Fairfax 2026

[CharlesMunger]

3 hours ago, SafetyinNumbers said:

Analyst estimates for Q2 look too high. They are ignoring bond losses again presumably because other insurance companies don’t include it in their adjusted EPS. 

So after earnings release potentially another big down day and Fairfax with the opportunity to buy back more shares? I’ll take it

[TwoCitiesCapital]

31 minutes ago, Viking said:

 

@TwoCitiesCapital, is that what happened in Q1?

 

From the Q1 conference call:

 

"In the first quarter, net earnings included a $184 million unrealized loss due to increasing interest rates in the quarter. This consisted of unrealized losses on our bonds of $364 million, as I previously mentioned, offset by the increase in discount under IFRS 17 on our insurance and reinsurance reserves of $180 million. For the first quarter of 2025, this number was a net gain of $120 million."

 

Interesting.

 

I'm speaking in generalizations of raw interest  rate moves, but the generalization didn't seem to hold true for that quarter (when it has been true in others). 

 

There's probably some component of what credit and mortgage spreads did too since Fairfax doesn't just own straight treasuries and that may explain the difference in Q1. 

 

But as a ballpark, if they're under in duration, they'll outperform their liability when rates rise. 

 

 

[SafetyinNumbers]

10 minutes ago, CharlesMunger said:

So after earnings release potentially another big down day and Fairfax with the opportunity to buy back more shares? I’ll take it

Maybe! BVPS growing again and a 100% increase in sequential earnings might offset the sellers though.

[SafetyinNumbers]

Just now, TwoCitiesCapital said:

 

Interesting.

 

I'm speaking in generalizations of raw interest  rate moves, but the generalization didn't seem to hold true for that quarter (when it has been true in others). 

 

There's probably some component of what credit and mortgage spreads did too since Fairfax doesn't just own straight treasuries and that may explain the difference in Q1. 

 

But as a ballpark, if they're under in duration, they'll outperform their liability when rates rise. 

 

 

It’s possible Fairfax has shortened the duration of its reserves which would dampen the impact of higher rates on discounting. Perhaps another way to defer earnings. 

[Maverick47]

38 minutes ago, Viking said:

 

@73 Reds, great question: "Why use BV as a valuation metric?" The primary reason for me is habit - it is built into my models/mental framework. Another important reason is it also the key metric that the investment community focusses on for P/C insurers.

 

I do include "excess of FV over CV"  in my models - that provides an important build getting us closer to "economic BV."

 

Is book value still relevant as a valuation measure for Fairfax? Great question. I need to think more about it. What do others think? 

Personally, as sort of an armchair novice investor, I have often focused in a first pass view of investments, on multiples of earnings per share, the P/E ratio.  That works fairly well for investments that have relatively stable, predictable earnings, similar to interest paying bonds, and is less valuable when earnings are volatile, and occasionally even negative, or when earnings growth prospects are extremely difficult to estimate.

 

But for a mature insurance company, or even a conglomerate like Berkshire, it can be a helpful starting point.  For example, a hybrid view of valuing Berkshire might look at the market value of the equity portfolio, the cash, and then add to those two pieces a multiple of normalized earnings.  Say that equities are worth $300 billion, cash is at $380 billion, and the normalized projected operating earnings of all of the subsidiaries are estimated as $48 billion per year, or $4 billion per month.  What multiple would you be willing to pay for those earnings is something you have to determine individually.  Compared to risk free bond rates of say 5%, you’d typically want something higher than that, perhaps 8%, for a PE multiplier of the inverse, or 12.5.

 

That would value the operating subs at $600 billion, and added to the equity and cash, you’d get  an estimated total intrinsic value of $1.28 trillion compared to a recent market cap of $1.06 trillion.  So a bit of a margin of safety at current prices.  Of course you might divide the operating subs into categories, and assign typical PE multipliers used by the market for similar industries…say about 30 for the railroad and something less than 10 for the electric utilities, but that’s too far into the weeds for me personally on a quick first pass.

 

Looking at the history of earnings per share for Fairfax prior to about 2018, this was all over the place, with not a very predictable pattern.  But since then, we’ve had a good track record of earnings per share well above $100, and my own expectation would be closer to the $200 level and above going forward, particularly in light of the impact of share buybacks on the earnings per share going forward and the interest rates locked in for the bond portfolio.

