Author Topic: 2017 q4 result out!  (Read 17565 times)

MarioP

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Re: 2017 q4 result out!
« Reply #20 on: February 16, 2018, 01:42:01 PM »
Check your math at the end of next year and I can almost guarantee you that you will be wrong.

Cardboard


The numbers are 100% wrong, there's no doubt.  The question is if you eliminate the realised gains, will there be a material EPS?  And I will go out on a limb and say yes, in the absence of some unusual series of cats, there will be a material EPS from underwriting, interest/divvies and non insurance.

But, as a long time shareholder, I understand your cynicism. 


SJ

To your estimate you need to add a new  stream of revenu from FIH : in january they will pay FFH   114M in performance fee. We can hope for something from Fairfax Africa too in the  futur


mcliu

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Re: 2017 q4 result out!
« Reply #21 on: February 16, 2018, 01:45:47 PM »
Check your math at the end of next year and I can almost guarantee you that you will be wrong.

Cardboard

Are you suggesting that underwriting (ex. CAT) will be a lot weaker next year? or they'll make more investment losses?

StubbleJumper

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Re: 2017 q4 result out!
« Reply #22 on: February 16, 2018, 01:51:18 PM »
Check your math at the end of next year and I can almost guarantee you that you will be wrong.

Cardboard


The numbers are 100% wrong, there's no doubt.  The question is if you eliminate the realised gains, will there be a material EPS?  And I will go out on a limb and say yes, in the absence of some unusual series of cats, there will be a material EPS from underwriting, interest/divvies and non insurance.

But, as a long time shareholder, I understand your cynicism. 


SJ

To your estimate you need to add a new  stream of revenu from FIH : in january they will pay FFH   114M in performance fee. We can hope for something from Fairfax Africa too in the  futur


Yes, I believe that in the non-GAAP statements, FFH normally lumps investment fees in with the corporate overhead.  This time, it looks like corporate overhead, interest and investment fees all lumped together.  So interest goes up with the new debt taken on during 2018, but that's partially offset by better investment fees.  But, I'd say that particular line of my crappy pro-forma statement is one of the least accurate!


SJ

StubbleJumper

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Re: 2017 q4 result out!
« Reply #23 on: February 16, 2018, 01:59:48 PM »
Check your math at the end of next year and I can almost guarantee you that you will be wrong.

Cardboard

Are you suggesting that underwriting (ex. CAT) will be a lot weaker next year? or they'll make more investment losses?


I'm guessing that it's general cynicism and ennui with FFH. 

U/W profit from 2014 to 2017 was $705m, $552m, $576m and -$642m.  I don't feel badly at all about pencilling in 2018 Net Written Premiums of $12B at a CR of 95, yielding $600m of U/W profit when they've bounced around that level with lower premiums and lower CR.  If anything, I could be chastised for not pencilling in a CR of 90 or 92 to reflect that insurance prices have trended up in response to last year's ridiculous industry level cat losses.

With most of the port in cash, t-bills and bonds, there shouldn't be major investment income surprises.  I guess if interest rates rise meaningfully, the $9B of bonds could get written down to $8.7 or $8.5B, but that's not such a problem.


SJ

gary17

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Re: 2017 q4 result out!
« Reply #24 on: February 16, 2018, 02:09:39 PM »
Can they compound book value at 10% for five years? if they can thatís good enough for me lol

Jurgis

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Re: 2017 q4 result out!
« Reply #25 on: February 16, 2018, 02:39:52 PM »
Can they compound book value at 10% for five years? if they can thatís good enough for me lol

Their past 5 year compounding was very low. But 2017 bumped it up to ~9% (ex divs, so perhaps 10% with divs) by a sub sale and the rest of 2017 results.
So I guess it's your call to decide whether to treat that as a legit contribution to 5 year book value compounding or not.
And to decide if they can repeat that going forward 5 years.  8)
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Viking

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Re: 2017 q4 result out!
« Reply #26 on: February 16, 2018, 03:00:35 PM »
Just finished listening to the conference call. Here are some thoughts:

Premís summary at the end of the conference call:
- currently have a run rate of $15 billion in net written premiums
- have underwriting discipline
- portfolio of $40 billion; will build investment income
- HWIC playing offense
- all grounded on fair and friendly culture built over 32 years
- we expect we will generate 15% return for our shareholders for 2018. This means around $2 billion in net income or $70/share

The RBC analysts during the Q&A session asked if Prem was issuing guidance with his statements above. Prem said of course not; FFH does not provide guidance. The RBC guy said that someone listing to the call who was not familiar with Prem might take his comments for guidance.

I am surprised that Prem would be so bold to make such a specific comment if he did not have a concrete plan to hit it. Otherwise it just looks like he is trying to talk the stock price up.

