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Fairfax 3rd Q Results!


Parsad
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Oh well, we are far than few years ago, when we did get many posts just 30 minutes or so after each quarter release.

 

FFH is a boring company now  ;) Who would have tought a decade ago? Remember Peter Eavis and it's FFH cash crunch?

 

Underwriting is improving. Our hedges continue to be costly, but such is life. Keep the long term view.

 

Cheers!

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Terrible Quarter.

 

 

I don’t agree.

“We continue to maintain our equity hedges and have cash of approximately 33% ($8.1 billion) in our investment portfolios as we are not being adequately paid to take risks with markets at current levels.”

In the meantime, the combined ratio has fallen to 95.4%.

While not being adequately paid to take risks with markets at current levels, my own firm is focusing on improving its operations. Staying very defensive with its investments and hoarding up cash. The same is true with FFH, and obviously I like this policy.

I don’t judge a quarter by the amount of earnings declared, but by the strategy put in place.

 

giofranchi

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Terrible Quarter.

 

 

I don’t agree.

“We continue to maintain our equity hedges and have cash of approximately 33% ($8.1 billion) in our investment portfolios as we are not being adequately paid to take risks with markets at current levels.”

In the meantime, the combined ratio has fallen to 95.4%.

While not being adequately paid to take risks with markets at current levels, my own firm is focusing on improving its operations. Staying very defensive with its investments and hoarding up cash. The same is true with FFH, and obviously I like this policy.

I don’t judge a quarter by the amount of earnings declared, but by the strategy put in place.

 

giofranchi

 

I'm confused. Is this some kind of devious "double sarcasm" post by Giofranchi? :O

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Terrible Quarter.

 

 

I don’t agree.

“We continue to maintain our equity hedges and have cash of approximately 33% ($8.1 billion) in our investment portfolios as we are not being adequately paid to take risks with markets at current levels.”

In the meantime, the combined ratio has fallen to 95.4%.

While not being adequately paid to take risks with markets at current levels, my own firm is focusing on improving its operations. Staying very defensive with its investments and hoarding up cash. The same is true with FFH, and obviously I like this policy.

I don’t judge a quarter by the amount of earnings declared, but by the strategy put in place.

 

giofranchi

 

I'm confused. Is this some kind of devious "double sarcasm" post by Giofranchi? :O

 

tombgrt,

my judgment is very simple: I like that they are trying to preserve capital on the investment side of the business, while striving to improve underwriting performance. I think it is the right strategy to employ. And I like it because, even though I am fully aware of the fact that in future quarters earnings will continue to suffer, I think it fits perfectly well with the motto “short term pain for long term gain”.

Of course, I might be mistaken!

 

giofranchi

 

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Terrible Quarter.

 

 

I don’t agree.

“We continue to maintain our equity hedges and have cash of approximately 33% ($8.1 billion) in our investment portfolios as we are not being adequately paid to take risks with markets at current levels.”

In the meantime, the combined ratio has fallen to 95.4%.

While not being adequately paid to take risks with markets at current levels, my own firm is focusing on improving its operations. Staying very defensive with its investments and hoarding up cash. The same is true with FFH, and obviously I like this policy.

I don’t judge a quarter by the amount of earnings declared, but by the strategy put in place.

 

giofranchi

 

As Tom mentioned, it was a bit of sarcasm on my part

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Terrible Quarter.

 

 

I don’t agree.

“We continue to maintain our equity hedges and have cash of approximately 33% ($8.1 billion) in our investment portfolios as we are not being adequately paid to take risks with markets at current levels.”

In the meantime, the combined ratio has fallen to 95.4%.

While not being adequately paid to take risks with markets at current levels, my own firm is focusing on improving its operations. Staying very defensive with its investments and hoarding up cash. The same is true with FFH, and obviously I like this policy.

I don’t judge a quarter by the amount of earnings declared, but by the strategy put in place.

 

giofranchi

 

As Tom mentioned, it was a bit of sarcasm on my part

 

 

Oh… How stupid!!! I completely misunderstood!

The fact is, if you compare Q3 2012 with Q3 2011, net earnings of $34.6 million compared to net earnings of $973.9 million, the quarter just ended might actually be labeled “terrible”…

Anyway, I should have understood the sarcasm… It is just not a fine day for me… Too many people who don’t do what I ask them to do… or do it superficially… I pay them to solve problems, not to give me problems, right?... Sorry, my mind right now is somewhere else…

 

giofranchi

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I noticed that there is a difference between book value and fair value of investments in associates. At the end of Q3

difference was almost 22 USD per share. That means fair book value per share is somewhat larger than 360 USD ??

