SafetyinNumbers Posted May 3 Posted May 3 1 hour ago, TwoCitiesCapital said: I don't necessarily know the odds, but the TRS are pro-cyclical instead of counter-cyclical (like a traditional buyback) which is what bothers me about them. Closing them requires no capital. So closing them doesn't do anything to 'defer' buybacks. It doesn't matter that they "locked in the price" from 5-years ago - they've already collected on that cash and all that matters is the price from the last reset/settlement (last month or last quarter) in determining what they make/lose on cash in any given time period. Fairfax stock is down ~20% from it's peak. The cash flows aren't measured from the peak, but we were close to it at year-end. If we close the next settlement period near these prices, that would imply something close to a $900 million CAD outflow from the parent since year end. $900 million CAD that is no longer available for repurchases and used just to maintain the TRS... At some point it makes sense to close the TRS and move from away from the pro-cyclical allocation to more traditional counter-cyclical buybacks (buying back more when the price is down, not less). I wasn't considering the revolver and is a good point on the flexibility. I think the TRS is effectively a revolver. The borrowing goes up and down with the stock. I appreciate that is procyclical but I think taking it off because there is concern about volatility in earnings or liquidity is too short sighted. To me they are a perfect tool to deploy capital when the stock trades above 1.5x in order to maintain the investments to shareholder equity leverage.
Munger_Disciple Posted May 3 Posted May 3 2 hours ago, TwoCitiesCapital said: I don't necessarily know the odds, but the TRS are pro-cyclical instead of counter-cyclical (like a traditional buyback) which is what bothers me about them. Closing them requires no capital. So closing them doesn't do anything to 'defer' buybacks. It doesn't matter that they "locked in the price" from 5-years ago - they've already collected on that cash and all that matters is the price from the last reset/settlement (last month or last quarter) in determining what they make/lose on cash in any given time period. Fairfax stock is down ~20% from it's peak. The cash flows aren't measured from the peak, but we were close to it at year-end. If we close the next settlement period near these prices, that would imply something close to a $900 million CAD outflow from the parent since year end. $900 million CAD that is no longer available for repurchases and used just to maintain the TRS... At some point it makes sense to close the TRS and move from away from the pro-cyclical allocation to more traditional counter-cyclical buybacks (buying back more when the price is down, not less). Exactly! It's similar to getting margin called (which is why margin debt is so dangerous); happens at the worst possible time when everything else is going in the wrong direction.
SafetyinNumbers Posted May 3 Posted May 3 1 hour ago, Munger_Disciple said: Exactly! It's similar to getting margin called (which is why margin debt is so dangerous); happens at the worst possible time when everything else is going in the wrong direction. Size matters. Using a heuristic misses the opportunity. I know investors that sold as soon as they put them on because they don’t like financial engineering. We have the liquidity to handle margin calls.
gfp Posted May 3 Posted May 3 (edited) 32 minutes ago, glider3834 said: From my view it looks like Fairfax is holding two types of TRS TRS held Unrealized (With Collateral) - marked to market (MTM) - is this so they can keep as unrealised long-term investment and defer tax? - see (2) TRS that is Realized and Cash-Settled Monthly or quarterly or on reset date, so assume any realised gains or realised losses would result in tax impact - see(3) In Q1'26 most of the net loss on the TRS looks to be unrealized MTM - see below It isn't two types of TRS on their own shares. It is just timing differences on reset / remeasurement dates. A "realized gain" is actual cash that came their way. Unrealized movements are in between resets / the movement of cash. Separately there are changes to the cash pledged as collateral that shows up as 200 million or so of the holding company's cash. (this is cash they show on their holding company balance sheet but don't have access to and could be required to increase the size of - think of it as 'restricted cash' or a cash bond posted or whatever - they still own the tbills, they've just been posted as collateral to minimize the risk to their counterparty - a key difference from terms available to some pre-2009 when Buffett wrote un-collateralized naked puts) The swaps are cash collateralized total return swaps that reset (cash actually moves) either monthly or quarterly. That's why you can have a "realized gain" of $11.8 million in the same period where you had net losses of $341.8m and "unrealized losses" of $353.6 million. Realized means cash moved and unrealized means changes between remeasurement dates. There are multiple contracts in different amounts with different measurement dates. Edited May 3 by gfp
Gregmal Posted May 3 Posted May 3 Yawn. I’ll take the guys whom know and have utilized leverage for decades over the misconceptions around “margin being dangerous” any day, and especially over the long haul.
