Fairfax 2026

[dartmonkey]

3 hours ago, SafetyinNumbers said:

Using low expectations instead of realistic expectations has kept investors out of the stock or encouraged them to sell too soon for years. Good for the rest of us, I suppose.

Agree 100%. For any parameter in an analysis, there will be a range of possible values, going from pessimistic to optimistic. You should not build pessimistic assumptions into your analysis, you should use some sort of central, expected value estimate. That would probably lead you to invest in FFH as a good investment right now. And then, after you've made the investment, if you want to be pessimistic (something might always go wrong) and have low expectations about how your investment will perform, so that you are more likely to be happily surprised by the outcome, maybe this is a sensible way to lead your life.

 

But it is crazy to put overly pessimistic assumptions into any analysis - you would never buy anything, that way.

[Munger_Disciple]

7 minutes ago, dartmonkey said:

But it is crazy to put overly pessimistic assumptions into any analysis - you would never buy anything, that way.

 

Is it crazy & overly pessimistic to think ST rates may go lower and thus affect interest income negatively? We have a President & a Fed Chair hell bent on lowering rates.

 

What is an optimistic or pessimistic scenario is in the eye of beholder. 

[Hamburg Investor]

3 hours ago, giulio said:

Interesting that most are discussing future returns expectations but only a few here are focusing on what actually matters, i.e. the per share earning power of the business and relative IV. 

I certainly have no idea where interest rates will be in the future or what returns to expect from ffh equity portfolio, or investment gains. 

What helps me in having a better/complete view is calculating look-through earnings. Last year they were ~190USD per share. These excludes gains from investments and derivates such as TRS.

Is this a reasonable expectation going forward? YES. On average, over the next 5 years I expect ffh to earn ~200USD per share.

The possible downsides are pretty clear to all: higher CR, slower growth or reduced NPW, lower yield on FI, lower returns from equities. 

Here are the factors that may help mitigate these risks: less premiums ceded, minorities buyback, longer FI duration, shift from gov to corporate bonds, higher income from consolidated companies, reinvestment of earnings, lower shares count.

Not everything that matters can be counted and not everything that can be counted matters.

Still, starting from last year 190, I am pretty sure that 1) buying back minorities can add 20USD per share, 2) consolidated operations might add another 20, 3) s/o will be lower, closer to 18M if I have to guess.

What's a fair multiple? Certainly not 8x. 13x or 15x? That means today IV is 2600-3000USD.

You can then triangulate this estimate with other methodologies, P/B, float + equity? Hard for me to see a value lower than 3000.

You cannot know exactly what bonds will yield or what realized gains will be. You know the company culture, investment framework and horizon.

Make your bets accordingly. 

 

Best,

G

 

 

+1

That way of thinking resonates a lot with me. It's all about intrinsic value; the rest will take of itself.

Just some random thoughts regarding what yo wrote:

1. Regarding your point within the downsides "lower returns from equities": Low share price  helps covering that!
Yes, that can happen. One there's Mr. Market and two management has to find good investments; and they can fail. All things equal, investing into equity is a risk; Prem could be wrong, as he has been (I don't blame him for that; even Buffett has been wrong multiple times).

 

But (and that's my add): As long as the share price is below IV buying back shares is a high return, low risk alternative. And management uses it heavily. So a share price below IV reduces the risk of being wrong AND gives an extra push to returns. So each dollar flowing into buybacks helps keeping the course. Let's hope for low stock price!

2. Multiple 15? Than IV $3.240, not $3.000
If $200 is your expected earnings you get to $3.000 with a multiple of 15. But when you want to get to IV, shouldn't you add the TRS. If TRS are 8% of FFH (is it 8% Not sure), than you could add another 8% of $3.000 of that. So with P/e 15, FFH IV would be $3.240. I don't say you'r right or wrong; it's just a "If you think FFH earns $200, than isn't it $3.240?" You haven't added the gains; so maybe it's even higher...

3. Is 15 a good multiple for FFHs Earnings?
I don't know. What I can say: A multiple of 15 on look through earnings has been a steal for BRK, FFH, MKL, when you held them a decade or two most of the time. It's obvious, but I think we are talking rarely about it: If a company is able to deliver ROE of 15% (or even more) over a loooong time, than you can pay (absurdly) high p/b ratios and still get a great return.

 

Imagine you could have bought BRK in 1970, 1980, 1990, 2000 at such a price or FFH/MKL 1990, 2000. The years with ultra low bond rates and growth (vs. value) winning and soft markets have destroyed that pattern a bit. But maybe that time was an anomaly? Still the 3 are all bigger today etc., so I am not saying ROE of 25% or more should come again. But still.

