Hoodlum Posted April 24 Posted April 24 (edited) First Quarter results will be out on April 30th. I don't remember seeing Q1 results in April before. https://www.fairfax.ca/press-releases/fairfax-announces-conference-call-2026-04-24/ Edited April 24 by Hoodlum
thedanmancan Posted April 25 Posted April 25 https://www.sedarplus.ca/csa-party/records/document.html?id=9110d1b9853338bf296dd4d6977cb4a0b7b006301ac7e35a931836ed5cfa3da1 Interesting investment in the commodities/cleantech royalty space, one of the directors is the FNV founder 1
Viking Posted April 25 Posted April 25 Singapore Re: A Case Study in How Fairfax Creates Value Introduction: A Small Asset, A Clear Signal What insurance operation delivered the lowest combined ratio at Fairfax in 2025? Singapore Re. Largely unknown, and easy to overlook. That is precisely why it matters. Singapore Re provides a clean, observable example of how Fairfax actually creates value—through a repeatable process built on long-term ownership, disciplined capital allocation, and high-quality operators. It is not a large asset. But it is an important one analytically. A 20-Year Investment: Ownership as a Process Fairfax’s involvement spans more than two decades: Initial investment: 1999 Increased to ~20% (associate): 2009 Acquired control: 2021 This was not a transaction. It was a progression. Fairfax did not “buy” Singapore Re in the conventional sense—it grew into ownership over 21 years. This reflects a core principle seen across Fairfax: Ownership is often the result of time, trust, and accumulated knowledge—not a single decision. People First: The Origin of the Investment The investment originated with Mr. Athappan, one of the key architects of Fairfax’s Asian insurance operations. His approach aligns directly with Fairfax’s operating philosophy: Long-term orientation Strong underwriting discipline Emphasis on relationships and trust Early identification of capable operators Singapore Re is not an isolated success. It is an outcome of this system. Fairfax institutionalized his legacy through the Athappan Cup—awarded annually to the top underwriting operation—reinforcing underwriting excellence as a cultural anchor. Patience: Strategic, Not Passive Fairfax did not seek immediate control. It waited. In 2021, circumstances changed. The CEO faced terminal illness and sought a permanent, stable owner. Fairfax—already a long-standing shareholder—was the natural acquirer. This is a recurring Fairfax pattern: Patience creates optionality. Relationships convert optionality into opportunity. Price Discipline: The Foundation of Returns When Fairfax acquired control: Paid: $103 million (to move from ~28% to ~96%) Implied valuation: $152 million Shareholders’ equity: $221 million Purchase price: ~0.69x book value This is a critical step. The investment works because it starts with a margin of safety. Everything that follows—growth, underwriting profits, investment income—compounds from a low entry point. This is not accidental. It is by design. Cycle Awareness: Scaling at the Right Time The acquisition closed just before the reinsurance hard market began in 2022. The outcome: Net premiums written: $67M → $211M (2021–2025) 4-year CAGR: 33.2% Investment portfolio: $317M → $591M 4-year CAGR: 16.9% Two things happened simultaneously: Underwriting expanded into a favourable pricing environment Investment income increased with both scale and higher interest rates This is Fairfax’s model working as intended: Capital is deployed ahead of improving conditions—and then allowed to scale. Quality: The Underwriting Engine Singapore Re is a high-quality operator: 5-year average combined ratio: 74% 2025 combined ratio: 77% (best within Fairfax) 4-year underwriting profit: $114 million In four years, underwriting profit alone exceeded the cost to acquire control. That is a defining characteristic of high-quality insurance businesses: The underwriting engine becomes self-funding—and then value-generative. Contribution: Small but Economically Meaningful In 2025: Underwriting profit: ~$44 million Represents the majority of Fairfax Asia’s underwriting income Singapore Re is not large in absolute terms. But it is highly productive capital. And at Fairfax, productivity—not size—is what matters. The Framework: How Fairfax Wins Singapore Re maps directly onto Fairfax’s operating model: People → Strong operators identified early Price → Acquired below intrinsic value Patience → Ownership built over decades Cycle → Scaled into a hard market Capital Allocation → Disciplined and opportunistic This is not a one-off success. It is a repeatable process. The Broader Lesson: Compounding Through Process Over time, Fairfax builds value through a portfolio of businesses that share three characteristics: Sound underwriting economics Disciplined capital allocation High-quality operators The outcome is not driven by any single investment. It emerges from the aggregation of many decisions made correctly over long periods of time. A collection of “singles”—executed well and consistently—drives compounding. Occasional “home runs” accelerate it. Bottom Line Singapore Re is a small piece of Fairfax. But it captures the essence of the model: Buy well Partner with strong operators Wait patiently Scale with the cycle Allocate capital intelligently And over time: Let compounding do the heavy lifting. Fairfax 2026AGM - Brian Young “Turning to the international side. We generated $220 million of underwriting profit, more than double what we generated in 2024. The standout performers – Colonnade, Bryte and Singapore Re – all generated record underwriting profits. Singapore Re, headed by Philippe Mallier, had not only the lowest combined ratio on the international side, they had the lowest combined ratio of all of our companies at 77%. Well done, Philippe.” Fairfax 2025AR Singapore Re, based in Singapore, underwrites general property and casualty reinsurance in the Asian region. In 2025, Singapore Re’s net premiums written were SGD 275.2 million (approximately US$211 million). At year-end, the company had shareholders’ equity of SGD 422.0 million (approximately US$328 million) and there were 87 employees. Prem: Fairfax Asia in 2025 produced a 90.3% combined ratio, and $49 million of underwriting profit. Singapore Re, led by Phillipe Mallier, is responsible for $44 million of the collective Fairfax Asia result. Gobi Athappan and his team oversee our companies in Malaysia, Hong Kong, Indonesia, Sri Lanka and Thailand. Brian Young has taken a hand in advising Gobi and helping Fairfax Asia realize its potential in this rapidly developing area. Fairfax 2024AR Singapore Re, based in Singapore, underwrites general property and casualty reinsurance in the Asian region. In 2024, Singapore Re’s net premiums written were SGD 215.0 million (approximately US$161 million). At year-end, the company had shareholders’ equity of SGD 364.4 million (approximately US$267 million) and there were 81 employees. Prem: Fairfax Asia increased its underwriting profit to $34 million, reducing its combined ratio to 92.1%. As noted, Gobi Athappan and Ravi Prabhakar are taking Fairfax Asia forward after the unfortunate passing of our beloved Mr. Athappan. Singapore Re, under Philippe Mallier, contributed $24 million to the 2024 result. Fairfax 2023AR Singapore Re, based in Singapore, underwrites general property and casualty reinsurance in the Asian region. In 2023, Singapore Re’s net premiums written were SGD 196.1 million (approximately US$146 million). At year-end, the company had shareholders’ equity of SGD 302.1 million (approximately US$229 million) and there were 72 employees. Prem: Our Fairfax Asia group reported a combined ratio of 93.9% and underwriting profit of $26 million. Amongst the various companies of Fairfax Asia, Singapore Re, under the able and energetic guidance of Phillipe Mallier, was the stand-out, contributing $21 million to the result. Overall direction of Fairfax Asia continues to be under Mr. Athappan, with assistance from his son, Gobi, and Ravi Prabhakar. Fairfax 2022AR Singapore Re, based in Singapore, underwrites general property and casualty reinsurance in the Asian region.In 2022, Singapore Re’s net premiums written were SGD 108.9 million (approximately US$79 million). At year-end, the company had shareholders’ equity of SGD 282.9 million (approximately US$211 million) and there were 68 employees. Prem: Fairfax Asia grew net premiums written 25% in 2022, while posting an underwriting profit of $34 million at a combined ratio of 89%. Results benefited from a full-year contribution from Singapore Re, which was responsible for $25 million of the division’s total underwriting profit. Credit to Philippe Mallier in his role as CEO of Singapore Re. And, of course, great credit to Mr. Athappan who continues to direct the overall operations of Fairfax Asia. Fairfax 2021AR Singapore Re, based in Singapore, underwrites general property and casualty reinsurance in the Asian region. In 2021, Singapore Re’s net premiums written were SGD 90.3 million (approximately US$67 million). At year-end, the company had shareholders’ equity of SGD 297.5 million (approximately US$221 million) and there were 71 employees. Prem: We were very pleased to purchase the remaining 72% of Singapore Re. Brought to us by Mr. Athappan, who is the Chairman, we first invested in Singapore Re in 2009, so we knew the company very well. It is with deep sadness that we announce that Theresa Wee, the CEO of Singapore Re, lost her health battle late in the year. Theresa had been with Singapore Re for more than three decades and her loyalty, hard work and leadership, built Singapore Re into the company it is today. Philippe Mallier is taking over as President and CEO – Philippe has been with Odyssey Group for 25 years and will remain CEO of its Latin America division. He will work closely with Mr. Athappan. We are very excited about this move as it will help link our North American operations with our Asian operations. Mr. Athappan, Brian Young and Andy Barnard have made this happen. Additional investment in Singapore Reinsurance Corporation Limited On June 17, 2021 the company increased its ownership interest in Singapore Reinsurance Corporation Limited (“Singapore Re”) from 28.2% to 94.0% for $102.9 (SGD 138.0) and subsequently increased its ownership interest to 100%. Singapore Re is a general property and casualty reinsurer that underwrites business primarily in southeast Asia. Fairfax 2009AR: Application of the Equity Method of Accounting The company began acquiring common shares of Singapore Reinsurance Corporation Limited (“Singapore Re”) in 1999 and until December 24, 2009 accounted for its investment in 17.5% of the common shares of Singapore Re as available for sale at fair value. On December 24, 2009, the company increased its interest in Singapore Re to 20.0% and determined that it had obtained significant influence and, accordingly, the company changed the accounting treatment of its investment in Singapore Re from available for sale to the equity method of accounting on a prospective basis.
Maverick47 Posted April 25 Posted April 25 13 minutes ago, Viking said: Singapore Re: A Case Study in How Fairfax Creates Value Introduction: A Small Asset, A Clear Signal What insurance operation delivered the lowest combined ratio at Fairfax in 2025? Singapore Re. Largely unknown, and easy to overlook. That is precisely why it matters. Singapore Re provides a clean, observable example of how Fairfax actually creates value—through a repeatable process built on long-term ownership, disciplined capital allocation, and high-quality operators. It is not a large asset. But it is an important one analytically. A 20-Year Investment: Ownership as a Process Fairfax’s involvement spans more than two decades: Initial investment: 1999 Increased to ~20% (associate): 2009 Acquired control: 2021 This was not a transaction. It was a progression. Fairfax did not “buy” Singapore Re in the conventional sense—it grew into ownership over 21 years. This reflects a core principle seen across Fairfax: Ownership is often the result of time, trust, and accumulated knowledge—not a single decision. People First: The Origin of the Investment The investment originated with Mr. Athappan, one of the key architects of Fairfax’s Asian insurance operations. His approach aligns directly with Fairfax’s operating philosophy: Long-term orientation Strong underwriting discipline Emphasis on relationships and trust Early identification of capable operators Singapore Re is not an isolated success. It is an outcome of this system. Fairfax institutionalized his legacy through the Athappan Cup—awarded annually to the top underwriting operation—reinforcing underwriting excellence as a cultural anchor. Patience: Strategic, Not Passive Fairfax did not seek immediate control. It waited. In 2021, circumstances changed. The CEO faced terminal illness and sought a permanent, stable owner. Fairfax—already a long-standing shareholder—was the natural acquirer. This is a recurring Fairfax pattern: Patience creates optionality. Relationships convert optionality into opportunity. Price Discipline: The Foundation of Returns When Fairfax acquired control: Paid: $103 million (to move from ~28% to ~96%) Implied valuation: $152 million Shareholders’ equity: $221 million Purchase price: ~0.69x book value This is a critical step. The investment works because it starts with a margin of safety. Everything that follows—growth, underwriting profits, investment income—compounds from a low entry point. This is not accidental. It is by design. Cycle Awareness: Scaling at the Right Time The acquisition closed just before the reinsurance hard market began in 2022. The outcome: Net premiums written: $67M → $211M (2021–2025) 4-year CAGR: 33.2% Investment portfolio: $317M → $591M 4-year CAGR: 16.9% Two things happened simultaneously: Underwriting expanded into a favourable pricing environment Investment income increased with both scale and higher interest rates This is Fairfax’s model working as intended: Capital is deployed ahead of improving conditions—and then allowed to scale. Quality: The Underwriting Engine Singapore Re is a high-quality operator: 5-year average combined ratio: 74% 2025 combined ratio: 77% (best within Fairfax) 4-year underwriting profit: $114 million In four years, underwriting profit alone exceeded the cost to acquire control. That is a defining characteristic of high-quality insurance businesses: The