glider3834 Posted May 3 Posted May 3 33 minutes ago, gfp said: It isn't two types of TRS on their own shares. It is just timing differences on reset / remeasurement dates. A "realized gain" is actual cash that came their way. Unrealized movements are in between resets / the movement of cash. Separately there are changes to the cash pledged as collateral that shows up as 200 million or so of the holding company's cash. (this is cash they show on their holding company balance sheet but don't have access to and could be required to increase the size of - think of it as 'restricted cash' or a cash bond posted or whatever - they still own the tbills, they've just been posted as collateral to minimize the risk to their counterparty - a key difference from terms available to some pre-2009 when Buffett wrote un-collateralized naked puts) The swaps are cash collateralized total return swaps that reset (cash actually moves) either monthly or quarterly. That's why you can have a "realized gain" of $11.8 million in the same period where you had net losses of $341.8m and "unrealized losses" of $353.6 million. Realized means cash moved and unrealized means changes between remeasurement dates. There are multiple contracts in different amounts with different measurement dates. thanks gfp for your comments so would it be right to say, even where unrealised gain or loss for TRS, there is still a movement of collateral, held as restricted, which could be in the form of cash or T-bills either received from counterparty(TRS gains) or sent to counterparty (TRS losses) - is that right? And then I guess I was trying to get to the issue of taxation - do you think they would have different re-measurement dates & keep unrealized to defer tax?
Munger_Disciple Posted May 3 Posted May 3 (edited) 1 hour ago, SafetyinNumbers said: Size matters. Using a heuristic misses the opportunity. I know investors that sold as soon as they put them on because they don’t like financial engineering. We have the liquidity to handle margin calls. Sure size matters. Main issue is that the collateral posting obligations of TRS are pro-cyclical. As an owner of FFH stock for the long term, I wouldn't mind at all if they undo it at >= 1.5x Book. I suspect HW crew is watching it closely & likely unwinds it during the next run up in the stock. Let's say hypothetically the stock market drops 50% and FFH stock drops $1,000 along with it. The collateral requirement would be $1.7 Billion; not a small number even for Fairfax. Edited May 3 by Munger_Disciple
This2ShallPass Posted May 3 Posted May 3 50 minutes ago, gfp said: It isn't two types of TRS on their own shares. It is just timing differences on reset / remeasurement dates. A "realized gain" is actual cash that came their way. Unrealized movements are in between resets / the movement of cash. Separately there are changes to the cash pledged as collateral that shows up as 200 million or so of the holding company's cash. (this is cash they show on their holding company balance sheet but don't have access to and could be required to increase the size of - think of it as 'restricted cash' or a cash bond posted or whatever - they still own the tbills, they've just been posted as collateral to minimize the risk to their counterparty - a key difference from terms available to some pre-2009 when Buffett wrote un-collateralized naked puts) The swaps are cash collateralized total return swaps that reset (cash actually moves) either monthly or quarterly. That's why you can have a "realized gain" of $11.8 million in the same period where you had net losses of $341.8m and "unrealized losses" of $353.6 million. Realized means cash moved and unrealized means changes between remeasurement dates. There are multiple contracts in different amounts with different measurement dates. This makes sense but the numbers don't add up. $782M in unrealized gains in 2025 and only $57M in realized gains. In 2026 Q1, $12M in realized gains and unrealized loss of $354M. What settlement data differences would allow for the skewed unrealized vs. realized? The TRS was ~1.7M shares, 2026 Q1 share price down US$206 equates to $350M loss (matches above). For 2025, share price up US$530 and total gains should have been $900M but we only got +$839m ($782+$57M)....difference of $61M. These seem to line with glider's theory of part unrealized m2m and part realized cash settled.