 

The main question for me is therefore: Will FFH (and MKL) be able to deliver above market average ROEs of 15% over long time frames (decades)? If yes, than P/E 15 (so around 2.0 pb ratio) isn't high, as long, as the company is able to reinvest with that same 15%. 

Using the rule of 72, ROE 15% means a double in equity every 5 years ... and the equity 16-folds in 20 years. If you buy at pb 2.0 and the multiple get cuts in half at the end (so p/b ratio of 1, p/e 7.5 for an investment with ROE 15%, you still have an 8-fold return and above 11% CAGR in stock price. That's okay as a return in a pessimistic scenario. Could be valued with pb 2 or even pb4 (p/e ratio30) after 20 years; than you'd have a 16 bagger (CAGR 15%) or 32 bagger (CAGR 18%). And your return would get better, if FFH would be able to buy back stock, or would deliver ROE 16%, 17% ... or if it would be able to deliver that 15% over 20+ years. That's al upside scenarios. 

 

[MMM20]

22 minutes ago, Munger_Disciple said:

We have a President & a Fed Chair hell bent on lowering rates

We have a President who doesnt seem to understand that the Fed doesn’t set mid and long term rates. The fact that he is so involved and pushing for lower mid/long rates ironically might itself drive those rates higher. 
 

Rates are normal now by historical standards. There are factors pushing and pulling in both directions.

I would love to hear what Bradstreet has to say about this nowadays. Ideally after a couple cocktails!
 

Edited February 20 by MMM20

[Munger_Disciple]

3 minutes ago, MMM20 said:

We have a President who doesnt seem to understand that the Fed doesn’t set mid and long term rates, which ironically might itself drive those rates higher. 
 

Rates are normal now by historical standards. There are factors pushing and pulling in both directions.

 

 

Fairfax treasury portfolio is quite short term, and I don't think they invest in 10-yr US treasuries (rightly so IMO). So it's the shorter end of the yield curve that matters more for Fairfax, especially since they are quite levered (in terms of float to equity).  

Edited February 20 by Munger_Disciple

[Txvestor]

7 minutes ago, Hamburg Investor said:

 

 

+1

That way of thinking resonates a lot with me. It's all about intrinsic value; the rest will take of itself.

Just some random thoughts regarding what yo wrote:

1. Regarding your point within the downsides "lower returns from equities": Low share price  helps covering that!
Yes, that can happen. One there's Mr. Market and two management has to find good investments; and they can fail. All things equal, investing into equity is a risk; Prem could be wrong, as he has been (I don't blame him for that; even Buffett has been wrong multiple times).

 

But (and that's my add): As long as the share price is below IV buying back shares is a high return, low risk alternative. And management uses it heavily. So a share price below IV reduces the risk of being wrong AND gives an extra push to returns. So each dollar flowing into buybacks helps keeping the course. Let's hope for low stock price!

2. Multiple 15? Than IV $3.240, not $3.000
If $200 is your expected earnings you get to $3.000 with a multiple of 15. But when you want to get to IV, shouldn't you add the TRS. If TRS are 8% of FFH (is it 8% Not sure), than you could add another 8% of $3.000 of that. So with P/e 15, FFH IV would be $3.240. I don't say you'r right or wrong; it's just a "If you think FFH earns $200, than isn't it $3.240?" You haven't added the gains; so maybe it's even higher...

3. Is 15 a good multiple for FFHs Earnings?
I don't know. What I can say: A multiple of 15 on look through earnings has been a steal for BRK, FFH, MKL, when you held them a decade or two most of the time. It's obvious, but I think we are talking rarely about it: If a company is able to deliver ROE of 15% (or even more) over a loooong time, than you can pay (absurdly) high p/b ratios and still get a great return.

 

Imagine you could have bought BRK in 1970, 1980, 1990, 2000 at such a price or FFH/MKL 1990, 2000. The years with ultra low bond rates and growth (vs. value) winning and soft markets have destroyed that pattern a bit. But maybe that time was an anomaly? Still the 3 are all bigger today etc., so I am not saying ROE of 25% or more should come again. But still.

 

The main question for me is therefore: Will FFH (and MKL) be able to deliver above market average ROEs of 15% over long time frames (decades)? If yes, than P/E 15 (so around 2.0 pb ratio) isn't high, as long, as the company is able to reinvest with that same 15%. 