 

Ignoring the cash and market value of equity piece of the Berkshire approach, and using the same 12.5 multiplier for an estimated earnings per share value of $200 gives me an intrinsic value per share of $2500 US.  If we were to add in cash and equity, I would not be at all surprised to see a result closer to $3,000 per share US, similar to @SafetyinNumbers preference for using a 15 multiplier to an estimated EPS of $200.

 

With management retiring shares at less than US $1700 a share recently, I am confident that they are buying back well below any reasonable estimate of intrinsic value.

 

 

[SafetyinNumbers]

1 hour ago, Maverick47 said:

Personally, as sort of an armchair novice investor, I have often focused in a first pass view of investments, on multiples of earnings per share, the P/E ratio.  That works fairly well for investments that have relatively stable, predictable earnings, similar to interest paying bonds, and is less valuable when earnings are volatile, and occasionally even negative, or when earnings growth prospects are extremely difficult to estimate.

 

But for a mature insurance company, or even a conglomerate like Berkshire, it can be a helpful starting point.  For example, a hybrid view of valuing Berkshire might look at the market value of the equity portfolio, the cash, and then add to those two pieces a multiple of normalized earnings.  Say that equities are worth $300 billion, cash is at $380 billion, and the normalized projected operating earnings of all of the subsidiaries are estimated as $48 billion per year, or $4 billion per month.  What multiple would you be willing to pay for those earnings is something you have to determine individually.  Compared to risk free bond rates of say 5%, you’d typically want something higher than that, perhaps 8%, for a PE multiplier of the inverse, or 12.5.

 

That would value the operating subs at $600 billion, and added to the equity and cash, you’d get  an estimated total intrinsic value of $1.28 trillion compared to a recent market cap of $1.06 trillion.  So a bit of a margin of safety at current prices.  Of course you might divide the operating subs into categories, and assign typical PE multipliers used by the market for similar industries…say about 30 for the railroad and something less than 10 for the electric utilities, but that’s too far into the weeds for me personally on a quick first pass.

 

Looking at the history of earnings per share for Fairfax prior to about 2018, this was all over the place, with not a very predictable pattern.  But since then, we’ve had a good track record of earnings per share well above $100, and my own expectation would be closer to the $200 level and above going forward, particularly in light of the impact of share buybacks on the earnings per share going forward and the interest rates locked in for the bond portfolio.

 

Ignoring the cash and market value of equity piece of the Berkshire approach, and using the same 12.5 multiplier for an estimated earnings per share value of $200 gives me an intrinsic value per share of $2500 US.  If we were to add in cash and equity, I would not be at all surprised to see a result closer to $3,000 per share US, similar to @SafetyinNumbers preference for using a 15 multiplier to an estimated EPS of $200.

 

With management retiring shares at less than US $1700 a share recently, I am confident that they are buying back well below any reasonable estimate of intrinsic value.

 

 

My problem with using earnings as my main valuation method is that for all intents and purposes it requires an assumption on ROE. If I’m going to use ROE anyway, then P/B seems like a better measure as it’s less variable than earnings. The accounting rules for significant influence and control positions also understate earnings (and BV) while my expected ROE can smooth that out by having an expected return for the equity portfolio. EPS is used by most investors and analysts provide easily accessible (albeit conservative annual estimates) so it has to be part of the conversation.

 

Float + Book Value or Total Investments per share are ways to eliminate needing to estimate earnings or ROE so arguably more objective. Of course, we never plan to buy shares at intrinsic value but presumably margin of safety is higher when the discount is big. This would be a tougher bet to make if I was worried about reserving but I actually think they are over reserved.
 

 

Edited 23 hours ago by SafetyinNumbers

[Txvestor]

10 hours ago, Viking said:

 

@73 Reds, great question: "Why use BV as a valuation metric?" The primary reason for me is habit - it is built into my models/mental framework. Another important reason is it also the key metric that the investment community focusses on for P/C insurers (rightly or wrongly).