TwoCitiesCapital Posted May 4 Posted May 4 26 minutes ago, This2ShallPass said: This makes sense but the numbers don't add up. $782M in unrealized gains in 2025 and only $57M in realized gains. In 2026 Q1, $12M in realized gains and unrealized loss of $354M. What settlement data differences would allow for the skewed unrealized vs. realized? The TRS was ~1.7M shares, 2026 Q1 share price down US$206 equates to $350M loss (matches above). For 2025, share price up US$530 and total gains should have been $900M but we only got +$839m ($782+$57M)....difference of $61M. These seem to line with glider's theory of part unrealized m2m and part realized cash settled. The 61 million is probably the financing cost of the swaps but still seems low at ~2%
SafetyinNumbers Posted May 4 Posted May 4 8 minutes ago, Munger_Disciple said: Sure size matters. Main issue is that the collateral posting obligations of TRS are pro-cyclical. As an owner of FFH stock for the long term, I wouldn't mind at all if they undo it at >= 1.5x Book. I suspect HW crew is watching it closely & likely unwinds it during the next run up in the stock. That’s the impression I got but not because they are in a rush to take them off. I think they are trying to optimize investments to shareholders equity. Under 1.5x BV they are happy to buy in the open market and above 1.5x BV I think they will choose to unwind TRS via buybacks. The reason I think it’s such a big deal is that it gives Fairfax an opportunity to deploy years of FCF at high incremental returns. Compounder bros rejoice! The TRS alone are $3.3b+ over 1.5x BV and minority interests in Allied World and Odyssey are ~$2b. Between Eurolife and Poseidon proceeds at the holdco plus assuming $2b dividend up from the insurance subsidiaries, I think they have over $3b to spend this year. I would love if they could defer Allied World another year and buy stock in the open market instead. It’s just another form of leverage like the TRS.
SafetyinNumbers Posted May 4 Posted May 4 3 minutes ago, TwoCitiesCapital said: The 61 million is probably the financing cost of the swaps but still seems low at ~2% Net of dividend is probably right. My guess is they did it in CAD given Canadian banks are their counterparties. The rate is probably in the 3% range.
This2ShallPass Posted May 4 Posted May 4 7 minutes ago, TwoCitiesCapital said: The 61 million is probably the financing cost of the swaps but still seems low at ~2% Yes those pesky financing costs:) 33 minutes ago, This2ShallPass said: The TRS was ~1.7M shares, 2026 Q1 share price down US$206 equates to $350M loss (matches above). For 2025, share price up US$530 and total gains should have been $900M but we only got +$839m ($782+$57M)....difference of $61M. I don't know if this is even right, how do you swing from a $782M unrealized gain to $350M loss in Q1? If the $350M is just loss for Q1 ($200/sh), what happened to the the unrealized gain at end of 2025. The realized gains in Q1 was only $12M.
Parsad Posted May 4 Posted May 4 14 hours ago, dartmonkey said: I’m sure you meant book value will be $1,400-1,450 USD by the end of the year, not CAD. $1,450 USD *1.38 CAD/USD * 1.5 = C$3001.5 Sorry...yes! Cheers!
Parsad Posted May 4 Posted May 4 14 hours ago, SafetyinNumbers said: Are you at max size right now or more room to add? Overweight a bit actually! Both my actual weight and FFH! Most of the significant overweight is in the trading accounts. Right-sized pretty much in the non-trading accounts. Cheers!
tnathan Posted May 4 Posted May 4 Question that I’m sure has been answered somewhere else but I’m not that well versed in fairfax …if the positive outcomes happen and bvps compounds at 20% for the next 3-5 years, then the leverage on the float naturally comes down. Is there a plan to acquire another carrier? Obviously a good problem to have but doesn’t the model really slowdown unless you’re able to keep the float leverage at that 3x1 mark?
kab60 Posted May 4 Posted May 4 2 hours ago, tnathan said: Question that I’m sure has been answered somewhere else but I’m not that well versed in fairfax …if the positive outcomes happen and bvps compounds at 20% for the next 3-5 years, then the leverage on the float naturally comes down. Is there a plan to acquire another carrier? Obviously a good problem to have but doesn’t the model really slowdown unless you’re able to keep the float leverage at that 3x1 mark? As the market softens, M&A increases. It is already happening. I sold Fairfax when it traded up against 2xTBV, as you could buy London-listed insurers with just as good if not better insurance operations closer to 1.33xTBV. I swapped to Beazley, which was just taken out by Zurich >2xTBV. I don't own Lancashire currently, as I have more ideas than capital, but I think that one looks ripe for a takeover as well. As do Conduit RE, which is cheaper but has more hair too. I don't think Fairfax is a bad bet here, I just think there are better ones around. Not least in a softening cycle. Maybe you guys already discussed this, but why did these guys give underwriting guidance of $1.5B? It's not like I worry that they'll do anything stupid to hit it, but it seems kinda dumb given cyclical nature of industry, as it's in large part out of their hands. Perhaps to pump the stock/cash in on the TSR?
