Fairfax stock positions

[Viking]

Cigarbutt, you make a very good point.

The drop in bond yields is the ‘in plain sight’ big issue for insurers, given it is relentlessly driving investment earnings lower.

The ‘out of sight’ potentially big issue for insurers is being under-reserved.

Perhaps both explain the current hard market and also why the hard market may last for some time (a couple years).

Fairfax in recent years has had a pretty good record with reserve releases. Lets hope it continues in the coming quarters/years. This is something i look at when they report. I think Q4 is when they do a complete review (so if there are issues this is when they will likely surface).

One area i will watching in Q4 is runoff. Now that the good part of runoff has been sold (Riverstone) it will no longer be possible to hide the increase to reserves from the ugly part (asbestos). I think last year in Q4 they took a $200 million hit. I would not be surprised to see another big hit this year. Obviously, this is just a guess on my part.

[Dazel]

You are missing 9 years of data? What happened in the last 9 years?

[Cigarbutt]

You are missing 9 years of data? What happened in the last 9 years?

i don't know. That's what i'm trying to figure out.
Outside of personal proprietary stuff, here's a graph that is quite representative. Note that by including or excluding some insurers (or some specific lines), one can get a slightly different pattern. Also note that, using the US (re)insurance industry as a proxy, total loss & LAE reserves have increased by about 15% over the period. This has been a mostly unusual soft cycle and the reserve release pattern of the last few years has been a very unusual and long-lasting contributor to insurers' bottom line.



As far as FFH is concerned and for this specific aspect (reserves and hardening cycle), one should hope for a massive negative development pattern because (IMO) FFH likely would show a relatively better pattern and this negative development would help to sustain the hard market and would allow significant market share (and float) growth during a period where policies are written very profitably.

[petec]

As far as FFH is concerned and for this specific aspect (reserves and hardening cycle), one should hope for a massive negative development pattern because (IMO) FFH likely would show a relatively better pattern and this negative development would help to sustain the hard market and would allow significant market share (and float) growth during a period where policies are written very profitably.

That's exactly my feeling, although I can't provide data back up my sense that Fairfax would do better than average.