underwriting engine becomes self-funding—and then value-generative. Contribution: Small but Economically Meaningful In 2025: Underwriting profit: ~$44 million Represents the majority of Fairfax Asia’s underwriting income Singapore Re is not large in absolute terms. But it is highly productive capital. And at Fairfax, productivity—not size—is what matters. The Framework: How Fairfax Wins Singapore Re maps directly onto Fairfax’s operating model: People → Strong operators identified early Price → Acquired below intrinsic value Patience → Ownership built over decades Cycle → Scaled into a hard market Capital Allocation → Disciplined and opportunistic This is not a one-off success. It is a repeatable process. The Broader Lesson: Compounding Through Process Over time, Fairfax builds value through a portfolio of businesses that share three characteristics: Sound underwriting economics Disciplined capital allocation High-quality operators The outcome is not driven by any single investment. It emerges from the aggregation of many decisions made correctly over long periods of time. A collection of “singles”—executed well and consistently—drives compounding. Occasional “home runs” accelerate it. Bottom Line Singapore Re is a small piece of Fairfax. But it captures the essence of the model: Buy well Partner with strong operators Wait patiently Scale with the cycle Allocate capital intelligently And over time: Let compounding do the heavy lifting. Fairfax 2026AGM - Brian Young “Turning to the international side. We generated $220 million of underwriting profit, more than double what we generated in 2024. The standout performers – Colonnade, Bryte and Singapore Re – all generated record underwriting profits. Singapore Re, headed by Philippe Mallier, had not only the lowest combined ratio on the international side, they had the lowest combined ratio of all of our companies at 77%. Well done, Philippe.” Fairfax 2025AR Singapore Re, based in Singapore, underwrites general property and casualty reinsurance in the Asian region. In 2025, Singapore Re’s net premiums written were SGD 275.2 million (approximately US$211 million). At year-end, the company had shareholders’ equity of SGD 422.0 million (approximately US$328 million) and there were 87 employees. Prem: Fairfax Asia in 2025 produced a 90.3% combined ratio, and $49 million of underwriting profit. Singapore Re, led by Phillipe Mallier, is responsible for $44 million of the collective Fairfax Asia result. Gobi Athappan and his team oversee our companies in Malaysia, Hong Kong, Indonesia, Sri Lanka and Thailand. Brian Young has taken a hand in advising Gobi and helping Fairfax Asia realize its potential in this rapidly developing area. Fairfax 2024AR Singapore Re, based in Singapore, underwrites general property and casualty reinsurance in the Asian region. In 2024, Singapore Re’s net premiums written were SGD 215.0 million (approximately US$161 million). At year-end, the company had shareholders’ equity of SGD 364.4 million (approximately US$267 million) and there were 81 employees. Prem: Fairfax Asia increased its underwriting profit to $34 million, reducing its combined ratio to 92.1%. As noted, Gobi Athappan and Ravi Prabhakar are taking Fairfax Asia forward after the unfortunate passing of our beloved Mr. Athappan. Singapore Re, under Philippe Mallier, contributed $24 million to the 2024 result. Fairfax 2023AR Singapore Re, based in Singapore, underwrites general property and casualty reinsurance in the Asian region. In 2023, Singapore Re’s net premiums written were SGD 196.1 million (approximately US$146 million). At year-end, the company had shareholders’ equity of SGD 302.1 million (approximately US$229 million) and there were 72 employees. Prem: Our Fairfax Asia group reported a combined ratio of 93.9% and underwriting profit of $26 million. Amongst the various companies of Fairfax Asia, Singapore Re, under the able and energetic guidance of Phillipe Mallier, was the stand-out, contributing $21 million to the result. Overall direction of Fairfax Asia continues to be under Mr. Athappan, with assistance from his son, Gobi, and Ravi Prabhakar. Fairfax 2022AR Singapore Re, based in Singapore, underwrites general property and casualty reinsurance in the Asian region.In 2022, Singapore Re’s net premiums written were SGD 108.9 million (approximately US$79 million). At year-end, the company had shareholders’ equity of SGD 282.9 million (approximately US$211 million) and there were 68 employees. Prem: Fairfax Asia grew net premiums written 25% in 2022, while posting an underwriting profit of $34 million at a combined ratio of 89%. Results benefited from a full-year contribution from Singapore Re, which was responsible for $25 million of the division’s total underwriting profit. Credit to Philippe Mallier in his role as CEO of Singapore Re. And, of course, great credit to Mr. Athappan who continues to direct the overall operations of Fairfax Asia. Fairfax 2021AR Singapore Re, based in Singapore, underwrites general property and casualty reinsurance in the Asian region. In 2021, Singapore Re’s net premiums written were SGD 90.3 million (approximately US$67 million). At year-end, the company had shareholders’ equity of SGD 297.5 million (approximately US$221 million) and there were 71 employees. Prem: We were very pleased to purchase the remaining 72% of Singapore Re. Brought to us by Mr. Athappan, who is the Chairman, we first invested in Singapore Re in 2009, so we knew the company very well. It is with deep sadness that we announce that Theresa Wee, the CEO of Singapore Re, lost her health battle late in the year. Theresa had been with Singapore Re for more than three decades and her loyalty, hard work and leadership, built Singapore Re into the company it is today. Philippe Mallier is taking over as President and CEO – Philippe has been with Odyssey Group for 25 years and will remain CEO of its Latin America division. He will work closely with Mr. Athappan. We are very excited about this move as it will help link our North American operations with our Asian operations. Mr. Athappan, Brian Young and Andy Barnard have made this happen. Additional investment in Singapore Reinsurance Corporation Limited On June 17, 2021 the company increased its ownership interest in Singapore Reinsurance Corporation Limited (“Singapore Re”) from 28.2% to 94.0% for $102.9 (SGD 138.0) and subsequently increased its ownership interest to 100%. Singapore Re is a general property and casualty reinsurer that underwrites business primarily in southeast Asia. Fairfax 2009AR: Application of the Equity Method of Accounting The company began acquiring common shares of Singapore Reinsurance Corporation Limited (“Singapore Re”) in 1999 and until December 24, 2009 accounted for its investment in 17.5% of the common shares of Singapore Re as available for sale at fair value. On December 24, 2009, the company increased its interest in Singapore Re to 20.0% and determined that it had obtained significant influence and, accordingly, the company changed the accounting treatment of its investment in Singapore Re from available for sale to the equity method of accounting on a prospective basis. Great case study, @Viking! Really appreciate you sharing this.
