the last 39 years building out its investment management business. It has an amazing range of internal capabilities. This will allow the company to be very nimble and opportunistic moving forward.

 

 

This is a key part of what I've been waiting for.  You can talk the talk about being soundly funded, but now they are REALLY soundly funded.  Credit rating agencies are obviously recognizing that now.  

 

It's ok to have excess cash and securities at the holding company level...even when the insurance subs and non-insurance subs are well-funded. 

 

With the leverage they have in float and debt, they will hit their 15% mark by just doing the simple things...run sound insurance businesses, manage the portfolio without reaching for yield, find good opportunities to add to the diversity in streams of income...they do this and they will succeed.

 

They are now officially a rock financially.  With all that cash, staggered and well structured debt financing, a solid portfolio generating excellent interest and dividends, a strong portfolio of equity investments and perhaps one of the finest portfolios of insurance businesses globally...it seems that we are now finally at the point where Fairfax's checks like Berkshire, will always clear!

 

Cheers!

[nwoodman]

17 hours ago, dartmonkey said:

Wow, yes, at -$903m, that's a big expense, in the context of $2304m in net earnings for the first half. Could you or one of the other people better versed in IFRS accounting provide some explanation of what the idea behind this charge is and how it applies to Fairfax in a different way from other insurers?

The more I think about it, IFRS 17 probably obscures more than it reveals, at least when it comes to Fairfax, and especially in the short term. They’ve been running high float leverage, and during a growth spurt like they’ve had over the past few years, the distortion is amplified.

 

That $903m net finance expense is a good example. It’s not a cash cost, and it doesn’t reflect poor performance,  it’s simply the accounting unwind of discounted future liabilities. But it hits the P&L hard, while the returns Fairfax generates on that float are real. The result is a distorted picture of true earning power.

 

It reminds me of how the excess of fair value on investments quietly builds but is not yet reflected in reported book value.  To gauge true performance you need to the annual change in adjusted book value + divs.  Even then you don’t fully capture the true change in IV because many of the positions are not marked.

 

Anyway, both effects are real, but delayed. They make Fairfax look “less impressive” (hard to believe) in the short term and more mispriced as a result. Especially if you’re anchoring to P/B and ROE to frame valuation. I guess that’s why we put in the work to understand it.
 

The table below is a qualitative attempt at gauging the two handles of NFE - float growth and discount rate:

 

The table below is a rough indication of who likely does better short term (3-5 yrs) under IFRS 17 but ultimately the economic strength of good capital allocation makes the NFE less of an impost.  So for the moment consider it another margin of safety for Fairfax.

 

[This2ShallPass]

On 8/1/2025 at 8:56 AM, Hoodlum said:

We continue to look for ways to benefit and protect our float as events evolve.

I don't know about you guys, but this comment brings back bad memories:) What does protect our float means, hope they're not thinking about hedging!

 

On TRS, it's not about undervaluation. It made sense to enter the TRS as they didn't have cash at that time. The question is why not buyback those shares now that they have money flowing in quarter after quarter? 

 

TRS will have wild quarterly fluctuations, say market correction cause the stock to drop $500 in a quarter, they will have to send $1B. Exactly at a time when they could use that to buy some real bargains. 

 

[Hektor]

6 minutes ago, This2ShallPass said:

say market correction cause the stock to drop $500 in a quarter

And, this can happen even when intrinsic value is unaffected or improving, I would assume.

[This2ShallPass]

13 minutes ago, Hektor said:

And, this can happen even when intrinsic value is unaffected or improving, I would assume.

Yes. But buybacks don't have quarterly cash commitments. That's the big downside to TRS.

[Munger_Disciple]

49 minutes ago, This2ShallPass said:

I don't know about you guys, but this comment brings back bad memories:) What does protect our float means, hope they're not thinking about hedging!

 

On TRS, it's not about undervaluation. It made sense to enter the TRS as they didn't have cash at that time. The question is why not buyback those shares now that they have money flowing in quarter after quarter? 

 

TRS will have wild quarterly fluctuations, say market correction cause the stock to drop $500 in a quarter, they will have to send $1B. Exactly at a time when they could use that to buy some real bargains. 

 

 

[Hoodlum]

2 hours ago, This2ShallPass said:

I don't know about you guys, but this comment brings back bad memories:) What does protect our float means, hope they're not thinking about hedging!

 

Right after that comment they mention the current Q2 average yield and duration. We saw the duration drop to to 2.4 years this quarter, due to the sale of 28-30 years bonds.  That could be the risk they wanted to reduce.  
 

As far as the TRS goes, I hope they do gradually buy back these shares.  Although I do believe the risk is minimal even with a $500 drop in the share price

[nwoodman]

4 hours ago, Hoodlum said:

As far as the TRS goes, I hope they do gradually buy back these shares.  Although I do believe the risk is minimal even with a $500 drop in the share price

Extra holdco liquidity gives them a bit more optionality/buffer too.  

[adventurer]

8 hours ago, This2ShallPass said:

I don't know about you guys, but this comment brings back bad memories:) What does protect our float means, hope they're not thinking about hedging!

 

On TRS, it's not about undervaluation. It made sense to enter the TRS as they didn't have cash at that time. The question is why not buyback those shares now that they have money flowing in quarter after quarter? 

 

TRS will have wild quarterly fluctuations, say market correction cause the stock to drop $500 in a quarter, they will have to send $1B. Exactly at a time when they could use that to buy some real bargains. 

 

Cutting the TRS a bit would also align with the reduction of the bond portfolio`s duration to 2,4 years in that both would be more defensive moves. It would not appear to be an illogical move to my mind. But what do I know.