Viking Posted May 4 Posted May 4 (edited) What Is Wrong with Fairfax’s Stock Price? The Lesson of Mr. Market After five years of near uninterrupted gains, Fairfax’s share price has hit some turbulence: Down 7.5% on Friday, May 2, 2026 Down 16% year-to-date Flat over the past year What is an investor to do? Panic? And sell? Or step back and think clearly? Start with the Right Framework This is not primarily an analytical problem. It is a behavioral one. The behavioral dimension of investing—how psychology, emotion, and bias influence decisions—often dominates real-world outcomes. Price volatility tests temperament, not intelligence. Few have explained this better than Warren Buffett, building on the teachings of Benjamin Graham. Two Questions That Actually Matter Before reacting to price, an investor should ask: 1. Do you understand the business? Fundamentals Capital allocation Management quality Long-term prospects Shareholder alignment On these measures, Fairfax has been exceptional. The past five years have been outstanding, and the next five look equally compelling. The company resembles a high-performing athlete entering its prime. 2. Are you an independent thinker? Do you rely on price to validate your view? Or do you anchor on intrinsic value? Because price and value are not the same thing. Mr. Market: The Key Insight Graham’s Mr. Market offers a simple but powerful lens: The market is there to serve you—not to guide you. Daily price quotes reflect emotion, not value. Sometimes they are useful. Often, they are not. The implication is critical: Price weakness does not necessarily mean business weakness. Reconciling that apparent contradiction is the essence of successful investing. It requires having the right temperament. What Fairfax Is Actually Doing Management is behaving consistently with this framework. They understand the business. They understand its value. And they are acting accordingly. 2025: repurchased and cancelled >1 million shares at ~$1,615 Q1 2026: repurchased 374,883 shares at ~$1,684 May 2, 2026 close: $1,598/share At the same time: 2025 was the best year in company history Intrinsic value has grown meaningfully over the past 15 months The signal is clear: management is treating price weakness as opportunity. If current conditions persist, continued aggressive buybacks in 2026 would represent a high-certainty, high-return use of capital. Putting It Together You are left with two facts: The business is performing at a high level The stock price is underperforming Most investors struggle here. They assume the second must reflect the first. It doesn’t have to. The Real Lesson Mr. Market is not teaching you about markets. He is teaching you about yourself. Can you separate price from value? Can you remain rational when others are not? Can you act when opportunities appear—and do nothing when they don’t? Because in investing: Behavior—not analysis—is often the decisive edge. Bottom Line Fairfax’s recent share price weakness is not, by itself, a signal. It is an invitation. Whether it becomes an opportunity—or a mistake—depends entirely on how you respond. =========== Quote from Warren Buffett – from Berkshire Hathaway’s 1987 Annual Report “Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his. “Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions, he will name a very low price, since he is terrified that you will unload your interest on him. “Mr. Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you. “But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.” “Ben’s Mr. Market allegory may seem out-of-date in today’s investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising “Take two aspirins”? “The value of market esoterica to the consumer of investment advice is a different story. In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. In my own efforts to stay insulated, I have found it highly useful to keep Ben’s Mr. Market concept firmly in mind. “Following Ben’s teachings, Charlie and I let our marketable equities tell us by their operating results – not by their daily, or even yearly, price quotations – whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it. As Ben said: “In the short run, the market is a voting machine but in the long run it is a weighing machine.” The speed at which a business’s success is recognized, furthermore, is not that important as long as the company’s intrinsic value is increasing at a satisfactory rate. In fact, delayed recognition can be an advantage: It may give us the chance to buy more of a good thing at a bargain price.” Berkshire Hathaway AR - 1987 Edited May 4 by Viking
djokovic1 Posted May 4 Posted May 4 1 hour ago, kab60 said: I sold Fairfax when it traded up against 2xTBV, as you could buy London-listed insurers with just as good if not better insurance operations closer to 1.33xTBV. I swapped to Beazley, which was just taken out by Zurich >2xTBV. I don't own Lancashire currently, as I have more ideas than capital, but I think that one looks ripe for a takeover as well. As do Conduit RE, which is cheaper but has more hair too. I don't think Fairfax is a bad bet here, I just think there are better ones around. Not least in a softening cycle. Maybe you guys already discussed this, but why did these guys give underwriting guidance of $1.5B? It's not like I worry that they'll do anything stupid to hit it, but it seems kinda dumb given cyclical nature of industry, as it's in large part out of their hands. Perhaps to pump the stock/cash in on the TSR? Hi Kab, None of the other insurers apart from a small handful invest well i.e optimising investment leverage, investing a sufficient proportion of the book in equities and managing the duration of the FI book rather than blindly matching liability duration. Most of the value creation at a well run insurer comes from the investment operation (not insurance operation) -> Although yes the insurance operations is the bedrock, providing float at negative cost when done well. Re. the guidance, it's one part of the rough $5bn they expect to earn annually for the next 3-4 years. Having looked at Prem's communication since inception, I think its much more about telling it as it is (trying to be accurate) rather than anything else. With regard to the TRS discussion, based on my impressions from and around the AGM, they are mindful of the risk reward changing if Fairfax gets closer to intrinsic value and will act accordingly.
