yesman182 Posted February 20 Posted February 20 1 minute ago, Hoodlum said: Wow! Asbestos claims from 30-40 years ago are still a big contributor to ongoing runoffs. Yeah, I was hoping they would answer how long these will continue, not just say the US is litigious and then have a technical issue.....
Hoodlum Posted February 20 Posted February 20 Just now, yesman182 said: Yeah, I was hoping they would answer how long these will continue, not just say the US is litigious and then have a technical issue..... Maybe more was said live.
Txvestor Posted February 20 Posted February 20 (edited) 38 minutes ago, Hoodlum said: Wow! Asbestos claims from 30-40 years ago are still a big contributor to ongoing runoffs. Yeah, some of those early insurance acquisitions Prem did were gifts that keep on giving. The legal system in the US is really out of control. The trial lawyers are a lobby group and work hard to impose these "taxes" on the system. I guess it shows up in pricing. I don't know if the issue gets any traction when affordability becomes more and more problematic. As to how long it lasts, it's people's lifetimes. When we start to see the adverts on TV looking for asbestos victims diminish is when we will know. Edited February 20 by Txvestor
Parsad Posted February 20 Posted February 20 9 hours ago, Parsad said: Yes, as well as gains on investment within the float. Cheers! 3 hours ago, gfp said: What?? gains on investments “within the float” don’t increase the liability! float is a liability! Sorry, that should have said "Yes, as well as losses on investment within the float." Cheers!
gfp Posted February 20 Author Posted February 20 6 minutes ago, Parsad said: Sorry, that should have said "Yes, as well as losses on investment within the float." Cheers! Can we just agree that investment gains and losses have no impact on the amount or growth of float? Sheesh
Marco Van Basten Posted February 20 Posted February 20 Did I hear this correctly that the company is expecting $5bn per annum in consolidated income on a going forward basis? That is $250 per share pre-tax and $200 after-tax.
Txvestor Posted February 20 Posted February 20 I just find the Qs from the analysts to be so shallow. First guy asks basically why underwritten premium growth is slowing into a softening market. Duh! Then the BMO analyst, obviously smarting from his recent downgrade, and EPS beat which this board predicted, wants to know why the tax rate was 18% when they guided 22-24% last year. Apparently ignorant to the fact that they are an international operation with large holdings in Greece and India. The more you listen to these calls. The more it's apparent how superficial these analysts are in their thinking about the company.
Junior R Posted February 20 Posted February 20 2 minutes ago, Txvestor said: I just find the Qs from the analysts to be so shallow. First guy asks basically why underwritten premium growth is slowing into a softening market. Duh! Then the BMO analyst, obviously smarting from his recent downgrade, and EPS beat which this board predicted, wants to know why the tax rate was 18% when they guided 22-24% last year. Apparently ignorant to the fact that they are an international operation with large holdings in Greece and India. The more you listen to these calls. The more it's apparent how superficial these analysts are in their thinking about the company. No questions means bad performance review for the Analyst ...they got to show the boss they working...I think one person took the call from the car lol
MMM20 Posted February 20 Posted February 20 4 minutes ago, Junior R said: No questions means bad performance review for the Analyst ...they got to show the boss they working...I think one person took the call from the car lol I used to write the questions for my boss when I was 22-23 fresh out of school and knew absolutely nothing.
villainx Posted February 20 Posted February 20 19 minutes ago, MMM20 said: I used to write the questions for my boss when I was 22-23 fresh out of school and knew absolutely nothing. I wouldn't know what questions to ask even following this company relatively closely. Then again, for my kids' parent teacher conferences, I don't know what to ask either.
roundball100 Posted February 20 Posted February 20 32 minutes ago, Txvestor said: I just find the Qs from the analysts to be so shallow. [...] The more it's apparent how superficial these analysts are in their thinking about the company. Some people make things happen. Others understand what is happening as it unfolds. Some people wonder what the heck just happened.
Txvestor Posted February 20 Posted February 20 24 minutes ago, roundball100 said: Some people make things happen. Others understand what is happening as it unfolds. Some people wonder what the heck just happened. Some even rationalize their analysis when it's just plain wrong. Bias.
SafetyinNumbers Posted February 20 Posted February 20 4 hours ago, yesman182 said: Yeah, I was hoping they would answer how long these will continue, not just say the US is litigious and then have a technical issue..... On a side note, this is helpful to defer earnings.
