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Advent reports 6 mo. Results


gaf63
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Market  conditions and    pricing have improved,  in    line    with

      expectations, particularly in the reinsurance account.

 

 

 

Tis the season for price firming I guess.  Last week I got a phone call that my family health insurance premiums have been raised by $70 per month.  The upside is that the amount I spend on insurance is dwarfed by what can be achieved through my ownership in Fairfax.

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This business will be far more profitable if Hamblin Watsa invest its assets in something other than short-term bonds. 

 

According to the report, Advent has about 600 million dollars of investments, the vast majority of which is in short-term US treasury bills. Their investment return for the first half was just 0.46%.

 

Can Fairfax just add the 600 million to its pool of investments without restrictions? If yes, this sounds like a great deal even at a price of 150 million dollars for the whole of Advent (I think Fairfax paid quite a bit less than this).

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This business will be far more profitable if Hamblin Watsa invest its assets in something other than short-term bonds. 

 

According to the report, Advent has about 600 million dollars of investments, the vast majority of which is in short-term US treasury bills. Their investment return for the first half was just 0.46%.

 

Can Fairfax just add the 600 million to its pool of investments without restrictions? If yes, this sounds like a great deal even at a price of 150 million dollars for the whole of Advent (I think Fairfax paid quite a bit less than this).

 

No.  However, what they can do is exert full control over where the money is invested within the statuatory limits of the operating jurisdiction.  So, if they are required to keep 30% in cash and short term they could invest the rest in something more lucrative. 

 

Other advantages of full ownership:

1) There are no issues investing capital into Advent for expansion purposes - no need to get approval from other shareholders.

2) If Advent has a statuatory surplus of cash it can be dividended directly to FFH.

 

My suspicion is that all of the international subs such as Advent, Polish Re, The middle east one, and ICICI Lombard will be receiving cash from FFH as the market hardens so they can write more business. 

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