Cardboard

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Re: 2017 q4 result out!
« Reply #27 on: February 16, 2018, 03:08:39 PM »
"I'm guessing that it's general cynicism and ennui with FFH."

Actually it is not. Already we are seeing cracks in under-reserving from their recent acquisitions. They also have a history of their own under-reserving following large cats. I am suspecting that we will see some more in 2018.

There is also the expectation that 2017 was an odd year for catastrophes. I can't disagree entirely with that however, I believe that having almost no hurricane landing in populated area since 2005 is also very odd. And when was the last large earthquake in NA?

Then we can review the last 5 years with some containing near zero catastrophe and we will find out that what I mentioned or pre-tax loss or running essentially breakeven without the help of capital gains was the case.

So maybe that everything will go right and that they will make $850 million as SJ pointed out but, I have serious doubts. And once they start reinvesting some of the cash, there will likely be an near immediate drop in investment value as we all seem to experience whenever we deploy capital and you will feel less confident about their investing abilities.

My recommendation continues to be: drop leverage, find better, more stable investments/businesses, stop the market timing game. Basically copy Buffett. The old guy has a much, much bigger capital base and has outperformed Fairfax over the last 10 years. That should tell you something.

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Viking

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Re: 2017 q4 result out!
« Reply #28 on: February 16, 2018, 03:55:24 PM »
Here are my remaining notes from the conference call. Please correct any errors as you see fit :-)

US tax reform:
- took a $326 million charge in Q4 (reduced value of DTA)
- it sounds like US tax reform will be a solid benefit for FFH.
- During the conference call FFH said 60% of their business is in the US but did not provide an estimate for the new expected tax rate.
- RBC today lowered their effective tax rate estimate for FFH for 2018 from 26% to 19%; this is a significant reduction.

Interest rates:
- As short term interest rates move up FFH should see nice growth in interest income given they have about half of the investment portfolio in cash and short term investments.
- Prem said FFH has not reached for yield with its investment portfolio while other insurers have
- feels higher inflation is likely; interest rates could increase significantly and credit spreads could widen

Investment income
- Prem talked up recent C-span warrant deal: builds investment income by $15 million per year. With possible capital gains kicker
- similar to Corus, AGP? and Altius
- like these deals

Insurance rate renewals
- generally, rates are no longer going down; rates are flat to increasing (varies)
- casualty 0-5% increases;
- property 10% increases; loss affected areas seeing increases of 20-25%

$2.4 billion cash at hold co
- NOT looking for acquisitions
- looking to buy back stock
- Prem said during the Q&A it is highly unlikely dividend will increase
- Prem also said they would like to take Eurolife, Brit and Allied 100% private (no timeline given); this did not sound imminent to me but why mention it if it was not on the table for 2018?

Allied World:
- $50 million Q4 reserve increase was related to one specific claim (casualty)
- FFH continues to think they are very well reserved
- cat losses were higher than FFH expected; cat losses in the future will be less (FFH does this different than Alied World and Allied World will change to FFH practice)

FFH India
- FFH performance fee is paid in shares (as per agreement); ownership has increased from 30 to 33%.
- if FFH India trades at 2X book value, FFH can take performance fee in cash
- Bangalore airport designed for 20 million passengers; currently serves 25 million; under expansion to serve 65 million over next 3-4 years
- FFH India building lots of intrinsic value for shareholders

Gravilia & Eurobond Investments
- as Greece economy moves up continues to improve their investments should do very well
- Prem mentioned Ireland as a comparable... when the Irish economy turned for the better their investments there jumped in value significantly

Tail macro risks (does not expect any of these to play out)
- risks: China, world trade disruption, recession
- deflation hedge at $40 million on books; will keep position and hold as insurance for worst case scenario

Refinancing their high interest debt (due over next couple of years) at much lower rates available today. Looks to be a very smart thing to do if you are expecting interest rates to move higher. Hits earnings in the short term but positions the company very well for the long term (if I understand the mechanics properly)
- At the end of December the company completed an early redemption of its remaining C$388.4 million 7.5% unsecured notes due August 19, 2019 for cash consideration of C$430.6 million recognizing a loss of $26 million which is included in ďother expenses.Ē
- On December 4, the company issued C$650 million principal amount of 4.25% unsecured senior notes due December 2027.
« Last Edit: February 16, 2018, 04:17:39 PM by Viking »

ourkid8

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Re: 2017 q4 result out!
« Reply #29 on: February 16, 2018, 05:06:42 PM »
How quickly ppl forget that we are retaining a 25% quota share in first capital!!! FFH sold the  business at over 3x book which allows us to repurchase our stock at book value while that business supercharged their growth! Sounds like an absolute win which will benefit shareholders tremendously.

But 2017 bumped it up to ~9% (ex divs, so perhaps 10% with divs) by a sub sale and the rest of 2017 results.