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- Canada (Northbridge) 105.6%

- U.S. (Crum & Forster and Zenith National) 107.0%

- Asia (Fairfax Asia) 88.8 %

Reinsurance - OdysseyRe 85.8 %

Insurance and Reinsurance - Other 100.9%

Insurance and reinsurance operations 97.5%


 

Glad we have ORH, growing and writing profitably

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Fairfax Financial Holdings Limited (TSX: FFH and FFH.U) announces net earnings of $95.0 million in the second quarter of 2012 ($3.85 per diluted share) compared to net earnings of $83.3 million in the second quarter of 2011 ($3.40 per diluted share), reflecting improved underwriting results (with a consolidated combined ratio of 97.5%) and lower losses on repurchase of long term debt, partially offset by lower interest and dividend income, lower net investment gains and higher income tax expense.

 

http://www.fairfax.ca/news/press-releases/press-release-details/2012/Fairfax-Financial-Holdings-Limited-Second-Quarter-Financial-Results1130334/default.aspx

 

http://www.fairfax.ca/financials/interim-reports/default.aspx

 

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Like watching paint dry . . .

 

At least we know the painter has $8 billion in cash, the ability to double written premiums under the current cost structure, and a gigantic hedge against things going very badly in Europe.

 

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I would rather rely on the alpha of a fully hedged portfolio than be in bonds right now.

 

Fairfaxnut, I couldn’t agree with you more!

 

Like watching paint dry . . .

 

Well, I guess the problem is not with the strategy, but with the stock price behaviour of Fairfax’s long positions. Fairfax realized gains of almost $100 million during the first 6 months of 2012 in equity and equity-related investments, but suffered unrealized losses of almost $280 million. All in all, Fairfax’s long positions behaved significantly worse than the markets Mr. Watsa is selling short through total return swaps (S&P500 Index and Russell2000 Index), to hedge the Company’s equity investments.

Historically, though, this has not been the case. Rather, the opposite has been true! Mr. Watsa stocks selection has always and meaningful outperformed the market. If we get back to the historical trend, and I am a firm believer in regression to the mean!, Mr. Watsa’s strategy will prove to be very successful.

 

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I would rather rely on the alpha of a fully hedged portfolio than be in bonds right now.

 

Fairfaxnut, I couldn’t agree with you more!

 

Like watching paint dry . . .

 

Well, I guess the problem is not with the strategy, but with the stock price behaviour of Fairfax’s long positions. Fairfax realized gains of almost $100 million during the first 6 months of 2012 in equity and equity-related investments, but suffered unrealized losses of almost $280 million. All in all, Fairfax’s long positions behaved significantly worse than the markets Mr. Watsa is selling short through total return swaps (S&P500 Index and Russell2000 Index), to hedge the Company’s equity investments.

Historically, though, this has not been the case. Rather, the opposite has been true! Mr. Watsa stocks selection has always and meaningful outperformed the market. If we get back to the historical trend, and I am a firm believer in regression to the mean!, Mr. Watsa’s strategy will prove to be very successful.

You are of course right Mr. Milano, I am sitting on the side lines re FFH at this juncture when it appears that some of his bets start to pay off I will jump into FFH if the price is attractive or alternatively if FFH gets cheap in relation to book value I will jump in right now it is neither over or under valued it is fairly valued there are lots of insurance companies with good underwriting records that are cheap right now and some with great underwriting and investment records like BRK which are reasonably priced right now.
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there are lots of insurance companies with good underwriting records that are cheap right now and some with great underwriting and investment records like BRK which are reasonably priced right now.

 

I don’t look only to good underwriting results. I need much more, to invest my firm’s capital in a business that I do not control. I look for:

1) good underwriting results,

2) a good investment record,

3) I need to know why they have had so far good underwriting results and a good investment record: I require that they employ a “value philosophy” to both underwriting and investments, I want to be sure they behave opportunistically,

4) most of all, I require to know who I am partnering with: they have to write extensively about their business practice, about their values, and about their goals; I surely read 10-qs and 10-ks, but, as far as I am concerned, they are not enough, they don’t tell me enough about the people I would like to partner with,

5) I want to be sure their capital has not grown too big yet: the bigger the capital you work with, the less the chances you will have to behave opportunistically,

6) I want them to be still young enough, to go on compounding for the next 10-15 years.