Using the rule of 72, ROE 15% means a double in equity every 5 years ... and the equity 16-folds in 20 years. If you buy at pb 2.0 and the multiple get cuts in half at the end (so p/b ratio of 1, p/e 7.5 for an investment with ROE 15%, you still have an 8-fold return and above 11% CAGR in stock price. That's okay as a return in a pessimistic scenario. Could be valued with pb 2 or even pb4 (p/e ratio30) after 20 years; than you'd have a 16 bagger (CAGR 15%) or 32 bagger (CAGR 18%). And your return would get better, if FFH would be able to buy back stock, or would deliver ROE 16%, 17% ... or if it would be able to deliver that 15% over 20+ years. That's al upside scenarios. 

 

A couple of thoughts on your post.

 

Re: return on equities. Point taken, but it sure helps when you have almost $4B in unrealized gains waiting to be harvested in the kitty. 
 

Re: TRS position adding to IV. The positions value up to $1800 or so, whatever it closed out 2025 at, is already accounted for. So you're only adding the impact of the additional $1400 or so, which is about $105 not $240. 
 

Re: Earnings multiple. The key here is the leverage to common equity. Between the float, loans, pref equity, minority sub stakes etc. There is >3:1, maybe closer to 4:1 leverage built into the model. This means the 15% hurdle is more achievable but also requires more caution in the investment side. It's why I think they are pretty conservative with their portfolio. On their bond portfolio they're 75% in govt securities, about 15% in high grade corporates and about 10% in commercial mortgage backed securities(of which presumably KW feeds them the best). On the equity side, they're in 20+ investments(diversified).
Top 4 being, EuroBank, TRS, Poseidon and Fairfax India, all of which they know quite well and in which they either have control positions or enough involvement that they communicate with management closely. Either way, very spread out. 

[Txvestor]

19 minutes ago, MMM20 said:

We have a President who doesnt seem to understand that the Fed doesn’t set mid and long term rates. The fact that he is so involved and pushing for lower mid/long rates ironically might itself drive those rates higher. 
 

Rates are normal now by historical standards. There are factors pushing and pulling in both directions.

I would love to hear what Bradstreet has to say about this nowadays. Ideally after a couple cocktails!
 

That right there would be worth the price of admission. 

[Marco Van Basten]

5 hours ago, giulio said:

Interesting that most are discussing future returns expectations but only a few here are focusing on what actually matters, i.e. the per share earning power of the business and relative IV. 

I certainly have no idea where interest rates will be in the future or what returns to expect from ffh equity portfolio, or investment gains. 

What helps me in having a better/complete view is calculating look-through earnings. Last year they were ~190USD per share. These excludes gains from investments and derivates such as TRS.

Is this a reasonable expectation going forward? YES. On average, over the next 5 years I expect ffh to earn ~200USD per share.

The possible downsides are pretty clear to all: higher CR, slower growth or reduced NPW, lower yield on FI, lower returns from equities. 

Here are the factors that may help mitigate these risks: less premiums ceded, minorities buyback, longer FI duration, shift from gov to corporate bonds, higher income from consolidated companies, reinvestment of earnings, lower shares count.

Not everything that matters can be counted and not everything that can be counted matters.

Still, starting from last year 190, I am pretty sure that 1) buying back minorities can add 20USD per share, 2) consolidated operations might add another 20, 3) s/o will be lower, closer to 18M if I have to guess.

What's a fair multiple? Certainly not 8x. 13x or 15x? That means today IV is 2600-3000USD.

You can then triangulate this estimate with other methodologies, P/B, float + equity? Hard for me to see a value lower than 3000.

You cannot know exactly what bonds will yield or what realized gains will be. You know the company culture, investment framework and horizon.

Make your bets accordingly. 

 

Best,

G

I think that you are too low.  Unless I am mistaken, the company on the call stated that it expects consolidated income to exceed $5bn per annum on a going forward basis.  Setting aside the company's conservatism, and the fact that the equity portfolio should generate capital gains, this implies around USD 200 per share in 2026, and assuming buy-backs of 1 MM shares per annum, closer to USD 270 per share in 2030, and again that is without capital gains which should occur given the equity portfolio.  

[giulio]

@Marco Van Basten @Hamburg Investor look-through earnings exclude investment gains from equities, bonds and derivatives. these are not recurring and dependable, they are at mgmt discretion. 

The way I take into account the TRS is through a lower share count. the trs position will fluctuate with the share price and at some point get closed, so it should not be included in your estimate of earning power.

taking into account ffh's share of its investees earnings (very easy for associates) takes care of the investment gains part. 

I'll update my calculations when the ar is published. I just wanted to point out that last year, on a look-through basis, eps were already close to ~200$ and while downsides are known, investors should also consider "positive surprises" as mitigants.