 

I guess Investments in associates are not quoted on any Exchange (I am not sure and I might be wrong), so I don’t really know how their book value is calculated. But I think fair value should give the idea of how much FFH thinks those investments are actually worth. But, please, look at Common stocks: at book (marked to market) they are worth less than cost. Actually, I believe Mr. Watsa thinks they are worth much more than cost! So, which numbers should we use to calculate “fair book value per share”? All in all, I think it is just better to stick to book value per share, while also being aware of the fact that some investments have the potential to increase it substantially in the future.

 

giofranchi

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anybody listen to the conference call?

 

was that you gio who called as the guy had been invested in 2010 and feels like we may be headed for another 7 lean years?

 

 

Frank,

No! It was not me! ;) I try to have no feelings about businesses… ;D No, really: I don’t care how FFH will perform next year or in 2014. All I care about is what they are doing. And I don’t like exposure to market risk, when general stock prices are high and debts are still dangerously unmanaged all over the developed world. Much better to be patient and to concentrate on underwriting profitably. It is just as simple as that. That's why I like what they are doing.

Of course, I also don’t jump in and out of stocks. I am sure you are much better than me at doing that, and so you will time the re-entry point in FFH quite satisfactorily! Good for you! :)

 

giofranchi

 

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Terrible Quarter.

 

 

I don’t agree.

“We continue to maintain our equity hedges and have cash of approximately 33% ($8.1 billion) in our investment portfolios as we are not being adequately paid to take risks with markets at current levels.”

In the meantime, the combined ratio has fallen to 95.4%.

While not being adequately paid to take risks with markets at current levels, my own firm is focusing on improving its operations. Staying very defensive with its investments and hoarding up cash. The same is true with FFH, and obviously I like this policy.

I don’t judge a quarter by the amount of earnings declared, but by the strategy put in place.

 

giofranchi

 

As Tom mentioned, it was a bit of sarcasm on my part

 

 

Oh… How stupid!!! I completely misunderstood!

The fact is, if you compare Q3 2012 with Q3 2011, net earnings of $34.6 million compared to net earnings of $973.9 million, the quarter just ended might actually be labeled “terrible”…

Anyway, I should have understood the sarcasm… It is just not a fine day for me… Too many people who don’t do what I ask them to do… or do it superficially… I pay them to solve problems, not to give me problems, right?... Sorry, my mind right now is somewhere else…

 

giofranchi

 

 

 

You might profit by reading a book, The Toyota Way, that describes the way Toyota became transformed into a problem unearthing and problem solving organization.  I'm wired this way, but most people are not.  One of their principles: genchi genbutsu, emphasizes getting up out of one's desk and going to see for yourself what's wrong at the source.  That's often the first step to begin the problem solving process.

 

:)

 

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Terrible Quarter.

 

 

I don’t agree.

“We continue to maintain our equity hedges and have cash of approximately 33% ($8.1 billion) in our investment portfolios as we are not being adequately paid to take risks with markets at current levels.”

In the meantime, the combined ratio has fallen to 95.4%.

While not being adequately paid to take risks with markets at current levels, my own firm is focusing on improving its operations. Staying very defensive with its investments and hoarding up cash. The same is true with FFH, and obviously I like this policy.

I don’t judge a quarter by the amount of earnings declared, but by the strategy put in place.

 

giofranchi

 

As Tom mentioned, it was a bit of sarcasm on my part

 

 

Oh… How stupid!!! I completely misunderstood!

The fact is, if you compare Q3 2012 with Q3 2011, net earnings of $34.6 million compared to net earnings of $973.9 million, the quarter just ended might actually be labeled “terrible”…

Anyway, I should have understood the sarcasm… It is just not a fine day for me… Too many people who don’t do what I ask them to do… or do it superficially… I pay them to solve problems, not to give me problems, right?... Sorry, my mind right now is somewhere else…

 

giofranchi

 

 

 

You might profit by reading a book, The Toyota Way, that describes the way Toyota became transformed into a problem unearthing and problem solving organization.  I'm wired this way, but most people are not.  One of their principles: genchi genbutsu, emphasizes getting up out of one's desk and going to see for yourself what's wrong at the source.  That's often the first step to begin the problem solving process.

 

:)

 

Ok, done. I have just bought it! Thank you very much! :)

 

giofranchi

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Oh well, we are far than few years ago, when we did get many posts just 30 minutes or so after each quarter release.

 

FFH is a boring company now  ;) Who would have tought a decade ago? Remember Peter Eavis and it's FFH cash crunch?