Well, I guess this shrinks a lot the universe of insurance companies I am comfortable to invest in…! Of course, I know of Berkshire (but, even though I most surely may be wrong, it doesn’t seem to me that Berkshire satisfies point number 5 and point number 6 anymore), I know of Markel (but today Markel is more expensive than Fairfax), I know of Greenlight Re (and I invested my firm’s capital in GLRE), I know of Loews (and I invested my firm’s capital in L). I am also invested in Oaktree Capital, in Leucadia, in Brookfield, in Biglari Holdings, in Third Point Offshore, but they are not insurance companies.

 

“The curse of the insurance business, as well as one of the benefits of it, is that people hand you a lot of money for writing out a little piece of paper” Buffet said. “What you put on that paper is enormously important. The money that’s coming in, which seems so easy, can tempt you into doing very, very foolish things.”

Buffett described how GEICO took in $70.000 for a few policies and lost $93 million paying claims. Such mistakes can wipe out a lifetime of earnings – a few cents gained when you’re right and a fortune lost when you’re wrong, Buffett said.

- The Confidence Game

 

And that was GEICO! Probably the insurance company that can boast the best underwriting history of them all!! We all know that Ben Graham, at the end of his career, admitted he had gained more money through the GEICO investment, than through all his other investments combined… But that didn’t prevent GEICO's stock to crater almost 90% just a few years later!

I really doubt that a good underwriting history is enough.

 

My thought on Fairfax today: at book value FFH not only offers a 15% CAGR for the next 15 years, but it also offers the SAFEST 15% CAGR I can find. And the reason is FFH satisfies points number 1 to 6 better than any other insurance company I know of.

 

Of course, if anyone knows of an insurance company that satisfies points number 1 to 6 as well as FFH does, but today is cheaper than FFH, please let me know!!!

 

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Of course, if anyone knows of an insurance company that satisfies points number 1 to 6 as well as FFH does, but today is cheaper than FFH, please let me know!!!

 

at least worth a read of the financials are also: RenaissanceRe (RNR), MontpelierRe (MRH)... formerly a new spinoff from (WTM), and FlagstoneRe (FSR)... which was founded by Jacks Byrne's son, Mark.

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Thank you berkshiremystery! I am on my way to check out your recommendations!

That's why I like this board so much: it offers the opportunity to meet and interact with many knowledgeable people!

 

Well,... some additional note,... the cheapest price/book value of these 3 companies currently has FlagstoneRe,... which is also owned by Chou....

http://holdings.nasdaq.com/asp/OwnerPortfolio.asp?FormType=OwnerPortfolio&CIK=0001389403&HolderName=CHOU+ASSOCIATES+MANAGEMENT+INC%2E

 

I personally currently don't own any of them.

I had WTM, MKL & MRH,... but sold them to get cheaper other values.

 

-----

 

Some notice,... somehow it looks like Chou has reduced his BAC warrants in the 1st qtr by about 1/5

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I had WTM, MKL & MRH,... but sold them to get cheaper other values.

 

Wow! That’s really wetting my appetite! I don’t want to be too nagging, but any hint to what those cheaper values might be?

 

Just a comment on White Mountain:

 

“I have heard that White Mountain would rather I stick to my knitting,” he wrote, testily, to his original backer, “though it is not clear to me that White Mountain has historically understood what my knitting really is.” No one seemed able to see what was so plain to him: These credit default swaps were all part of his global search for value. “I don’t take breaks in my search for value,” he wrote to White Mountains. “There is no golf or other hobby to distract me. Seeing value is what I do.”

Michael Lewis on Michael Burry in “The Big Short”

 

At the 2012 GLRE AM, David Einhorn said he believes we are still in the middle of two crises: 2008 and the coming sovereign debt crises. I don’t want to say that WTM got it wrong in 2008, but certainly didn’t get it as right as Mr. Watsa did! And I might be wrong, but generally, while awaiting for the second crises to hit, I prefer to stay with whom proved to be the savviest in 2008.

 

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