I think 200$ is conservative given the numerous moving parts. I'll be happy to be wrong if the avg is higher over the next 5 years!

[Txvestor]

36 minutes ago, Marco Van Basten said:

I think that you are too low.  Unless I am mistaken, the company on the call stated that it expects consolidated income to exceed $5bn per annum on a going forward basis.  Setting aside the company's conservatism, and the fact that the equity portfolio should generate capital gains, this implies around USD 200 per share in 2026, and assuming buy-backs of 1 MM shares per annum, closer to USD 270 per share in 2030, and again that is without capital gains which should occur given the equity portfolio.  

I think $1.5B for the insurance side is doable barring major cat events. Just their diversification across geographies and lines makes it more likely. A interesting comment, Peter Clarke mentioned that international isn't as cyclical. 
The $2.5B for investment and dividend income is a bit harder for me. They're fixed income portfolio is ~$50B of which 75% short duration Gov't bonds, 14% high quality commercial paper, an 11% in commercial real estate backed loans. They've been averaging about 5% on that, but I'm thinking 4% is a more reasonable number to plug in go forth. Maybe 3-3.5% for the gov't side and 4-6% on the Commercial paper and CRE loans. Dividends income can bring that up some. Even if they don't hit $2.5B, they're likely to fall in the $2-2.5B range. 
The income from associates seems quite likely to hit the $1B a year threshold as well. Eurobank alone gets to about 1/2 of it, then Poseidon, EXCO, Fairfax India and others should handle the rest. 
I think the real wildcard is the gains/losses from sales of their non public equities. I think we are likely to see atleast 1-2 of these surface in any given year. that should cover any gap in bucket 2. 
All put together I think $5B seems manageable for the foreseeable future. Which after taxes should be $4B and that should come in close to $200 a share in reported earnings. 
what they do with those earnings will determine how that grows. More unpredictable and uneven. 
 

[MMM20]

34 minutes ago, Txvestor said:

what they do with those earnings will determine how that grows. More unpredictable and uneven. 

I agree and it should still trade ~2x where it does. 

[hardcorevalue]

3 hours ago, MMM20 said:

We have a President who doesnt seem to understand that the Fed doesn’t set mid and long term rates. The fact that he is so involved and pushing for lower mid/long rates ironically might itself drive those rates higher. 
 

Rates are normal now by historical standards. There are factors pushing and pulling in both directions.

I would love to hear what Bradstreet has to say about this nowadays. Ideally after a couple cocktails!
 

 

Maybe normal based on history but US total debt is far from normal so I think you could make an argument that rates are still quite low. I'd guess that might fit in with what Fairfax thinks given how they avoid long term maturities. 

[Viking]

Sometimes it can be helpful to step back and look at the big picture. To keep things in perspective. 

 

Fairfax's stock traded below $270 a couple of different times in 2020. In 2025 the company delivered economic EPS (conservatively calculated) of ~$270 ($214 reported + ~$56 excess of FV over CV). What an amazing turnaround. 

 

The employees of Fairfax should be proud of what they have accomplished over the past 5 years. (Insurance. Investment management. Head office.) They also deserve a big "thank you" from shareholders. Well done!

 

The best part? I think they are just getting started.... 

 

Edited February 20 by Viking

[Berk]

1 hour ago, Viking said:

Fairfax's stock traded below $270 a couple of different times in 2020. In 2025 the company delivered economic EPS (conservatively calculated) of ~$270 ($214 reported + ~$56 excess of FV over CV). What an amazing turnaround. 

Hey @Viking - how did you calculate the ~$56 excess of FV over CV? I am seeing "The excess of fair value over carrying value of investments in non-insurance associates and market traded consolidated non-insurance subsidiaries increased to $3.1 billion at December 31, 2025 from $1.5 billion at December 31, 2024, with $1.4 billion of that increase related to an increase in the publicly traded market price of Eurobank."

With 21mn shares out, this should be closer to ~140-150 per share, right? What am I doing wrong?

[TwoCitiesCapital]

9 hours ago, yesman182 said:

If this trades at 3x BV and consistently earns 15% ROE a stock holder can expect to earn 5% per year, right? In a world with 4% 10 year  gov bonds, that seems like a very small equity risk premium. If they continue to grown  their income buckets outside of insurance, similar to Berkshire I think it’s more likely. 

 

 

9 hours ago, SafetyinNumbers said:

No, they expect a 15% return if it keeps its multiple. 

 

That's a big if as multiples expand and contract regularly and Fairfax is still subject to an economic/interest rate/inflation cycle.

