Andy Barnard to Oversee All of Fairfax's Insurance Operations

[Guest Bronco]

Parsads - thanks for your response.

 

I feel bad for you...I agree with everything you said.

 

If they need young talent they can give me a call.

 

 

[SharperDingaan]

 

Keep in mind that investments are just that. They are servants to the core business of insurance, & exist to earn a return above the cost of float.

- Return is not cashflow. These investments exist to provide cash in times of need, so they need to be either liquid or paying a dividend. You get paid to give up liquidity, & you don’t wait ‘forever’ to test if you can actually exit.

- An investment is < 20%. Go much over that & the tail wags the dog, as accounting forces recognition that this supposed ‘investment’ has really now become an indirectly controlled sub.

- Size matters, & the bigger you are the more the game changes. The prudent buy out insurance books, put the float into long-term infrastructure (utilities), & earn a reliable cash spread. They don’t need/or want the risks of growth anymore.

 

The reality is that FFH’s significant investments are venture capital investing, & they require a different mind-set/approach to do well. They really need to put them into a separate & independent sub, take back an annual cash dividend, & give their talent a more hands-on opportunity. 

 

SD

 

[Zorrofan]

One does not preclude the other - a multi-pronged approach brings strength & stability. It also provides capital in times of crises which can be deployed to take advantage of opportunities, ala BRK.

 

 

Keep in mind that investments are just that. They are servants to the core business of insurance, & exist to earn a return above the cost of float.

- Return is not cashflow. These investments exist to provide cash in times of need, so they need to be either liquid or paying a dividend. You get paid to give up liquidity, & you don’t wait ‘forever’ to test if you can actually exit.

- An investment is < 20%. Go much over that & the tail wags the dog, as accounting forces recognition that this supposed ‘investment’ has really now become an indirectly controlled sub.

- Size matters, & the bigger you are the more the game changes. The prudent buy out insurance books, put the float into long-term infrastructure (utilities), & earn a reliable cash spread. They don’t need/or want the risks of growth anymore.

 

The reality is that FFH’s significant investments are venture capital investing, & they require a different mind-set/approach to do well. They really need to put them into a separate & independent sub, take back an annual cash dividend, & give their talent a more hands-on opportunity. 

 

SD

 

[Uccmal]

Upon reading the Annual Letter I stand throughly chastised and humbled.  They are looking for good private companies!

 

;)

[ourkid8]

It's almost as if you had a copy of the annual report before us!!! Good call on Fairfax looking to purchase 100% ownership of non-insurance businesses! 

 

Can someone still update me as to what indication there is that FFH will buy non-insurance businesses?

 

There is nothing to indicate that they will do so.  My hypothesis is based simply on that Prem once told me that they would consider buying entire businesses, but not for some time...that was about seven years ago.  Their asset base is getting pretty large.  At some point, you are going to find that the universe of opportunities is shrinking as Fairfax's capital base gets larger and larger...their portfolio is now $22B!  Add in their other current assets and they are over $29B!

 

Prem is getting older, Roger Lace is getting older, Brian Bradstreet is getting older...everyone on Hamblin-Watsa's investment team that has generated the stellar returns for the last 25 years is getting older.  You have Paul Ianni, Peter Furlan, etc and some of the other young leaders at Hamblin-Watsa on the analyst side, but they have yet to be given more significant roles.  Wayne Cadawallader has gone to his own fund.  Where are the ideas going to come from 10 or 20 years from now?

 

Insurance as Buffett says is a business built on the trust of your customers knowing that your checks will clear.  I would like to see Fairfax have at least an AA-credit rating.  They've already got runoff under control, and they've reduced both their asset/equity and debt/equity leverage.  The next step would naturally be to strengthen their underwriting across the board...I think adding Andy Barnard to oversee that adds that little bit of extra attention to the already terrific group of insurance executives the company has running their subs. 

 

Finally, the next logical step, at least in my little mind, is that you want an extra leg supporting the stool...adding stability to cash flows and less reliability on the Hamblin-Watsa team having to allocate forever more capital.  Berkshire knew this, Markel figured it out and I think Prem knows this too.  But at the same time, you don't want to leave your circle of competence.  So I think the next step may be to start wading into this...buy small companies...$100M-250M valuation...$15-30M in earnings.  Who knows?  Only Prem and his team know what they are going to do, but hey...if I can generate enough interest in the idea, maybe they will consider it more deeply!   ;D  Cheers!

[Parsad]

I just finished reading the letter.  I thought it was excellent, and addressed many questions we all probably had.

 

And no, I had no insight whatsoever what would be in the letter.  I do know that on a number of things, Prem and I do think alike...be it building shareholder value, corporate governance, ethics, and most importantly, how you treat other people.  Perhaps, that's why emotionally and intellectually, I attached so much of myself to him...it was like finding a long-lost relative the first time I met him!  Although most of you who have known me for some time already knew that, simply by all the damn exclamations we both use!  ;D  Cheers!

[Guest Bronco]

Parsad - you are a god.  You nailed that "buying other business thing".

 

Unfortunately, you are a Vancouver fan.  Accordingly, your god status will expire in 24 hours.

[Liberty]

Although most of you who have known me for some time already knew that, simply by all the damn exclamations we both use!   ;D  Cheers!

 

Ha! I had noticed that! It makes you two sound in a good mood and enthusiastic, so that's not a bad thing  ;D

[Mikenhe]

I think this is a very good move for Fairfax. they have found someone iin whom they can entrust the insurance development side of the operations to. no doubt, lik e how they run their companies, Mr Barnard with have full control of the companies under him.

 

This means that they have a full on 100% person with a history of sucess running that side of the company. this leaves those other guys - the fairfax people just ot focus on investment of current assets, futures assest, nopn insurance stuff and possible future investments, be they total control of non insurance or partial control.

 

IE - the toronto team doing what they do best.

 

As  a shareholder its hard to be upset with that!

[Myth465]

Although most of you who have known me for some time already knew that, simply by all the damn exclamations we both use!   ;D  Cheers!

 

Ha! I had noticed that! It makes you two sound in a good mood and enthusiastic, so that's not a bad thing  ;D

 

Honestly this was my take away from it. I assume you are chipper and positive most of the time based on your posts and exclamations, its a good habit.