 

I do include "excess of FV over CV"  in my models - that provides an important improvement to accounting BV - getting us closer to "economic BV." But that is incomplete.

 

Is book value still relevant as a valuation measure for Fairfax? Great question. I need to think more about it. What do others think? 

 

PS: When I value Fairfax I like to use "normalized earnings" and PE. Much of their EPS is very stable. And for investment gains I use a three year average - which makes this part also very stable. As a result, PE works for me. Bottom line... stock is trading today at about 8.5 x "normalized earnings." Crazy cheap from my perspective. 

It's a good starting point to value a company, there are many adjustments that need to be made after that. Excess fair value over carrying value is the most obvious one. But in order to come to a conclusion on valuation you need to have a return hurdle in mind. If ROE is 16% and you consider 8% to be a reasonable long term goal, then 2x BV is a reasonable valuation. 
there are other external factors like where we are in the Underwriting cycle, what are the interest rates. How well are their investments working. 

[Hoodlum]

I presume that this was the last regulatory hurdle for the Eurolife sale, and that this can now be closed soon.

 

https://ec.europa.eu/commission/presscorner/detail/en/mex_26_1639

 

The European Commission has approved, under the EU Merger Regulation, the acquisition of sole control of EUROLIFE FFH LIFE INSURANCE S.A. (‘Eurolife') by EUROBANK S.A., both of Greece.

 

The transaction relates primarily to insurance products and services.

 

The Commission concluded that the notified transaction would not raise competition concerns, given the companies' limited market positions resulting from the proposed transaction. The notified transaction was examined under the simplified merger review procedure.

 

[SafetyinNumbers]

10 minutes ago, Hoodlum said:

I presume that this was the last regulatory hurdle for the Eurolife sale, and that this can now be closed soon.

 

https://ec.europa.eu/commission/presscorner/detail/en/mex_26_1639

 

The European Commission has approved, under the EU Merger Regulation, the acquisition of sole control of EUROLIFE FFH LIFE INSURANCE S.A. (‘Eurolife') by EUROBANK S.A., both of Greece.

 

The transaction relates primarily to insurance products and services.

 

The Commission concluded that the notified transaction would not raise competition concerns, given the companies' limited market positions resulting from the proposed transaction. The notified transaction was examined under the simplified merger review procedure.

 

Great catch. I assume FFH exercises its option on the Allied World minority interest that expires in September as soon as Eurolife closes. 

[Intelligent_Investor]

Imo you just need to be directionally correct, especially if the company is pumping out high ROE and compounding equity at high rates. At 1.1x book, you know that directionally, Fairfax is cheap even if it had an average ROE. So the fact that they are doing buybacks and that they have well above average ROEs just means that its pretty damn cheap right now.

[djokovic1]

This was the presentation that I used last week that has my thoughts on valuation, book value, ROE amongst other stuff. I find ROE and P/E most useful (especially as Fairfax earnings power has become much more stable).

 

Book value is an additional data point and quick way to compare insurers. However an insurer trading at 1x book earning 8% ROE is much more expensive than an insurer trading at 1x book earning 20% ROE. Which will be captured in the PE multiple (i.e the second business will be trading at a much lower PE).



 

Fairfax_Pitch_final_P&R_VIS.pdf

Edited 5 hours ago by djokovic1

[Txvestor]

52 minutes ago, Intelligent_Investor said:

Imo you just need to be directionally correct, especially if the company is pumping out high ROE and compounding equity at high rates. At 1.1x book, you know that directionally, Fairfax is cheap even if it had an average ROE. So the fact that they are doing buybacks and that they have well above average ROEs just means that its pretty damn cheap right now.

Exactly. They've stated that their longer term ROE goal is 15%. And when their own shares are available at around that level or better, it's one of the best use of excess funds. And for those of us who plan to hold for many years an added bonus is that it helps extend the runway. There is a quote attributed to Buffett regarding assessing valuation. 
"Whether you are 300lb or 315lb, you're still fat". You really don't need to be precise when it's a fat pitch. Just let time and valuation do the heavy lifting. In Fairfax's case the business model, carefully constructed leverage and steady revenue streams do the heavy lifting. One just has to have patience and not let the noise around the stock market impact you too much. 