kab60 Posted May 4 Posted May 4 2 hours ago, djokovic1 said: Hi Kab, None of the other insurers apart from a small handful invest well i.e optimising investment leverage, investing a sufficient proportion of the book in equities and managing the duration of the FI book rather than blindly matching liability duration. Most of the value creation at a well run insurer comes from the investment operation (not insurance operation) -> Although yes the insurance operations is the bedrock, providing float at negative cost when done well. Re. the guidance, it's one part of the rough $5bn they expect to earn annually for the next 3-4 years. Having looked at Prem's communication since inception, I think its much more about telling it as it is (trying to be accurate) rather than anything else. With regard to the TRS discussion, based on my impressions from and around the AGM, they are mindful of the risk reward changing if Fairfax gets closer to intrinsic value and will act accordingly. I'm not sure I agree with your first statement. Fairfax has done incredibly well since I invested in late '22, as insurance market strengthened bigtime and they have a ton of leverage to increasing rates given duration and size of bond portfolio. On top, their equity portfolio started doing much better, so all engines started firing just around the same time. On top, you had a very low price, so you got multiple expansion on top. That's a great investment! But it's not like Fairfax did anything particularly clever in my opinion. They just didn't do anything extremely dumb (reach for duration during ZIRP), and a lot of factors (largely outside of their control) fell in place. They weren't as dumb as they looked prior to '22, nor were they as smart as some make them out to me based on the period since. Most insurance companies have absolutely minted in recent years. I don't think it's Fairfax' investments that have been the main driver of returns, nor do I think it will be going forward. Given their size, I wouldn't expect any market-beating equity outperformance. We had a long stretch of underperformance prier to their recent hot streak, and as their capital base grows, outperformance will only get harder to come buy. If you compare Fairfax to well-run insurers like WRB and Beazley, which mostly holds T-bills as well, Fairfax is even struggling a bit to keep up. WRB gets a higher multiple, I suppose partly due to simplicity (which I think is fair, and I wouldn't expect it to change). I know I'm kicking a hornets' nest here, but I do think it's a bit of an echo chamber around Fairfax (and I guess that's no surprise given the name of the forum...). I recommend it to people who wants a low-maintenance, long-term holding, given quality of people/no agency risk. But I still think there are better insurance names around from a risk-reward perspective. It's not just whether Fairfax looks like a sound investment here. To me It's about opportunity cost. On a more tactical level (booo!), a lot of investors seem to have forgotten that insurance (and insurance brokering) is cyclical. And people hate when/if earnings start coming down/flatline. 1
SafetyinNumbers Posted May 4 Posted May 4 17 minutes ago, kab60 said: I'm not sure I agree with your first statement. Fairfax has done incredibly well since I invested in late '22, as insurance market strengthened bigtime and they have a ton of leverage to increasing rates given duration and size of bond portfolio. On top, their equity portfolio started doing much better, so all engines started firing just around the same time. On top, you had a very low price, so you got multiple expansion on top. That's a great investment! But it's not like Fairfax did anything particularly clever in my opinion. They just didn't do anything extremely dumb (reach for duration during ZIRP), and a lot of factors (largely outside of their control) fell in place. They weren't as dumb as they looked prior to '22, nor were they as smart as some make them out to me based on the period since. Most insurance companies have absolutely minted in recent years. I don't think it's Fairfax' investments that have been the main driver of returns, nor do I think it will be going forward. Given their size, I wouldn't expect any market-beating equity outperformance. We had a long stretch of underperformance prier to their recent hot streak, and as their capital base grows, outperformance will only get harder to come buy. If you compare Fairfax to well-run insurers like WRB and Beazley, which mostly holds T-bills as well, Fairfax is even struggling a bit to keep up. WRB gets a higher multiple, I suppose partly due to simplicity (which I think is fair, and I wouldn't expect it to change). I know I'm kicking a hornets' nest here, but I do think it's a bit of an echo chamber around Fairfax (and I guess that's no surprise given the name of the forum...). I recommend it to people who wants a low-maintenance, long-term holding, given quality of people/no agency risk. But I still think there are better insurance names around from a risk-reward perspective. It's not just whether Fairfax looks like a sound investment here. To me It's about opportunity cost. On a more tactical level (booo!), a lot of investors seem to have forgotten that insurance (and insurance brokering) is cyclical. And people hate when/if earnings start coming down/flatline. What’s your ROE expectation over the next 5 years and/or how slowly do you think BVPS compounds over the next 5 years?