Viking Posted April 25 Posted April 25 1 hour ago, Maverick47 said: Great case study, @Viking! Really appreciate you sharing this. @Maverick47, I appreciate the feedback. There are so many interesting storylines at Fairfax. What is especially interesting about the insurance side of things is how long term they think and operate. Lots of fantastic examples. That is a big competitive advantage.
hardcorevalue Posted April 27 Author Posted April 27 FFH unchanged over a year! Thankfully the TSX addition hasn't been hurting their buyback opportunities! (Random side note but I think I've started using exclamation marks more because of Prem!!)
dartmonkey Posted April 27 Posted April 27 10 minutes ago, hardcorevalue said: FFH unchanged over a year! Thankfully the TSX addition hasn't been hurting their buyback opportunities! (Random side note but I think I've started using exclamation marks more because of Prem!!) It is good for everyone's health to see the bright side and stay positive !!! But for anyone who can only be happy if the share price is going up, the share price actually is up about 10%, both FFH and FRFHF, since a year ago, not counting the $15 dividend, so although we have been spoiled by 33% annualized price increases over the last 5 years, the price is not completely unchanged. If it is still at C$2364 by mid-June, then we could gripe that the price is unchanged over a year, or we could be happy that there are 5% less shares outstanding!
hardcorevalue Posted April 27 Author Posted April 27 That's true one month from now though and it will be 12 months haha Not sure how many analysts are in this number but pretty crazy how the street thinks earnings fall off a cliff post 2028 to $115.59 eps
SafetyinNumbers Posted April 27 Posted April 27 45 minutes ago, hardcorevalue said: Not sure how many analysts are in this number but pretty crazy how the street thinks earnings fall off a cliff post 2028 to $115.59 eps It’s just Morningstar 2028 and beyond. They expect a big cat loss in the forecast period. Not sure if they model the same for all of the peers. Bret is the only analyst that has the same number for adjusted EPS and IFRS/GAAP EPS.
hardcorevalue Posted April 27 Author Posted April 27 I thought i would be low but wow 1 analyst lol. Such little coverage!
Viking Posted April 27 Posted April 27 (edited) Fairfax Q1 Results — What to Watch For? A number of P/C insurers have now reported Q1-2026 results. The pattern is consistent—and instructive. What’s Working Underwriting income remains strong Interest income is solid What’s Lagging Book value per share (BVPS) growth is muted—and in some cases declining The divergence is the direct consequence of higher interest rates. Below are top-line details for Chubb: Reported net income was $2.32 billion. But this did not include much of the decline in the value of the fixed income portfolio. The Mechanics: Why BVPS Is Under Pressure Most P/C insurers structure their balance sheets by roughly matching the duration of assets and liabilities—typically in the 4–5 year range. When bond yields rise, two things happen: Balance Sheet Impact (Immediate) The market value of existing bond portfolios declines This flows through to book value (but not the income statement) Income Statement Impact (Delayed) Maturing bonds are reinvested at higher yields This drives future interest income higher (or maintains it at a high level) The key point: The negative impact to BVPS is immediate. The positive impact is earned over time. So yes—BVPS weakness matters. Not from a solvency standpoint, but from a capital and valuation perspective (the bonds ARE worth less). Average duration matters Shorter-duration portfolios → lower hit to book value, faster earn-through Longer-duration portfolios → larger hit to book value, slower, more gradual benefit Average duration of fixed income portfolio of P/C insurance company matters. (Credit quality also matters – but we are going to ignore this variable for now – as we do not want to add even more complexity to our analysis.) Where Fairfax Financial Holdings Is Different Fairfax is not positioned like a typical P/C insurer. Average fixed income duration: likely < 2.4 years at Dec 31, 2025 Versus industry norm: ~4–5 years This positioning likely impacts Q1 results in important ways. Importantly, the average duration came down in 2025. This can be seen in the change in Fairfax’s fixed income maturity profile over the past year. Implications for Fairfax 1) Smaller Mark-to-Market Hit Shorter duration = lower price sensitivity to rising yields BVPS should be less negatively impacted (all else equal) 2) Faster Earnings Uplift A larger portion of the portfolio turns over quickly Higher yields are captured sooner, not gradually over years 3) Greater Optionality Management can reprice the portfolio rapidly if rates move again IFRS 17: Two Offsetting Forces Fairfax reports under IFRS 17, which introduces an additional layer. Rising bond yields create two largely offsetting effects: Investment Side Decline in bond values → recorded as investment losses Insurance Side Higher discount rates → lower present value of liabilities Net effect: Often muted—but not perfectly offsetting. With a short-duration asset base, Fairfax may experience: Less downside on the asset side While still benefiting from liability revaluation That asymmetry is worth paying attention to. The Real Question: Did They Extend Duration? Given the sharp move in rates during March, the key question is tactical: Did Fairfax extend duration into higher yields? Over the past year, management has deliberately kept duration short. The rationale is straightforward: Inflation risk remains elevated Investors are not being adequately compensated for taking on duration risk This is value investing applied to fixed income. When yields moved high in March, did Fairfax: Lock in those yields by extending duration? Or maintain a defensive posture and stay short? Something worth paying attention to when Fairfax reports Q1 results. Edited April 27 by Viking
dartmonkey Posted April 27 Posted April 27 29 minutes ago, SafetyinNumbers said: t’s just Morningstar 2028 and beyond. They expect a big cat loss in the forecast period. Not sure if they model the same for all of the peers. Bret is the only analyst that has the same number for adjusted EPS and IFRS/GAAP EPS. It's not crazy to pencil in a bad year for a company like Fairfax with supercat exposure, but sticking it in 2028 seems pretty arbitrary. If you're going to model in that bad year, it would make more sense to see what the effect would be of one very bad reinsurance year in 10 years. Berkshire, for instance, had a year with a 115% CR (everyone knows what year), and given the fact that their average CR from 2000 to 2024 was 97.7%, that wiped out about 6 years of underwriting gains. Fairfax has a much bigger insurance float than Berkshire. More relevant would be knowing how much each company writes in reinsurance; Berkshire has reduced its exposure, Fairfax I don't know. But anyways, in a very bad year, like the one Horne thinks we will have in 2028, earnings will be low, but that hardly justifies a valuation that bakes that in as though it were a normal year for Fairfax.