[SafetyinNumbers]

1 hour ago, djokovic1 said:

Book value is an additional data point and quick way to compare insurers. However an insurer trading at 1x book earning 8% ROE is much more expensive than an insurer trading at 1x book earning 20% ROE. Which will be captured in the PE multiple (i.e the second business will be trading at a much lower PE).

This is a terrific presentation. Thanks for sharing. 

 

A great investor, John Fox, shared with a group of us a shorthand for calculating a fair P/B multiple of ROE/7. I think it’s pretty effective and provides for some margin of safety as theoretically the P/B multiple relationship to ROE should be exponential because of the compounding for high ROE companies. Arguably it requires a high incremental returns on capital. We have seen stocks go above it in hard markets and below it in soft markets but perhaps a fair indicator of intrinsic value. 
 

[Maverick47]

24 minutes ago, SafetyinNumbers said:

This is a terrific presentation. Thanks for sharing. 

 

A great investor, John Fox, shared with a group of us a shorthand for calculating a fair P/B multiple of ROE/7. I think it’s pretty effective and provides for some margin of safety as theoretically the P/B multiple relationship to ROE should be exponential because of the compounding for high ROE companies. Arguably it requires a high incremental returns on capital. We have seen stocks go above it in hard markets and below it in soft markets but perhaps a fair indicator of intrinsic value. 
 

Thanks to you both!
 

ROE is a critical consideration.  What I like about Fairfax is that they seem to have plenty of ideas regarding how to continue to achieve their 15% ROE target via smart allocation of the increasing amount of cash they are generating.  And right now, share buybacks at current price levels is just one of the many ways they have found to do so.

 

The only thing better than a company that can earn high returns on capital employed is one that can reinvest incremental earnings at a similar high rate of return.
 

 

[djokovic1]

50 minutes ago, SafetyinNumbers said:

This is a terrific presentation. Thanks for sharing. 

Thank you @SafetyinNumbers of course a big part of the knowledge is from the board with posters like yourself and @Viking

 

I know you are more guarded on the exit multiple, but I am quite optimistic at some point in the next five years the market will give Fairfax credit for its 15-20% continued compounding and re-rate the multiple. Regardless high probability of 20% CAGR even if not 30%

[SafetyinNumbers]

12 minutes ago, djokovic1 said:

I know you are more guarded on the exit multiple, but I am quite optimistic at some point in the next five years the market will give Fairfax credit for its 15-20% continued compounding and re-rate the multiple. Regardless high probability of 20% CAGR even if not 30%

I think we’ll get well above 2x BV at some point just less certain it happens over 5 years without a hard market but that’s a long time so definitely possible. Share counts dwindling and smart global investors like yourself owning it helps! I use 5-10x over 10 years which is ~17.5-26% CAGR. The low end may require no multiple expansion but the high end likely requires some. 

[RRR]

Thanks @djokovic1 for sharing the presentation ! I have followed along the forum silently and am an investor in Fairfax based on my own learning here. Shout out to @Viking and others ! 
 

One point from the presentation I found interesting, and I'm wondering how others are thinking about it -- Fairfax seems to run greater leverage overall (~300% invested assets/equity vs other insurance peers and Berkshire). At the same time, a larger share of those assets sits in common stocks, which are generally more volatile.

Berkshire obviously holds an even greater portion in common stocks, but its leverage looks like the lowest of the group, so it should be better positioned to withstand a drawdown.
 

I suppose I'm just concerned about the tail risk here. 

[Viking]

1 hour ago, RRR said:

Thanks @djokovic1 for sharing the presentation ! I have followed along the forum silently and am an investor in Fairfax based on my own learning here. Shout out to @Viking and others ! 
 

One point from the presentation I found interesting, and I'm wondering how others are thinking about it -- Fairfax seems to run greater leverage overall (~300% invested assets/equity vs other insurance peers and Berkshire). At the same time, a larger share of those assets sits in common stocks, which are generally more volatile.

Berkshire obviously holds an even greater portion in common stocks, but its leverage looks like the lowest of the group, so it should be better positioned to withstand a drawdown.
 

I suppose I'm just concerned about the tail risk here. 