kab60 Posted May 4 Posted May 4 I don't know about 5 years. I don't see how anyone would. Next few years should be good (15-20% ROE?), given I'd think they stuffed reserves in good times as any good insurer would do and their bonds have a couple of years' worth of duration. Industry is clearly softening, and in some parts fast, so I don't know where the CR ends up in 2-3 years. I would think it moves higher however. I don't know where rates will be in 2-3 years, and they obviously have massive torque to rates, which can go both ways, so having much confidence beyond 2-3 years is tricky for me. On a +10 years timeline, I think it does very well, but I don't think that's unique to Fairfax. What I do know is that I can buy Lancashire ~6x earnings (and I'd expect a similar ROE in a next 1-2 years) and at a much cheaper TBV multiple. And I get the added kicker of a potential takeout as a lot of insurance companies will be looking at M&A, as ROI on organic growth comes down during industry softening and capital builds. Again, I think Fairfax looks fine standalone and think it's a very low-maintenance, low-risk idea on longterm basis.
Junior R Posted May 4 Posted May 4 another thing one needs to also consider if the GEM Anchorage Infrastructure IPO (BIAL) and say that pushes FIH to $30 to $50 USD a share in the next 5 years what does that do for FFH ...there is a lot of hidden gems in FFH
tnathan Posted May 4 Posted May 4 2 hours ago, kab60 said: I don't know about 5 years. I don't see how anyone would. Next few years should be good (15-20% ROE?), given I'd think they stuffed reserves in good times as any good insurer would do and their bonds have a couple of years' worth of duration. Industry is clearly softening, and in some parts fast, so I don't know where the CR ends up in 2-3 years. I would think it moves higher however. I don't know where rates will be in 2-3 years, and they obviously have massive torque to rates, which can go both ways, so having much confidence beyond 2-3 years is tricky for me. On a +10 years timeline, I think it does very well, but I don't think that's unique to Fairfax. What I do know is that I can buy Lancashire ~6x earnings (and I'd expect a similar ROE in a next 1-2 years) and at a much cheaper TBV multiple. And I get the added kicker of a potential takeout as a lot of insurance companies will be looking at M&A, as ROI on organic growth comes down during industry softening and capital builds. Again, I think Fairfax looks fine standalone and think it's a very low-maintenance, low-risk idea on longterm basis. Based on an outsider's perspective I do think people are assuming the best for FFH and don't realize if any of the 3 main levers gets weaker near term performance will weaken but I do think long term results will be good. However, I don't think Lancashire is actually trading more cheaply than FFH?
kab60 Posted May 4 Posted May 4 Just looking at LTM and NTM estimates, Lancashire trades at ~1.5xTBV vs 1.9x for Fairfax. And Lancashire at 6xNTM earnings (with Q1 in the book) vs. 10x for Fairfax. So P/TPV will look quite different at YE if estimates are on point, with Lancashire trading closer to ~1.35xTBV. And as importantly, Beazley was just taken private at ~>2xTBV. Beazley is a higher quality insurance franchise up there with WRB. But OTOH, there are now just 3 Lloyds-listed insurers left and one of them is a turnaround. Lancashire is also higher quality than in the past. It's more diverse, has less catastrophe risk - a bit like Fairfax' evolution.
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