Hoodlum Posted February 20 Posted February 20 (edited) The comments regarding the benefits of the Kennedy Wilson acquisition seems to suggest growing the real estate underwriting business at Fairfax. Wade Burton Kennedy Wilson has world-class capabilities underwriting real estate. Having this capability in-house at Fairfax has a huge long-term benefit for Fairfax shareholders. Peter Clarke On Kennedy-Wilson, we're just -- we have a 12-year or 16-year I guess, relationship with Kennedy-Wilson. They've effectively managed our real estate and mortgage business over that time period and has provided us with outstanding returns. And we don't have that capability, at least that size and scale in-house. So we're very excited of what they bring to the table and looking very forward to working with them going forward. Edited February 20 by Hoodlum
Txvestor Posted February 20 Posted February 20 (edited) Wade Burton's comments on UA were also interesting. They clearly put a lot of stock in Kevin Plank and his ability to bootstrap a turnaround. He talked about him, his humble beginnings, taking it to a $5B in sales company with a stock price in the 50s which fell into the 4s and then to the CEO transitions since 2020 and now to his return as CEO. That they have a long time perspective as investors. Obviously they think they are catching it at a cyclical bottom in this business and now have a meaningful stake. It's likely a 5-10yr bet either way. Hopefully it works out. Edited February 21 by Txvestor
Viking Posted February 20 Posted February 20 (edited) 2 hours ago, Hoodlum said: Wade Burton Kennedy Wilson has world-class capabilities underwriting real estate. Having this capability in-house at Fairfax has a huge long-term benefit for Fairfax shareholders. With the KW purchase, Fairfax is adding another important capability to the company. And they are likely getting it at a low price. They are achieving both core capital allocation objectives: Does it deliver a solid return Does it make the company stronger (strategic considerations) We probably should start to segment the fixed income bucket ($50B): Mortgage loans $5.5B 11% Fixed income $45.5B 89% The mortgage loan bucket (ML) is a completely different animal than the fixed income bucket. For one, ML is much higher return. I think it makes more sense to look at fixed income (yield and average duration) excluding ML. This would drop average yield and also lengthen average maturity. Bottom line, with the KW acquisition I think it makes sense to break out ML as its own income stream. Zero 5 years ago. To about $400 million in 2025 (assuming avg balance of $5B and avg interest rate of 8%, which might be a little high on both measures). Poof! Like magic. A new high yield income stream. Independent of the P/C insurance cycle. As has been happening a lot over the past 5 years, Fairfax has been delivering a master-class in capital allocation. The takeout of Kennedy Wilson is just the latest example. What does the acquisition of KW have to do with the P/C insurance cycle? Nothing. So many analysts will ignore it... Edited February 20 by Viking
This2ShallPass Posted February 20 Posted February 20 18 hours ago, SafetyinNumbers said: I wouldn’t think of it as 1% dilution because they buy all of the shares contemporaneously with the grant. They could give them extra cash but instead they buy shares and stick them in treasury. I like the way they are doing it, much preferable to how everyone else does it. But, it's still dilution, we are paying for it. I'm surprised it's close to 1%, need to look up previous years to see what the yearly SBC is.
