FRFHF/FFH valuation

[shalab]

Just thinking out loud since this board has the most knowhow on FFH.

Float                => 23 billion From Watsa's talk. I put the float at 10B but had clearly underestimated the actual amount
Market cap        => 15 Billion

Price/Book => 1.14

FFH future returns => underwriting gain + investment gains on float
Growth in float is another factor for increased value

Recent acquisitions should help grow float but given it is already at 1/3rd the level of Berkshire. Also, Berkshire has this much float in early 1999 after GenRe acquisition. If they grow float at Berkshire rate, FFH should have 50B in float in ten years.

Also, if it earns like berkshire, it should earn about 2B/year from the float alone in ten years. The market cap would be substantially higher if FRFHF can achieve that kind of growth.

[biaggio]

interesting, I did not realize that float was one third that of BRK. yet Market caps $205 billion vs  $15 B.

FFH float less than it could be due to the soft market (as I am told in relation to their statutory capital)

Proportionate difference in market caps related to other businesses that BRK owns. (as others have suggested FFH needs to do the same).

I think FFH is mildly undervalued.

I would like to buy more, but I am anchored to my previous purchase prices +am hoping I can buy at closer to or under BV. (I think I am being really silly as I would plan to buy for 10+ years...but   I really hate buyer remorse- I hate buying something that becomes even temporarily cheaper later - At the same time I am trying to stick to a plan)

Look forward to discussion here from all the very insightful people on this board.

[shalab]

If it earns 4% on float assuming 100% combined ratio, FRFHF should be earning around 900 million a year. At 6%, it will be 1.38 billion, at 8% it will be 1.84 billion.

Obviously the returns will be lumpy but I am talking of long term averages.

In 1997, Berkshire had 1.7% of market share for insurance float but held 25% of equities owned by the P&C Industry. So the quality of float matters, a lot!

[link01]

FFH future returns => underwriting gain + investment gains on float

yea, there's alot of leverage there as a % of equity. which is probably a major reason why they hedge out such a big amount when they deem risk assets to be genarally overvalued & vulnerable to reversion to the mean.

[Uccmal]

Hi Shalab, The float is around 11 B as per your original estimate.  The 26 B number he reports as investments per share includes the value of the operating companies, holding company cash, and float.  Dont know if this changes your calculations.

What Prem is trying to show us is the justification for the operating insurance companies by providing the return on float.  

[shalab]

May be I am mistaken but doesnt he say that float is 23 B in this talk?

http://www.bengrahaminvesting.ca/Resources/Video_Presentations/Guest_Speakers/2011/Watsa_2011.htm

[Uccmal]

Check his letter to shareholders.  He prints a table showing float, cost of float etc, every year.  Defines exactly what it is as well.  

Float is ~ 650/share; bv = 379; Debt~120: total invested per share:  1140 = ~ 25 B.

[shalab]

Float is ~ 650/share;

Float is around 23B then - which makes sense.

[niels12think]

Float                => 23 billion From Watsa's talk. I put the float at 10B but had clearly underestimated the actual amount
Market cap        => 15 Billion

From 2011Q1 report: "Common stock effectively outstanding – end of period. . . . . . 20,425,132"

Which, at a closing price of US$ 403 per share, comes to a market cap of US$ 8.2B.

Cheers!

[Uccmal]

Float is 13B - 650 per share based on ~ 20 M shares.  Its all in Prems letter and the first pages of the AR after that.