Hoodlum Posted April 27 Posted April 27 (edited) 12 minutes ago, Viking said: Fairfax Q1 Results — What the Early Signals Are Telling Us A number of P/C insurers have now reported Q1-2026 results. The pattern is consistent—and instructive. What’s Working Underwriting income remains strong Interest income is solid What’s Lagging Book value per share (BVPS) growth is muted—and in some cases declining The divergence is the direct consequence of higher interest rates. Below are top-line details for Chubb: Reported net income was $2.32 billion. But this did not include much of the significant change in the value of the fixed income portfolio. The Mechanics: Why BVPS Is Under Pressure Most P/C insurers structure their balance sheets by roughly matching the duration of assets and liabilities—typically in the 4–5 year range. When bond yields rise, two things happen: Balance Sheet Impact (Immediate) The market value of existing bond portfolios declines This flows through to book value (but not the income statement) Income Statement Impact (Delayed) Maturing bonds are reinvested at higher yields This drives future interest income higher (or maintains it at a high level) The key point: The negative impact is immediate. The positive impact is earned over time. So yes—BVPS weakness matters. Not from a solvency standpoint, but from a capital and valuation perspective. Average duration matters Shorter-duration portfolios → lower hit to book value, faster earn-through Longer-duration portfolios → larger hit to book value, slower, more gradual benefit Average duration of fixed income portfolio of P/C insurance company matters. (Credit quality also matters – but we are going to ignore this variable for now – as we do not want to add even more complexity to our analysis.) Where Fairfax Financial Holdings Is Different Fairfax is not positioned like a typical P/C insurer. Average fixed income duration: likely < 2.4 years at Dec 31, 2025 Versus industry norm: ~4–5 years This positioning likely impacts Q1 results in important ways. Importantly, the average duration came down in 2025. This can be seen in the change in Fairfax’s fixed income maturity profile over the past year. Implications for Fairfax 1) Smaller Mark-to-Market Hit Shorter duration = lower price sensitivity to rising yields BVPS should be less negatively impacted (all else equal) 2) Faster Earnings Uplift A larger portion of the portfolio turns over quickly Higher yields are captured sooner, not gradually over years 3) Greater Optionality Management can reprice the portfolio rapidly if rates move again IFRS 17: Two Offsetting Forces Fairfax reports under IFRS 17, which introduces an additional layer. Rising bond yields create two largely offsetting effects: Investment Side Decline in bond values → recorded as investment losses Insurance Side Higher discount rates → lower present value of liabilities Net effect: Often muted—but not perfectly offsetting. With a short-duration asset base, Fairfax may experience: Less downside on the asset side While still benefiting from liability revaluation That asymmetry is worth paying attention to. The Real Question: Did They Extend Duration? Given the sharp move in rates during March, the key question is tactical: Did Fairfax extend duration into higher yields? Over the past year, management has deliberately kept duration short. The rationale is straightforward: Inflation risk remains elevated Investors are not being adequately compensated for taking on duration risk This is value investing applied to fixed income. When yields moved high in March, did Fairfax: Lock in those yields by extending duration? Or maintain a defensive posture and stay short? Something worth paying attention to when Fairfax reports Q1 results. Thanks @Viking for this overview of the Bond portfolio in comparison to their peers. I would be surprise if Fairfax extended duration during March as this was similar to last Summer yields when they did not extend and the war was just getting started in March. It would actually not surprise me if they sold the remaining 10+ year bonds at the end of February, shortening the duration further. Edited April 27 by Hoodlum
Hamburg Investor Posted April 28 Posted April 28 16 hours ago, Hoodlum said: Thanks @Viking for this overview of the Bond portfolio in comparison to their peers. I would be surprise if Fairfax extended duration during March as this was similar to last Summer yields when they did not extend and the war was just getting started in March. It would actually not surprise me if they sold the remaining 10+ year bonds at the end of February, shortening the duration further. Could someone please explain how they are likely to manage the duration of the bond portfolio? My (very simplistic) understanding is something like this: They have an idea of what ‘normal’ yields are. If interest rates are lower, they go shorter. If interest rates are high, they go longer. On average and over many, many decades, this approach should yield a higher effective return than if one were to focus ‘only’ on the claim duration. At least as long as there is no hyperinflation and the yield doesn't e. g. stick at 1% forever. But as long as it swings up and down between - say - 0% and 8% and builds an average around the width of that, that seems a pretty good strategy; of course you have to be happy with lumpy returns. But the advantage is that you can get out of the low-interest-rate period quickly, and if rates are above average, you lock them in for longer. You won't be right all the time, but over time it seems a better strategy. It’s perhaps a bit like how a private individual thinks about a mortgage, only the other way round. When interest rates were at rock bottom, I bought a house. In Germany, everyone takes out a 10-year fixed-rate mortgage. I fixed mine for 20 years and pay 1.18% interest for the next 15 years. What could have gone wrong? After 10 years, the interest rate could have been around 0.5%; but that wouldn’t have been a huge loss. Or it could have risen massively and multiplied to 3%, 5%, ... So 20 years to me seemed being the only rational choice: If it's heads, I win big; if it's tails, I lose almost nothing. I discussed that a lot with my friends, some of them bought a house in the same timeframe. But they all locked in the 10 year mortage, as it was 0.2% cheaper. I just don't get that, as the risk reward seemed so clear to me. That always reminds me of FFHs Bond portfolio and how they managed it. Every other insurance business locked in 4 or 5 years, totally ignoring the special situation. It's a bit like people are used to doing things all the time, but they don't react, if the Environment changes. "We have always done it like that" It seems to be a very powerful guiding principle, and it does seem to put people at ease. You don’t have to think about it. However, I’m unsure about a number of points regarding how FFH manages its Bond portfolio ("I know, that I don't know" a lot about that topic): It seems to me that staying short at 1% interest is not very risky. But going long at 10% – when there’s a potential threat of hyperinflation – could also be dangerous. Do they also adjust based on their own macroeconomic outlook? I could imagine you might go even shorter or longer at 4% if you observed something extraordinary. For instance, if politicians were to intervene in interest rates or China were to withdraw massive amounts of capital. But I’m not sure; that would effectively be a macro bet – and I’m not sure whether you would do that with insurance capital. Sorry if I'm simplifying things a bit here. My knowledge is just very basic.