Txvestor Posted February 20 Posted February 20 (edited) 2 hours ago, Viking said: With the KW purchase, Fairfax is adding another important capability to the company. And they are likely getting it at a low price. They are achieving both core capital allocation objectives: Does it deliver a solid return Does it make the company stronger (strategic considerations) We probably should start to segment the fixed income bucket ($50B): Mortgage loans $5.5B 11% Fixed income $45.5B 89% The mortgage loan bucket (ML) is a completely different animal than the fixed income bucket. For one, ML is much higher return. I think it makes more sense to look at fixed income (yield and average duration) excluding ML. This would drop average yield and also lengthen average maturity. Bottom line, with the KW acquisition I think it makes sense to break out ML as its own income stream. Zero 5 years ago. To about $400 million in 2025 (assuming avg balance of $5B and avg interest rate of 8%, which might be a little high on both measures). Poof! Like magic. A new high yield income stream. Independent of the P/C insurance cycle. As has been happening a lot over the past 5 years, Fairfax has been delivering a master-class in capital allocation. The takeout of Kennedy Wilson is just the latest example. What does the acquisition of KW have to do with the P/C insurance cycle? Nothing. So many analysts will ignore it... Well that's one way to look at it. I will remain curious. $1.65B is a sizable amount to pay sans control for that. In addition to their past investment. Additionally this is not a risk free endeavor. CRE can be very cyclical and prone to busts as well. Hopefully they don't go too deep into it and underwrite carefully. Chasing yield can be very costly. Edited February 20 by Txvestor
TwoCitiesCapital Posted February 21 Posted February 21 39 minutes ago, Txvestor said: Well that's one way to look at it. I will remain curious. $1.65B is a sizable amount to pay sans control for that. In addition to their past investment. Additionally this is not a risk free endeavor. CRE can be very cyclical and prone to busts as well. Hopefully they don't go too deep into it and underwrite carefully. Chasing yield can be very costly. Fairfax are opportunistic investors. Delinquency rates in commercial space specifically are the highest they've been since 2008. I think this is the right time to be poking around the sector for opportunistic adds in fixed income.
SafetyinNumbers Posted February 21 Posted February 21 5 hours ago, This2ShallPass said: I like the way they are doing it, much preferable to how everyone else does it. But, it's still dilution, we are paying for it. I'm surprised it's close to 1%, need to look up previous years to see what the yearly SBC is. We have to pay employees. If we paid them cash and they bought the stock directly it would be the same thing except here there are longer vesting period which promotes long term thinking. CSU, SCR, GFR all pay cash and senior executives have to maintain a stock position and they decide when to buy the stock. In some ways that’s better as they might be able to market time and provide signal for investors. With this methodology, over time, I think FFH picks up extra shares in treasury that like the float may never get paid out. I think we’ll see the number of shares issued each year decline over the next 5 years as the stock price has probably gone up faster than growth in the program and compensation combined.
SafetyinNumbers Posted February 21 Posted February 21 3 hours ago, Txvestor said: Well that's one way to look at it. I will remain curious. $1.65B is a sizable amount to pay sans control for that. In addition to their past investment. Additionally this is not a risk free endeavor. CRE can be very cyclical and prone to busts as well. Hopefully they don't go too deep into it and underwrite carefully. Chasing yield can be very costly. They don’t want control because they would be forced to consolidate the debt which might increase the cost of capital as it will screen worse. I guarantee you they are well protected in the shareholder agreement. I don’t this is about chasing yield as much as real returns and above average collateral.
sholland Posted February 21 Posted February 21 15 hours ago, Txvestor said: Well that's one way to look at it. I will remain curious. $1.65B is a sizable amount to pay sans control for that. In addition to their past investment. Additionally this is not a risk free endeavor. CRE can be very cyclical and prone to busts as well. Hopefully they don't go too deep into it and underwrite carefully. Chasing yield can be very costly. Worth watching. I would surprised if the percentage allocated to mortgages and RE changes much because of the acquisition of KW.
TwoCitiesCapital Posted February 21 Posted February 21 43 minutes ago, sholland said: Worth watching. I would surprised if the percentage allocated to mortgages and RE changes much because of the acquisition of KW. I'm going to guess there will be more of them. As of the most recent quarterly release, they estimate ~11% in mortgages. While mortgage spreads have been coming in (in the U.S. at least), they're still at attractive levels for agency bonds. I imagine CRE debt/mortgages is trading distressed and offering high yields even for solid properties - you just have to be selective with the credit risk you take. KW also gives them a platform to invest a larger portion of the fixed income through if/when Brian Bradstreet retires. He's been doing this for 40+ years and will leave behind big shoes to fill. Who else would we want to managing $40 billion of the fixed income? Perhaps it's better if its a bit more dispersed.
gfp Posted February 21 Author Posted February 21 And remember that when FFH reports holding “mortgages “ they aren’t usually agency mbs - they are extremely high yielding, short term construction loans originated through the “pacwest” / KW team.
SafetyinNumbers Posted February 21 Posted February 21 55 minutes ago, TwoCitiesCapital said: properties - you just have to be selective with the credit risk you take. That’s actually why KW is such a good steward. They don’t need to worry about the credit risk as much as the LTV. Unlike most banks they have the skill set to seize the property and develop it themselves if need be.
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