 

Underwriting is improving. Our hedges continue to be costly, but such is life. Keep the long term view.

 

Cheers!

"Underwriting is improving"  The question is is it really improving it appears to me that we have entered a harder mkt the hardness of the mkt has been brought on not by the insurance industry suffering underwriting losses but zero investment returns for a prolonged period. I have stayed out of this name for a while I think the other name ie BRK is more attractive  but if FFH gets materially cheaper I am more than willing to switch.

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i'm just pulling your leg Gio....i like FFH and respect it as a long term holding. As the call highlights and as Prem has reiterated time and time again they're doing this for the long haul. Its one of the few Canadian investments i would consider owning in the future....

 

Frank,

I understood you were teasing me… I didn’t make the same mistake I made replying to valuecfa!! ;D

Maybe, my answer was too serious nonetheless… I just wasn’t in the vein of joking… sorry! :(

 

giofranchi

 

 

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The question is is it really improving it appears to me that we have entered a harder mkt the hardness of the mkt has been brought on not by the insurance industry suffering underwriting losses but zero investment returns for a prolonged period.

 

Who knows, right? I guess both are true: Net Premiums Written increased 5.6% for the third quarter and 9.5% for the first nine months of 2012. So, maybe the market is actually hardening: Mr. Watsa has always said they wouldn’t increase revenue, unless rates improved materially. But I tend also to give due credit to Mr. Barnard’s excellent work: he proved himself many a time while at the helm of OdysseyRe, and now, as supervisor of all insurance operations, I think he is doing well and will continue to perform quite satisfactorily in the future.

 

One more thing: it is easy to dismiss investment returns in a quarter when they were negative… but, please, look at Equity and equity-related investments for the first nine months of 2012: FFH gained $317.1 million in Realized gains and $206.6 million in Unrealized gains, for a total gain of $523.7 million out of a portfolio worth more or less $5 billion. That is a 14% annual rate of return in a year when FFH has lost almost 2/3 of its $900 million investment in RIM. I don’t know how you read those numbers, but to me it seems that Mr. Watsa and his team are going on working their magic on the investment side of the business as well.

 

giofranchi

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Hi Gio, FYI - I dont think FFH invested more than about 450 M in Rim.  Of that, some was bought near the bottom.  So total losses are less than that.  They have taken a pounding on Dell as well.  So where are the gains coming from - JNJ, the US banks, India?

 

Prem better hurry up and get this ship rolling.  My oldest goes to University in 10 years, and most of the RESP is in FFH.

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Skeptical comment: The BMO analyst had a good point in that if you take the CAT out, results were the same as last year -- implying that even with a little premium growth not much progress on the underwriting side.  Of course there are a lot of moving parts with the Zenith addition that skews things somewhat.  Also, I am still of the opinion that we will see $50m, or more, in losses at ORH in the 4th due to crop losses.

 

As a side note, for folks building or managing a portfolio, FFH is an excellent hedge at these current prices.  Heads you win, tails you won't lose too much.

 

 

Cheers

JEast

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Hi Gio, FYI - I dont think FFH invested more than about 450 M in Rim.  Of that, some was bought near the bottom.  So total losses are less than that.  They have taken a pounding on Dell as well.  So where are the gains coming from - JNJ, the US banks, India?

 

Prem better hurry up and get this ship rolling.  My oldest goes to University in 10 years, and most of the RESP is in FFH.

 

Hi Uccmal,

I have just checked and found out Mr. Watsa bought 26,848,500 shares of RIM, from 2010Q3 to 2012Q2, at an average price of $26.07. So, FFH invested $700 million in RIM: just in between your figure and mine!

By the end of 2011Q4, though, FFH already owned 12,798,300 RIM shares, and they were trading around $19. So, by the end of 2011Q4, FFH’s investment in RIM was worth $243,167,700. Later, in 2012Q1, Mr. Watsa bought another 14,050,200 shares at an average price of $15.05, a total investment of $211,455,510. As of yesterday, FFH’s investment in RIM was worth: $7.57 x 26,848,500 = $203,243,145. In 2012 FFH has lost, only in the RIM investment: ($243,167,700 + $211,455,510) - $203,243,145 = $251,380,065.

If you just add back those millions to the $523.7 million of equity gains, you get to an annual return of more than 20% for all the other equity holdings of FFH, Dell included!  :)

Please, let me know, if you have different numbers!

 

I clearly know nothing about 2013 or even about 2014, but if I could hold just one investment for my son with a 10 years horizon, that investment would be FFH. ;)

 

giofranchi

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