Hoodlum Posted April 28 Posted April 28 33 minutes ago, Hamburg Investor said: Could someone please explain how they are likely to manage the duration of the bond portfolio? My (very simplistic) understanding is something like this: They have an idea of what ‘normal’ yields are. If interest rates are lower, they go shorter. If interest rates are high, they go longer. On average and over many, many decades, this approach should yield a higher effective return than if one were to focus ‘only’ on the claim duration. At least as long as there is no hyperinflation and the yield doesn't e. g. stick at 1% forever. But as long as it swings up and down between - say - 0% and 8% and builds an average around the width of that, that seems a pretty good strategy; of course you have to be happy with lumpy returns. But the advantage is that you can get out of the low-interest-rate period quickly, and if rates are above average, you lock them in for longer. You won't be right all the time, but over time it seems a better strategy. It’s perhaps a bit like how a private individual thinks about a mortgage, only the other way round. When interest rates were at rock bottom, I bought a house. In Germany, everyone takes out a 10-year fixed-rate mortgage. I fixed mine for 20 years and pay 1.18% interest for the next 15 years. What could have gone wrong? After 10 years, the interest rate could have been around 0.5%; but that wouldn’t have been a huge loss. Or it could have risen massively and multiplied to 3%, 5%, ... So 20 years to me seemed being the only rational choice: If it's heads, I win big; if it's tails, I lose almost nothing. I discussed that a lot with my friends, some of them bought a house in the same timeframe. But they all locked in the 10 year mortage, as it was 0.2% cheaper. I just don't get that, as the risk reward seemed so clear to me. That always reminds me of FFHs Bond portfolio and how they managed it. Every other insurance business locked in 4 or 5 years, totally ignoring the special situation. It's a bit like people are used to doing things all the time, but they don't react, if the Environment changes. "We have always done it like that" It seems to be a very powerful guiding principle, and it does seem to put people at ease. You don’t have to think about it. However, I’m unsure about a number of points regarding how FFH manages its Bond portfolio ("I know, that I don't know" a lot about that topic): It seems to me that staying short at 1% interest is not very risky. But going long at 10% – when there’s a potential threat of hyperinflation – could also be dangerous. Do they also adjust based on their own macroeconomic outlook? I could imagine you might go even shorter or longer at 4% if you observed something extraordinary. For instance, if politicians were to intervene in interest rates or China were to withdraw massive amounts of capital. But I’m not sure; that would effectively be a macro bet – and I’m not sure whether you would do that with insurance capital. Sorry if I'm simplifying things a bit here. My knowledge is just very basic. @Hamburg Investor I believe your analogy with your home mortgage decision is similar to how Fairfax look at their bond duration. They have not looked a trying to time smaller fluctuations of .25 changes rates, but rather look at risks in the market that could have a more significant impact on rates and impact the value of the bonds materially over a short term, impacting their ability to grow/sustain their underwriting. They also look at the long term rates to determine if the reward is worth the risk. Fairfax has been very clear that they don't try to match liabilities with duration, like other insurance companies. But much of this depends on how much trust you have in Fairfax's ability to decide the duration for their bond portfolio. We also have our own biases of where we think long term rates could go in the short to medium term, and this may or may not match up with what Fairfax is doing. But I believe we have seen a long enough track record from the Fairfax bond team to suggest that they are one of top bond managers globally and have been right far more than being wrong. So I will side with Fairfax on what they are doing. Of course my own biases generally match up with them right now so that make the decision easier. LOL
MungerWunger Posted April 28 Posted April 28 (edited) Fairfax going mainstream Edited April 28 by MungerWunger
Viking Posted April 28 Posted April 28 (edited) 4 hours ago, Hamburg Investor said: Could someone please explain how they are likely to manage the duration of the bond portfolio? My (very simplistic) understanding is something like this: They have an idea of what ‘normal’ yields are. If interest rates are lower, they go shorter. If interest rates are high, they go longer. On average and over many, many decades, this approach should yield a higher effective return than if one were to focus ‘only’ on the claim duration. At least as long as there is no hyperinflation and the yield doesn't e. g. stick at 1% forever. But as long as it swings up and down between - say - 0% and 8% and builds an average around the width of that, that seems a pretty good strategy; of course you have to be happy with lumpy returns. But the advantage is that you can get out of the low-interest-rate period quickly, and if rates are above average, you lock them in for longer. You won't be right all the time, but over time it seems a better strategy. It’s perhaps a bit like how a private individual thinks about a mortgage, only the other way round. When interest rates were at rock bottom, I bought a house. In Germany, everyone takes out a 10-year fixed-rate mortgage. I fixed mine for 20 years and pay 1.18% interest for the next 15 years. What could have gone wrong? After 10 years, the interest rate could have been around 0.5%; but that wouldn’t have been a huge loss. Or it could have risen massively and multiplied to 3%, 5%, ... So 20 years to me seemed being the only rational choice: If it's heads, I win big; if it's tails, I lose almost nothing. I discussed that a lot with my friends, some of them bought a house in the same timeframe. But they all locked in the 10 year mortage, as it was 0.2% cheaper. I just don't get that, as the risk reward seemed so clear to me. That always reminds me of FFHs Bond portfolio and how they managed it. Every other insurance business locked in 4 or 5 years, totally ignoring