@RRR, welcome. Good question. Here are some thoughts: 

 

The key to your question is how you define risk. Is it:

1. Volatility?
2. Chance of permanent loss of capital?

This also ties in to time-frame: short term (less than three years) or medium term (more than three years)?
 

Another key is type of equity:

• Mark to market
• Associate
• Consolidated

More than 50% of Fairfax’s equity holdings are associated and consolidated… meaning a big decline in the market averages will have a more muted impact on reported results. 
 

Another key is opportunity. Fairfax often makes their best investments when volatility is at extreme levels. 

Edited 1 hour ago by Viking

[Maverick47]

42 minutes ago, RRR said:

Thanks @djokovic1 for sharing the presentation ! I have followed along the forum silently and am an investor in Fairfax based on my own learning here. Shout out to @Viking and others ! 
 

One point from the presentation I found interesting, and I'm wondering how others are thinking about it -- Fairfax seems to run greater leverage overall (~300% invested assets/equity vs other insurance peers and Berkshire). At the same time, a larger share of those assets sits in common stocks, which are generally more volatile.

Berkshire obviously holds an even greater portion in common stocks, but its leverage looks like the lowest of the group, so it should be better positioned to withstand a drawdown.
 

I suppose I'm just concerned about the tail risk here. 

Always good to challenge assumptions, ask questions, consider the downside risk of any investment @RRR!

 

When I think about this in regards to Fairfax, I consider a number of factors.  AM Best is an insurance company rating agency that considers how secure and financially stable an insurer is.  They have been granting upgrades to Fairfax over the years, with the last major upgrade in 2025.  Take this with a bit of a grain of salt though, because before the GFC, AM Best had assigned their highest ratings to both Berkshire Hathaway and AIG.  They missed the danger lurking in AIG Financial Products, which would have taken the company down absent a government bailout…

 

One insurance tail risk is if the loss reserves are set at an inadequate level.  Fairfax’s history indicates that their general approach to setting reserves is for them to be much more likely to be redundant than inadequate.  Another is future likelihood of weather catastrophes.  Tough to know for sure, but based on computer modeling, Fairfax has been reducing their tail weather catastrophe risk over time as a percent of supporting equity.

My guess is they have a billion or two of redundant loss reserves which means their equity is understated by that same amount.  Similarly, they have about $4 billion of fair market value excess of assets compared to where those assets are carried in terms of book value.  They are prudently managing their exposure to catastrophe losses relative to their equity base.

 

Over time, the increased allocation of investments to common stocks may well result in a Berkshire type situation where the market value of their common stocks regularly grows faster than the natural growth in the underlying insurance premiums, making the company even more safe and secure relative to claims obligations over time than it is now.

 

But if there is a period of volatility with the equity investments, and a seriously large negative market value move, how might the company respond?  I think we’ve already seen this in the early 2000’s when they chose to sell minority stakes of their crown jewels, Odyssey and Northbridge, buying the minority interests back once the company had recovered.

I think the good thing about Fairfax to me is that they are a learning organization.  They faced an existential crisis during the early 2000’s and the short seller attacks.  They learned from the lost decade of hedges and shorts after the GFC.  They are building a margin of safety into their shareholder equity book value, and have developed solid partnerships with organizations such as OMERS who can help provide capital if needed in the future.

 

 

 

 

 

 

 

[Viking]

4 hours ago, djokovic1 said:

This was the presentation that I used last week that has my thoughts on valuation, book value, ROE amongst other stuff. I find ROE and P/E most useful (especially as Fairfax earnings power has become much more stable).

 

Book value is an additional data point and quick way to compare insurers. However an insurer trading at 1x book earning 8% ROE is much more expensive than an insurer trading at 1x book earning 20% ROE. Which will be captured in the PE multiple (i.e the second business will be trading at a much lower PE).

Fairfax_Pitch_final_P&R_VIS.pdf 3.48 MB · 56 downloads

@djokovic1, thanks for sharing your presentation. I thought it laid out the thesis very well. At a high level, the story is very straight forward. Well done! 

[mananainvesting]

Tracking Buybacks of a select few companies here (https://mananainvesting.substack.com/s/buyback-tracker-series). Below is Fairfax Financial.