Author Topic: Fairfax2019  (Read 53952 times)

Cigarbutt

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Re: Fairfax2019
« Reply #70 on: August 03, 2019, 05:07:38 AM »
It does look like price increases are permeating across many lines. Is it for real?
The last part of this cycle has been unusually soft and I wonder if unusual access to cheap capital has distorted the underwriting price signals, maybe like the lack of capital discipline displayed in the shale gas industry.
Watching for underwriting cycles to turn is like watching an apple to fall. 2017 and 2018 were relatively poor years for (re)insurers due, in part, to higher catastrophe activity. The ILS segment, thought to be more sophisticated with more advanced models, turned out to be a persistenly disappointing factor recently due to loss creep. For example, Markel was 'surprised' by this development (which was compounded by 'issues' with top management) and had to put an entire segment into runoff. The component of dwindling reserve redundancies also seems to be a relevant contemporary catalyst. If interested, see the following, which offers a satisfactory industry perspective:
https://deconstructingrisk.com/2019/07/30/creepy-things/

For Fairfax, reserve redundancies, in combined ratio points:
2016            7.8%
2017            8.5%
2018            6.8%
Q1Q2 2018   3.5%
Q1Q2 2019   1.5% 

For Fairfax, net favourable development has been very strong vs the industry and the real action is often concentrated in the latter part of the year. IMO, FFH has established a strong underwriting culture and is likely to continue to show a better reserve development profile than the industry but, if history is any guide, across the industry, in a typical cycle, the extent of reserve deficiency eventually reported is directly proportional to the softness and extent of reserve releases of the previous component of the cycle.
« Last Edit: August 03, 2019, 05:10:19 AM by Cigarbutt »


ABM

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Re: Fairfax2019
« Reply #71 on: August 04, 2019, 11:54:48 AM »
Some have mentioned the debt but anyone have quality view on its development? 

I've seen analyst's call them out on the call as it tests the top end of the mgmt targets.  They trumpet the cash balance but that is dwarfed by the insurance liability.  Relative to 1H 2019 cash claims paid, it implies about 1 year worth buffer. No real allowance or a major CAT event, I think.

Compared to MKL and BRK's insurance segment appears much more aggressively capitalized.  Thoughts?

Thanks

Cigarbutt

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Re: Fairfax2019
« Reply #72 on: August 05, 2019, 08:03:55 PM »
Some have mentioned the debt but anyone have quality view on its development? 

I've seen analyst's call them out on the call as it tests the top end of the mgmt targets.  They trumpet the cash balance but that is dwarfed by the insurance liability.  Relative to 1H 2019 cash claims paid, it implies about 1 year worth buffer. No real allowance or a major CAT event, I think.

Compared to MKL and BRK's insurance segment appears much more aggressively capitalized.  Thoughts?

Thanks
On the positive side, 1- in the last annual report, they note significant regulatory dividend capacity, 2- compared to their historical record, the price of debt is relatively low and 3- they have a favorable maturity profile in the next few years.

On the negative side, looking at the cash flow movements to and from the holding company vs insurance subs, it seems that capital is going to the subs in order to support a hardening market, but this cash movement is happening very early in the game. The idea is to be able to grow the float opportunistically and that may be hard to achieve if the asset side of the business (high equity exposures) is compromised concurrently(even if only through temporary market swings) as regulators may limit the underwriting leverage especially if the holding debt level is perceived to be high.

Since the late 1990's, when it became clear that frogs don't transform into princes, FFH often had to issue equity at prices they didn't like and IMO, the lesson has not completely sunk in or has been forgotten.

ourkid8

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Re: Fairfax2019
« Reply #73 on: August 07, 2019, 02:51:59 PM »
The insurance market is hardening, why would you want them to repurchase stock more aggressively? They did reduce the shares outstanding YoY by 2.5% while allowing their insurance subs to grow. 

Wish they'd repurchase their own shares. In USD, they're near the bottom of the 5-year range.

TwoCitiesCapital

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Re: Fairfax2019
« Reply #74 on: August 07, 2019, 03:57:50 PM »
The insurance market is hardening, why would you want them to repurchase stock more aggressively? They did reduce the shares outstanding YoY by 2.5% while allowing their insurance subs to grow. 

Wish they'd repurchase their own shares. In USD, they're near the bottom of the 5-year range.

We'll see if it's a significant trend of hardening, or a blip, but from my perspective none of the issues that have caused market softness have been addressed yet and so it's unlikely for this hardening trend to persist.

I certainly could be wrong - I'm no insurance analysts/expert, but the prospect of a hard market in insurance has been touted since I started holding the position back in 2011 and it hasn't happened yet - largely because the industry has been flooded with excess capital and that still hasn't changed.

wondering

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Re: Fairfax2019
« Reply #75 on: August 09, 2019, 09:16:07 AM »
https://www.fairfax.ca/news/press-releases/press-release-details/2019/Fairfax-Financial-Holdings-Corporation-Executive-Announcement/default.aspx

In sum,

Jennifer Allen is taking over the CFO position at FFH from interim CFO John Varnell.

Jennifer is leaving her post as CFO at FIH and FAH, and Amy Sherk is taking over those roles.

This is keeping with Fairfax's preference for hiring within.

wondering

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wisowis

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Re: Fairfax2019
« Reply #77 on: September 05, 2019, 07:52:26 PM »

gary17

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Re: Fairfax2019
« Reply #78 on: September 05, 2019, 10:13:41 PM »
is a hard market good for P and C insurers?

omagh

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Re: Fairfax2019
« Reply #79 on: September 06, 2019, 05:52:29 AM »
Of course.  The hard market starts to appear when insurers, that have under-priced their contracts, consume capital in payouts for catastrophe losses.  These insurers tend to write less business as they need to preserve capital.  So, the insurers that have a counter-cyclical approach (i.e., write less business when pricing is soft and more when pricing is firm) have lots of available capital just as pricing increases (post-catastrophe pricing usually increases) and the overall capital is shrinking.  Hard markets can last a few months or a couple of years, often in niche categories, so putting capital to work at high rates for long periods is the aim of the game.  Not every insurer is geared to do this, so lots get caught up in increasing top-line revenues year by year.  Multi-cat years will shake out the weak capital.

- O

is a hard market good for P and C insurers?