the special situation. It's a bit like people are used to doing things all the time, but they don't react, if the Environment changes. "We have always done it like that" It seems to be a very powerful guiding principle, and it does seem to put people at ease. You don’t have to think about it. However, I’m unsure about a number of points regarding how FFH manages its Bond portfolio ("I know, that I don't know" a lot about that topic): It seems to me that staying short at 1% interest is not very risky. But going long at 10% – when there’s a potential threat of hyperinflation – could also be dangerous. Do they also adjust based on their own macroeconomic outlook? I could imagine you might go even shorter or longer at 4% if you observed something extraordinary. For instance, if politicians were to intervene in interest rates or China were to withdraw massive amounts of capital. But I’m not sure; that would effectively be a macro bet – and I’m not sure whether you would do that with insurance capital. Sorry if I'm simplifying things a bit here. My knowledge is just very basic. @Hamburg Investor, I have no special insight into exactly how the sausage gets made. One possible framework: interest rates move in very long cycles (multi decades). 2021 was likely end of a 40 year period of declining rates (continuously lower highs and lower lows). We are likely now in a period of higher rates - higher highs and higher lows). Why? In short, many of the trends that were driving interest rates lower for 40 years have now reversed. Fairfax also approaches fixed income through a value lens. They ask: "are we being compensated for a given risk". Like duration. Credit. Reinvestment. Etc. People think they are macro investors. I don't think this describes how they manage the fixed income portfolio. Bottom line, they have an outstanding long term track record with fixed income. As a result, I try not to second guess exactly what they are doing quarter to quarter. (I do like to understand what they are doing). Succession planning: Brian Bradstreet is handing the reins to Kleven Sava (Managing Director, Hamblin Watsa, fixed income / bond trading). This is also a critically important development. Q1 is interesting to me because interest rates were trending lower at the end of February. They then shot up close to 60 basis points in about 30 days. Fairfax got a great opportunity to extend duration if they wanted to. Edited April 28 by Viking
Hamburg Investor Posted April 28 Posted April 28 26 minutes ago, Viking said: @Hamburg Investor, I have no special insight into exactly how the sausage gets made. One possible framework: interest rates move in very long cycles (multi decades). 2021 was likely end of a 40 year period of declining rates (continuously lower highs and lower lows). We are likely now in a period of higher rates - higher highs and higher lows). Why? In short, many of the trends that were driving interest rates lower for 40 years have now reversed. Fairfax also approaches fixed income through a value lens. They ask: "are we being compensated for a given risk". Like duration. Credit. Reinvestment. Etc. People think they are macro investors. I don't think this describes how they manage the fixed income portfolio. Bottom line, they have an outstanding long term track record with fixed income. As a result, I try not to second guess exactly what they are doing quarter to quarter. (I do like to understand what they are doing). Succession planning: Brian Bradstreet is handing the reins to Kleven Sava (Managing Director, Hamblin Watsa, fixed income / bond trading). This is also a critically important development. Q1 is interesting to me because interest rates were trending lower at the end of February. They then shot up close to 60 basis points in about 30 days. Fairfax got a great opportunity to extend duration if they wanted to. Many thanks, @Viking. And for all the insights you bring to the table here. It‘s really inspiring and I learn a lot! Yes, they want to get paid for the risk they take. My reasoning regarding short duration was taking that as a basis: Do you EVER get paid with yields standing at 1% for taking longterm risk? I mean if the 1 year yield stands at 1% (so not a shorttime dip) for some time you won’t get much more for taking the 4 year risk, right? @Hoodlum brings that to the point nicely: 4 hours ago, Hoodlum said: They have not looked a trying to time smaller fluctuations of .25 changes rates, but rather look at risks in the market that could have a more significant impact on rates and impact the value of the bonds materially over a short term, impacting their ability to grow/sustain their underwriting. They also look at the long term rates to determine if the reward is worth the risk. Fairfax has been very clear that they don't try to match liabilities with duration, like other insurance companies. 4 hours ago, Hoodlum said: But much of this depends on how much trust you have in Fairfax's ability to decide the duration for their bond portfolio. We also have our own biases of where we think long term rates could go in the short to medium term, and this may or may not match up with what Fairfax is doing. But I believe we have seen a long enough track record from the Fairfax bond team to suggest that they are one of top bond managers globally and have been right far more than being wrong. So I will side with Fairfax on what they are doing. Of course my own biases generally match up with them right now so that make the decision easier. LOL The second part I go with you, but I‘d like to add: Going very short resonated a lot with me; to me (my bias?), that was very rational. The others were irrational. And I‘d like to add, I have no idea, where yields stand anytime in the future and I will never try to pinpoint that. That way I can’t be wrong… Only thing I am pretty sure: - Yields move. Normally they don’t stay where they are for very long. Than something unexpected happens and yields move. - 1% is not normal and not the average over decades
SafetyinNumbers Posted April 28 Posted April 28 1 hour ago, Viking said: Q1 is interesting to me because interest rates were trending lower at the end of February. They then shot up close to 60 basis points in about 30 days. Fairfax got a great opportunity to extend duration if they wanted to. I could see them buying more 2 years but given what they said at the meeting I don’t think they would have extended more.
