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FFH growth prospects


shalab
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Looking at the compounding rate, FFH has grown by 22.55% for the past five years. Also, FFH already has 10 billion dollars in float which means growth through float is going to be hard. Float is already at 1/6 that of Berkshire. Improving the underwriting discipline can help improve the results somewhat.

 

It leaves two avenues. Growth by acquiring businesses or growth using investing prowess of Hambin Watsa. Fairfax has acquired businesses primarily to increase its float thus far. Adding non insurance businesses can help.

 

The other thing is growth through investing. At the present moment, because of the hedges, deflation seems to be the only way out for the investment story to work out.

 

 

 

 

 

 

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I think they can grow without deflation.  They can take the hedges off whenever they want (and probably will at some point in the future).  They can also grow via emerging markets insurance cos and recovery of the muni market.  The deflation bet is like the CDS bet.  Even a slight amount of deflation will create a large payout.  They purchased notional CPI puts at a price of 0.8% cumulative deflation over the next ten years.  There is an interesting book about how inflation is tied to demographics (The Great Wave: Price Revolutions and the Rythm of History) which lays out this thesis.  I am ordering it and looking forward to reading it.  I think this also explains why we are seeing small amounts of inflation with QE 1, 2 & 3.

 

Packer

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