 

Which is why looking through to the earnings is correct approach IMO. 

 

 The investor earns a 5% return in year 1 by that measure. Over time, if Fairfax can continue to compound at 15% into perpetuity, the investor's return will asymptotically approach 15% regardless of entry/exit multiple....but we're talking multiple decades required to converge there. 

 

This is why starting valuation matters so much - because expansion/contraction of multiples WILL happen. And I'd rather expansion be a tailwind then contraction being a headwind. Buying at 1-1.5x probably provides for that upside optionality on expansion tailwinds. Buying at 3x is probably opening you up to contraction headwinds.

 

Even though both investors will approach 15% annualized on a century long time line, the guy buying at 1.5x has a lot more routes to get there and get there more quickly than the 3x buyer. 

Edited February 20 by TwoCitiesCapital

[Viking]

17 minutes ago, Berk said:

Hey @Viking - how did you calculate the ~$56 excess of FV over CV? I am seeing "The excess of fair value over carrying value of investments in non-insurance associates and market traded consolidated non-insurance subsidiaries increased to $3.1 billion at December 31, 2025 from $1.5 billion at December 31, 2024, with $1.4 billion of that increase related to an increase in the publicly traded market price of Eurobank."

With 21mn shares out, this should be closer to ~140-150 per share, right? What am I doing wrong?

@Berk, good question. For EPS, I use change ($1.6B). For BV, I use the total ($3.1B). 
 

I think my economic EPS estimate is conservative because it only captures the change excess of FV over CV. And ignores other important areas where hidden value has been growing over the past year. 

[Hamburg Investor]

7 hours ago, giulio said:

 look-through earnings exclude investment gains from equities, bonds and derivatives. these are not recurring and dependable, they are at mgmt discretion. 

I

 

7 hours ago, giulio said:

The way I take into account the TRS is through a lower share count. the trs position will fluctuate with the share price and at some point get closed, so it should not be included in your estimate of earning power

I know; it’s just, that you wrote yourself before, that you excluded the TRS; now you write the opposite. 
 

Anyway, the logic you apply is just as good; you‘d just have to adjust for the cost of the TRS (I don’t know, what they pay for that, do you? Always wanted tobask that question, as I am not so used to TRS) and taxes, I guess. Might be a little bit more work as if FFH would just have bought back 8% more of its stock than holding the TRS. 

 

Regarding selling equities in general (and high cash accumulation from earnings; that might come within the next years; FFH begins to get a cash machine…): I think it’s good to consider capital allocation within look through earnings. If you believe that management will reallocate cash to attractive returns in the short or medium term, you can assume higher future look-through earnings in a scenario; if not, remain conservative. At least, I did that and found it helpful in other contextes; nothing for FFH for now I think, but wouldn’t surprise me, if cash on hand would get more volatile within the next years.

[SafetyinNumbers]

2 hours ago, Hamburg Investor said:

Anyway, the logic you apply is just as good; you‘d just have to adjust for the cost of the TRS (I don’t know, what they pay for that, do you?

The financing cost of the TRS is captured in equity exposures but I don’t think it needs to adjusted for. The adjustment is to reduce the share count by 1.76m shares and increase debt by $3b. The long term debt financing would be more expensive vs the TRS but the difference is negligible. 

[This2ShallPass]

17 hours ago, SafetyinNumbers said:

BVPS growth over the past 5 years is > 20% for the next 5 years. If it can stay above 15% for the next 5 which seems like a low bar, then maybe we’ll test 3x BV.

So a double in BV in 5 years and 3x multiple, stock price of ~US$7500! I certainly won't be complaining if that happens:)

 

One risk to multiple rerate would be a once in 50 year (or worse 100) catastrophe year. How are people thinking about losses in a big cat event (is it still the 1% FF share of overall loss)? All these benign years mean the bad year is just around the corner. 

 

[This2ShallPass]

One thing I have been thinking about is their relatively high CR (for a lower cat year). Is their insurance operation really top notch? 93% CR in a low cat year seems like they're average to the bottom tier. One explanation could be they are more global / diversified than the others and in a high cat year for North America they'll report better numbers. Would love to hear thoughts from the insurance experts.

