Your position in FFH

[shalab]

Let us do this poll after Watsa's letter today. The letter was good and covered many topics of interest to the shareholders - including why the hedges are in place.

 

 

[Alekbaylee]

Or that part of those neutral were already bullish so they'll keep the same position... ;D

[Valuebo]

Or that part of those neutral were already bullish so they'll keep the same position... ;D

 

Correct. I already have a 15% position and only plan to buy more under 0,90-0,95 p/b. I would say that is neutral, although my understanding of Watsa's vision is growing and so is my willingness to buy more shares when the stockprice gets depressed.

 

I am (wishfully) hoping for a market correction that drags Fairfax down a little extra. That would be a double win considering the hedging.

[ourkid8]

FFH is starting to look interesting as it is currently sitting around 2.4% below book.  It's selling at $370USD with a book value of $379USD... I can definitely see Pem starting to repurchase shares at this price but not yet on a large scale.  What does everyone think as I am definitely starting to look at liquidating some positions to have cash on hand.  

 

[Grenville]

Do you include goodwill in your calculation of book value per share?

[StubbleJumper]

Do you include goodwill in your calculation of book value per share?

 

How about the "bad will" for ICICI Lombard?  ;D

[DynamicPerception]

Beside the $10.00 dividend;

as of 2011Mar09

I think FFH will take about a $12.00 to $14.00 per share hit on their hedges.

$130mil on the S&P500 and $140mil on the Russell 2000.

$270mil / 20.5mil shares.

Also a small hit on their bonds.

[Hoodlum]

Do we know what type of exposure they have to the New Zealand earthquake?

[Valuebo]

Beside the $10.00 dividend;

as of 2011Mar09

I think FFH will take about a $12.00 to $14.00 per share hit on their hedges.

$130mil on the S&P500 and $140mil on the Russell 2000.

$270mil / 20.5mil shares.

Also a small hit on their bonds.

 

 

Aren't current losses of their hedge already +- calculated in their latest bv of 378? Why should we add another 12 to 14$ to their loss? Reduction of time value? (Sorry if this sounds dumb, I don't know anything about derivates.)

Also those are unrealized losses which could (partly) get erased if a market correction hits?

 

 

Seems to me that FFH is a great substitute for raising cash at current market levels.

 

[link01]

Beside the $10.00 dividend;

as of 2011Mar09

I think FFH will take about a $12.00 to $14.00 per share hit on their hedges.

$130mil on the S&P500 and $140mil on the Russell 2000.

$270mil / 20.5mil shares.

Also a small hit on their bonds.

 

on your 270mil hit est on their stock hedges did you net that against their long stock portfolio?

[Uccmal]

 

 

Aren't current losses of their hedge already +- calculated in their latest bv of 378? Why should we add another 12 to 14$ to their loss? Reduction of time value? (Sorry if this sounds dumb, I don't know anything about derivates.)

Also those are unrealized losses which could (partly) get erased if a market correction hits?

 

 

Their Russell and S&P hedges would have had another few dollars per share as of last week.  Recovered some this week.  As per duration, I believe they are either shorting directly the S&P index or using total return swaps on the other indexes which are fee based and require collateral to be posted.  I dont think duration is much of an issue to this point.  A reversal in the market would result in reversals in the status of their losses. 

[beerbaron]

Bough this week at 365, will buy more at 345. I love their deflation derivative and their muni portfolio, I believe the muni portfolio is undervalued. Watsa told it himself, there is just no ASK on the BRK bonds. Their loss of 250M in Q4 just has no impact on their cash flow.

 

If I can buy one of the best manager in the world at a discount then it's a good opportunity.

 

BeerBaron

[Mikenhe]

I couldn't help myself... just bought some more when it went under 360.

 

 

now at 25% of my portfolio...

[Hoodlum]

S&P is estimating at least $30 Billion in claims this quarter for insurers.

 

http://money.msn.com/business-news/article.aspx?feed=OBR&data-ipsquote-timestamp=20110312&id=13132664

 

"Standard & Poor's equity analysts estimated on Friday that insurers will end up facing at least $30 billion in claims this quarter from a combination of the Japan quake, a quake in New Zealand, floods in Australia and losses related to unrest in the Middle East."

[DynamicPerception]

tombrgt - I believe quarterly resets affect book value up and down.

             As of Mar11 I have around a  $167mil loss on the hedges for about $8.00 a share decrease.

              It can change quickly and dramatically.

 

link01 - No I just did a quick calc on the hedges.

[Viking]

Q1 and Q4 are 'normally' the quarters insurers/re-insurers make their money... could be an intesting year should catastrophes in Q2 and Q3 (i.e. hurricanes) also come in on the high end.