SafetyinNumbers Posted April 28 Posted April 28 23 hours ago, dartmonkey said: It's not crazy to pencil in a bad year for a company like Fairfax with supercat exposure, but sticking it in 2028 seems pretty arbitrary. If you're going to model in that bad year, it would make more sense to see what the effect would be of one very bad reinsurance year in 10 years. Berkshire, for instance, had a year with a 115% CR (everyone knows what year), and given the fact that their average CR from 2000 to 2024 was 97.7%, that wiped out about 6 years of underwriting gains. Fairfax has a much bigger insurance float than Berkshire. More relevant would be knowing how much each company writes in reinsurance; Berkshire has reduced its exposure, Fairfax I don't know. But anyways, in a very bad year, like the one Horne thinks we will have in 2028, earnings will be low, but that hardly justifies a valuation that bakes that in as though it were a normal year for Fairfax. Fairfax has reduced its exposure to cats as a percentage of total premiums so it would take a particularly bad set of circumstances to cause the CR to go that high. Of course, it could happen. What happens afterwards would be more important as the market would harden up and they would be able to grow fast which I think will trigger momentum funds to jump back in.
Hoodlum Posted April 28 Posted April 28 2 hours ago, Viking said: @Hamburg Investor, I have no special insight into exactly how the sausage gets made. One possible framework: interest rates move in very long cycles (multi decades). 2021 was likely end of a 40 year period of declining rates (continuously lower highs and lower lows). We are likely now in a period of higher rates - higher highs and higher lows). Why? In short, many of the trends that were driving interest rates lower for 40 years have now reversed. Fairfax also approaches fixed income through a value lens. They ask: "are we being compensated for a given risk". Like duration. Credit. Reinvestment. Etc. People think they are macro investors. I don't think this describes how they manage the fixed income portfolio. Bottom line, they have an outstanding long term track record with fixed income. As a result, I try not to second guess exactly what they are doing quarter to quarter. (I do like to understand what they are doing). Succession planning: Brian Bradstreet is handing the reins to Kleven Sava (Managing Director, Hamblin Watsa, fixed income / bond trading). This is also a critically important development. Q1 is interesting to me because interest rates were trending lower at the end of February. They then shot up close to 60 basis points in about 30 days. Fairfax got a great opportunity to extend duration if they wanted to. @Viking I don't remember Kleven Sava previously being mentioned as successor for Brian. Was that mentioned at the AGM?
Viking Posted April 28 Posted April 28 24 minutes ago, Hoodlum said: @Viking I don't remember Kleven Sava previously being mentioned as successor for Brian. Was that mentioned at the AGM? That is my speculation. Here is the org chart slide from the AGM presentation.
Viking Posted April 28 Posted April 28 1 hour ago, Hamburg Investor said: Many thanks, @Viking. And for all the insights you bring to the table here. It‘s really inspiring and I learn a lot! Yes, they want to get paid for the risk they take. My reasoning regarding short duration was taking that as a basis: Do you EVER get paid with yields standing at 1% for taking longterm risk? I mean if the 1 year yield stands at 1% (so not a shorttime dip) for some time you won’t get much more for taking the 4 year risk, right? @Hoodlum brings that to the point nicely: The second part I go with you, but I‘d like to add: Going very short resonated a lot with me; to me (my bias?), that was very rational. The others were irrational. And I‘d like to add, I have no idea, where yields stand anytime in the future and I will never try to pinpoint that. That way I can’t be wrong… Only thing I am pretty sure: - Yields move. Normally they don’t stay where they are for very long. Than something unexpected happens and yields move. - 1% is not normal and not the average over decades When interest rates were at 1% in 2020 and 2021, an interest rate of 5% was unimaginable. Of course, we got higher than that in 2024. Today, rates along much of the curve are in the 4% range. What if something happens in the coming years to spike them to 6 or even 7%? That is not forecast. Rather, just a though exercise. With fixed income it is so easy to get anchored in an interest rate paradigm that is heavily influenced by recency bias. The lesson when trying to understand Fairfax: the key is to get compensated properly for the different risks you are taking on when owning a bond.
Redskin212 Posted April 28 Posted April 28 I think Kleven is already doing the job with Brian's oversight. My impression from the annual meeting and specifically the Shareholder's dinner the night before is that Brian in slowly phasing out of the day-to-day grind with an eye to retiring. Brian spoke for basically an hour at the dinner - I think that was intentional on Prem's and Fairfax part. Also, the first time Kleven's name has appeared on the Annual Meeting slide Viking previously posted - not a coincidence. During the question period, Brian on a number of occasions tried to get Kleven involved in the discussion. For Kleven's part he answered the questions well - very concise, but I believe he was being respectful of his mentor Brian and not trying to steal any of his limelight. After the question period ended, I went up and met Kleven and talked for about 15 minutes - he is very sharp and thinks like Brian does. The next day, I was telling a friend of mine who is a director of FFH, that I was very impressed with Kleven and he look like an excellent successor to Brian. My friend mention that at a recent Board meeting, Kleven blew the board members away with his presentation and knowledge. Brian is the GOAT - no question! And it looks like the GOAT has been mentoring a great successor for about a decade.
Hoodlum Posted April 29 Posted April 29 23 minutes ago, Redskin212 said: I think Kleven is already doing the job with Brian's oversight. My impression from the annual meeting and specifically the Shareholder's dinner the night before is that Brian in slowly phasing out of the day-to-day grind with an eye to retiring. Brian spoke for basically an hour at the dinner - I think that was intentional on Prem's and Fairfax part. Also, the first time Kleven's name has appeared on the Annual Meeting slide Viking previously posted - not a coincidence. During the question period, Brian on a number of occasions tried to get Kleven involved in the discussion. For Kleven's part he answered the questions well - very concise, but I believe he was being respectful of his mentor Brian and not trying to steal any of his limelight. After the question period ended, I went up and met Kleven and talked for about 15 minutes - he is very sharp and thinks like Brian does. The next day, I was telling a friend of mine who is a director of FFH, that I was very impressed with Kleven and he look like an excellent successor to Brian. My friend mention that at a recent Board meeting, Kleven blew the board members away with his presentation and knowledge. Brian is the GOAT - no question! And it looks like the GOAT has been mentoring a great successor for about a decade. Thanks @Redskin212 It is great to hear that Fairfax has a good succession plan in place for Brian. That was the one area where I wasn't aware of who the successor would be. I look forward to hear more from Kleven.
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