From Gemini (I haven't double checked the numbers)

2025 Combined Ratio (CR) & Underwriting Profit

Company	2025 Combined Ratio	Underwriting Profit (Pre-Tax)	Notes
GEICO (Berkshire)	~83.0%	—	Driven by massive loss ratio improvements.
Allstate	85.2%	—	Recovery year; Q4 CR was a record 72.9%.
Chubb	85.7%	$6.53 Billion	Record-low CR for the company.
Progressive	87.4%	—	Industry benchmark for personal lines.
Travelers	89.9%	—	Benefited from strong reserve development.
W. R. Berkley	90.7%	$1.20 Billion	Record performance; ROE of 21.2%.
Fairfax Financial	93.0%	$1.82 Billion	Best year in history; record profits.
Markel Group	94.6%	$455.7 Million	Impacted by exiting Global Reinsurance.

[Maverick47]

34 minutes ago, This2ShallPass said:

One thing I have been thinking about is their relatively high CR (for a lower cat year). Is their insurance operation really top notch? 93% CR in a low cat year seems like they're average to the bottom tier. One explanation could be they are more global / diversified than the others and in a high cat year for North America they'll report better numbers. Would love to hear thoughts from the insurance experts.

From Gemini (I haven't double checked the numbers)

2025 Combined Ratio (CR) & Underwriting Profit

Company	2025 Combined Ratio	Underwriting Profit (Pre-Tax)	Notes
GEICO (Berkshire)	~83.0%	—	Driven by massive loss ratio improvements.
Allstate	85.2%	—	Recovery year; Q4 CR was a record 72.9%.
Chubb	85.7%	$6.53 Billion	Record-low CR for the company.
Progressive	87.4%	—	Industry benchmark for personal lines.
Travelers	89.9%	—	Benefited from strong reserve development.
W. R. Berkley	90.7%	$1.20 Billion	Record performance; ROE of 21.2%.
Fairfax Financial	93.0%	$1.82 Billion	Best year in history; record profits.
Markel Group	94.6%	$455.7 Million	Impacted by exiting Global Reinsurance.

Unless the mix of business is comparable, both by line of business and by geography, simply comparing comparing CRs between companies and assuming that the lower CR is proof of a better underwriter is fallacious.

 

Short tail lines such as auto typically have target ratios of about 95 or 96.  GEICO and Progressive are predominantly auto carriers, so outperforming their targets significantly is a signal that they overshot on their rate levels.  Allstate and Chubb have a decent amount of short tail (but cat exposed) homeowners business.  The target CR for that is probably around 90.  In a hurricane free year such as 2025, one would expect the CR for that portion of their business would be in the 80’s, since their hurricane losses would be nil.

 

Fairfax is going to be more commercially driven in Northbridge and Crum and Forster.  Casualty claims in commercial lines have a long tail so a somewhat higher CR for that is acceptable as a target compared to the shorter tailed commercial property claims.  A weighted target of 95 for that combined commercial casualty and property business is probably fine.  
 

The long tailed workers comp business written by Zenith can probably afford a target CR of 100 or even a bit higher and still make a 15% ROE given the ability to invest the substantial float produced by the loss reserves in that line.  Allied World,  Odyssey, Brit and Ki are reinsurers, not particularly comparable to the direct insurance companies in this chart.  Probably would be best to compare their CRs to reinsurers such as Ren Re, Munich Re, Gen Re, National Indemnity, etc.  But here too, the mix of reinsured lines of business will vary between all these companies so makes comparisons difficult.

 

Bottom line, I would suggest focusing just on the company’s own target CR.  Fairfax indicates they currently expect normalized underwriting profit of $1.5 billion a year.  Their 2025 underwriting profit of $1.8 billion suggests they outperformed their internal target, particularly in a year with higher cat losses than 2024.  That likely means that their risk adjusted worldwide target CR is closer to 94 or 95 than the 93.0 they reported.

 

In a heavy cat year, Fairfax believes they can handle losses within their underwriting profit margin, so a 100 CR for such a year is what we might expect.  
 

Personally, I think that for a large, globally diversified insurer such as Fairfax, a CR of 93 in an average Cat year is an indication that they are an excellent underwriter.  Something substantially higher than that would suggest they let their rate levels fall behind their loss trends, and will have a lot of rate increases to file for to fix the problem, as well as likely needing to restrict new business and cancel existing poor business to try to fix things.  None of these actions would bode well for the future stability and desired profitable growth of their insurance exposures.  Conversely, CRs much better than 93, unless explained by a light catastrophe year, could be a sign that the the business has been overpriced, and could mean that price levels are higher than competitors, and that future new business growth could be restricted.

Finally, consistent reserve releases shows that the reserving practices are biased toward the conservative end of the spectrum, which is another sign of a well run insurer.