[beerbaron]

link01 - No I just did a quick calc on the hedges.

 

If you do a valuation you might as well try to add the equity that is being hedged! That is a sloppy job, I'm sure you can do better.

 

BeerBaron

[treasurehunt]

tombrgt - I believe quarterly resets affect book value up and down.

             As of Mar11 I have around a  $167mil loss on the hedges for about $8.00 a share decrease.

              It can change quickly and dramatically.

 

I only get a pre-tax loss of $129 million on the hedges (1.3 billion S&P and 3.3 billion Russell 2000, right?). After tax, this is only $4.5 per share or so.

 

Also, it looks like the pre-tax gain on the stock portfolio is more than $129 million. ABH, DELL, LVLT, SD and WFC have all had gains of over $20 million. The only big loser I found was FTR. Net of hedges, the stock portfolio is at break-even or better so far this quarter, I believe.

[benhacker]

Treasurehunt,

 

I only get a pre-tax loss of $129 million on the hedges (1.3 billion S&P and 3.3 billion Russell 2000, right?)

 

No, the amounts you mention are notional amounts at a certain reference price.  As of the most recent S&P and RUS2k pricing, these hedges are effectively short ~$6.1B in equity value [edit: about half a billion here is individual name shorts, but I just lumped them in with the indices to capture the raw value in some way].  This is ~75-80% Russell 2k, so the math for you would be:

 

~$4.6B and $1.5B in new effective value (remember, as with shorting, the Total Return Swap size effectively increases as the bet goes against you).

 

For what it's worth, I just updated my spreadsheet and I get the following:

 

Pre-tax increase on US Listed bonds / stocks (from form 13), plus major Canadian holdings (MB, BRK, FBK, etc) = $230-240m (there is a range due to some edits I still need to clean up).

 

Loss in non muni bond portfolio = -$41m

 

Gain in muni bonds = $99m

 

Loss on hedges = -$180m

 

All of the above are estimated "not" counting dividends / interest, so I'm sure you can refine it further.  I'm only looking at capital gains / losses.  It's also still in need of cleaning up to make sure I'm capturing the TRS "LONG" positions properly which I haven't validated yet.

 

So about $110m gain pre-tax overall, so maybe +$3.5 / share after tax off the top.

 

I don't have good numbers on the CPI puts at this time.

 

Ben

[Uccmal]

I guess we can add in losses of at least 200 M on insurance now with two massive earthquakes in ORH territories.  And this all prior to the weather season.  Stock should go on sale shortly.  A

[DynamicPerception]

beerbaron, my apologies.

 

I wasn't doing a valuation.

I was interested in estimating the gross daily swing on the S&P/Russell hedges.

But you are quite correct in that it was sloppy.

I should have at least stated what it represented.

 

[treasurehunt]

Treasurehunt,

 

I only get a pre-tax loss of $129 million on the hedges (1.3 billion S&P and 3.3 billion Russell 2000, right?)

 

No, the amounts you mention are notional amounts at a certain reference price.  As of the most recent S&P and RUS2k pricing, these hedges are effectively short ~$6.1B in equity value [edit: about half a billion here is individual name shorts, but I just lumped them in with the indices to capture the raw value in some way].  This is ~75-80% Russell 2k, so the math for you would be:

 

~$4.6B and $1.5B in new effective value (remember, as with shorting, the Total Return Swap size effectively increases as the bet goes against you).

 

Ben,

 

Thanks for clarifying. I misunderstood how the swaps work.

[ShahKhezri]

Haven't posted in a long time, but I think this is worth noting.

 

Coverage renewal in Japan is 4/1 (Japanese FY ends on 3/31).  While it's early to put a number on losses, from an insurers standpoint and depending on how many renewals/new business is bound (enforced), this represents an event shock that can morph into a less soft market.

 

Earthquake coverage is provided by the gov. through JER Co., most of the exposed/covered losses by insurers will be commercial/industrial.

 

Kobe (1995) resulted in economic losses of $100Bn, and insured losses of $2.4BN.  This isn't Kobe.

[Parsad]

I'm quite certain, with the preliminary estimates being thrown around by knowledgeable insurance executives, that this has the distinct possibility of creating a pretty hard market for reinsurance...especially in Asian markets.  Cheers!

[Smazz]

I'm quite certain, with the preliminary estimates being thrown around by knowledgeable insurance executives, that this has the distinct possibility of creating a pretty hard market for reinsurance...especially in Asian markets.  Cheers!

And they are usually on the consvertavive (positive) side  so you may be more right!