 

Personally, comparing Fairfax’s current (past 10 years) insurance underwriting results to the ideal of what a well run insurer should produce, I can’t find anything to complain about.  And I say this as a fairly recently retired actuary for an insurer, that over my 30+ year career,  made all of the mistakes I allude to above, and more.  I’m much happier to own the current version of Fairfax in my retirement than I was to be employed by a company that wasn’t as well run during my working years.

[Txvestor]

1 hour ago, This2ShallPass said:

One thing I have been thinking about is their relatively high CR (for a lower cat year). Is their insurance operation really top notch? 93% CR in a low cat year seems like they're average to the bottom tier. One explanation could be they are more global / diversified than the others and in a high cat year for North America they'll report better numbers. Would love to hear thoughts from the insurance experts.

From Gemini (I haven't double checked the numbers)

2025 Combined Ratio (CR) & Underwriting Profit

Company	2025 Combined Ratio	Underwriting Profit (Pre-Tax)	Notes
GEICO (Berkshire)	~83.0%	—	Driven by massive loss ratio improvements.
Allstate	85.2%	—	Recovery year; Q4 CR was a record 72.9%.
Chubb	85.7%	$6.53 Billion	Record-low CR for the company.
Progressive	87.4%	—	Industry benchmark for personal lines.
Travelers	89.9%	—	Benefited from strong reserve development.
W. R. Berkley	90.7%	$1.20 Billion	Record performance; ROE of 21.2%.
Fairfax Financial	93.0%	$1.82 Billion	Best year in history; record profits.
Markel Group	94.6%	$455.7 Million	Impacted by exiting Global Reinsurance.

So I looked at that the other day. The last time they had an above 100 combined ratio was 2017. Ironically, the first year they bought allied world. And allied world actually had a pretty bad combined ratio the first year. 
Since then, the highest was 97.8 in 2020 when they had some pandemic losses. And the trajectory has been lower all the way to about 93% where it appears to have settled. 
If you look in earlier years like the early 2010s etc. they had multiple years where they were over 100. I would tend to think this is structural rather than due to industry wide hard market condition. 

[This2ShallPass]

32 minutes ago, Maverick47 said:

Unless the mix of business is comparable, both by line of business and by geography, simply comparing comparing CRs between companies and assuming that the lower CR is proof of a better underwriter is fallacious.

 

Short tail lines such as auto typically have target ratios of about 95 or 96.  GEICO and Progressive are predominantly auto carriers, so outperforming their targets significantly is a signal that they overshot on their rate levels.  Allstate and Chubb have a decent amount of short tail (but cat exposed) homeowners business.  The target CR for that is probably around 90.  In a hurricane free year such as 2025, one would expect the CR for that portion of their business would be in the 80’s, since their hurricane losses would be nil.

 

Fairfax is going to be more commercially driven in Northbridge and Crum and Forster.  Casualty claims in commercial lines have a long tail so a somewhat higher CR for that is acceptable as a target compared to the shorter tailed commercial property claims.  A weighted target of 95 for that combined commercial casualty and property business is probably fine.  
 

The long tailed workers comp business written by Zenith can probably afford a target CR of 100 or even a bit higher and still make a 15% ROE given the ability to invest the substantial float produced by the loss reserves in that line.  Allied World,  Odyssey, Brit and Ki are reinsurers, not particularly comparable to the direct insurance companies in this chart.  Probably would be best to compare their CRs to reinsurers such as Ren Re, Munich Re, Gen Re, National Indemnity, etc.  But here too, the mix of reinsured lines of business will vary between all these companies so makes comparisons difficult.

 

Bottom line, I would suggest focusing just on the company’s own target CR.  Fairfax indicates they currently expect normalized underwriting profit of $1.5 billion a year.  Their 2025 underwriting profit of $1.8 billion suggests they outperformed their internal target, particularly in a year with higher cat losses than 2024.  That likely means that their risk adjusted worldwide target CR is closer to 94 or 95 than the 93.0 they reported.

 

In a heavy cat year, Fairfax believes they can handle losses within their underwriting profit margin, so a 100 CR for such a year is what we might expect.  
 

Personally, I think that for a large, globally diversified insurer such as Fairfax, a CR of 93 in an average Cat year is an indication that they are an excellent underwriter.  Something substantially higher than that would suggest they let their rate levels fall behind their loss trends, and will have a lot of rate increases to file for to fix the problem, as well as likely needing to restrict new business and cancel existing poor business to try to fix things.  None of these actions would bode well for the future stability and desired profitable growth of their insurance exposures.  Conversely, CRs much better than 93, unless explained by a light catastrophe year, could be a sign that the the business has been overpriced, and could mean that price levels are higher than competitors, and that future new business growth could be restricted.

Finally, consistent reserve releases shows that the reserving practices are biased toward the conservative end of the spectrum, which is another sign of a well run insurer.

 

Personally, comparing Fairfax’s current (past 10 years) insurance underwriting results to the ideal of what a well run insurer should produce, I can’t find anything to complain about.  And I say this as a fairly recently retired actuary for an insurer, that over my 30+ year career,  made all of the mistakes I allude to above, and more.  I’m much happier to own the current version of Fairfax in my retirement than I was to be employed by a company that wasn’t as well run during my working years.

Thank you for the detailed explanation, that makes sense. 

[UK]

42 minutes ago, Maverick47 said:

Unless the mix of business is comparable, both by line of business and by geography, simply comparing comparing CRs between companies and assuming that the lower CR is proof of a better underwriter is fallacious.

 

Short tail lines such as auto typically have target ratios of about 95 or 96.  GEICO and Progressive are predominantly auto carriers, so outperforming their targets significantly is a signal that they overshot on their rate levels.  Allstate and Chubb have a decent amount of short tail (but cat exposed) homeowners business.  The target CR for that is probably around 90.  In a hurricane free year such as 2025, one would expect the CR for that portion of their business would be in the 80’s, since their hurricane losses would be nil.

 

Fairfax is going to be more commercially driven in Northbridge and Crum and Forster.  Casualty claims in commercial lines have a long tail so a somewhat higher CR for that is acceptable as a target compared to the shorter tailed commercial property claims.  A weighted target of 95 for that combined commercial casualty and property business is probably fine.  
 

The long tailed workers comp business written by Zenith can probably afford a target CR of 100 or even a bit higher and still make a 15% ROE given the ability to invest the substantial float produced by the loss reserves in that line.  Allied World,  Odyssey, Brit and Ki are reinsurers, not particularly comparable to the direct insurance companies in this chart.  Probably would be best to compare their CRs to reinsurers such as Ren Re, Munich Re, Gen Re, National Indemnity, etc.  But here too, the mix of reinsured lines of business will vary between all these companies so makes comparisons difficult.

 

Bottom line, I would suggest focusing just on the company’s own target CR.  Fairfax indicates they currently expect normalized underwriting profit of $1.5 billion a year.  Their 2025 underwriting profit of $1.8 billion suggests they outperformed their internal target, particularly in a year with higher cat losses than 2024.  That likely means that their risk adjusted worldwide target CR is closer to 94 or 95 than the 93.0 they reported.

 

In a heavy cat year, Fairfax believes they can handle losses within their underwriting profit margin, so a 100 CR for such a year is what we might expect.  
 

Personally, I think that for a large, globally diversified insurer such as Fairfax, a CR of 93 in an average Cat year is an indication that they are an excellent underwriter.  Something substantially higher than that would suggest they let their rate levels fall behind their loss trends, and will have a lot of rate increases to file for to fix the problem, as well as likely needing to restrict new business and cancel existing poor business to try to fix things.  None of these actions would bode well for the future stability and desired profitable growth of their insurance exposures.  Conversely, CRs much better than 93, unless explained by a light catastrophe year, could be a sign that the the business has been overpriced, and could mean that price levels are higher than competitors, and that future new business growth could be restricted.

Finally, consistent reserve releases shows that the reserving practices are biased toward the conservative end of the spectrum, which is another sign of a well run insurer.

 

Personally, comparing Fairfax’s current (past 10 years) insurance underwriting results to the ideal of what a well run insurer should produce, I can’t find anything to complain about.  And I say this as a fairly recently retired actuary for an insurer, that over my 30+ year career,  made all of the mistakes I allude to above, and more.  I’m much happier to own the current version of Fairfax in my retirement than I was to be employed by a company that wasn’t as well run during my working years.

Thanks!

[SafetyinNumbers]

6 hours ago, Txvestor said:

So I looked at that the other day. The last time they had an above 100 combined ratio was 2017. Ironically, the first year they bought allied world. And allied world actually had a pretty bad combined ratio the first year. 
Since then, the highest was 97.8 in 2020 when they had some pandemic losses. And the trajectory has been lower all the way to about 93% where it appears to have settled. 
If you look in earlier years like the early 2010s etc. they had multiple years where they were over 100. I would tend to think this is structural rather than due to industry wide hard market condition. 

Anecdotally, I have noticed the combined ratio of an acquisition goes up after Fairfax acquires them. I think this is because they are much more conservative on reserving so there is some padding required. The street seems to assume it means they did a bad deal but I think it’s classic Fairfax income deferral.