Fairfax 2020

[petec]

I totally agree with all of that except the word quality. Perhaps we are using the word differently. But it is quite possible to lose your principal by investing badly in quality, and quite possible to protect it by investing well in things like Seaspan, which most people wouldn’t define as quality.

Otherwise we are totally aligned.

I’m not sure the new people will be what make the difference. I think it will be Prem. he’s not stupid, and not the kind of guy to feel good about persistent failures. I suspect he took his eye off the ball. I bet he’s more focussed now.

[wondering]

Paul Rivett retires.  Sad news.  I thought he was going to succeed Prem when Prem decided to retire

https://ca.finance.yahoo.com/news/fairfax-financial-holdings-limited-executive-220110417.html

[mcliu]

Paul Rivett retires.  Sad news.  I thought he was going to succeed Prem when Prem decided to retire

https://ca.finance.yahoo.com/news/fairfax-financial-holdings-limited-executive-220110417.html

Interesting, that's an early retirement.. Thought he was a successor since taking over the conference calls only a few quarters ago. Anyone have insights into this?

Q4: https://www.fairfax.ca/news/press-releases/press-release-details/2020/Fairfax-Financial-Financial-Results-for-the-Year-Ended-December-31-2019/default.aspx

Underwriting pretty good. Some decent investment gains, hopefully there's more left. Non-insurance seems to be struggling. Would be nice to see more stock buybacks.

[petec]

Paul Rivett retires.  Sad news.  I thought he was going to succeed Prem when Prem decided to retire

https://ca.finance.yahoo.com/news/fairfax-financial-holdings-limited-executive-220110417.html

That’s worrying.

[Viking]

All in all, very good results. Chug, chug, chug. Most importantly a few nice upside surprises.
1.) solid top line growth of 11% for year
2.) solid CR of 96.9, slightly improved from last year
- big jump in underwriting profit of $394 versus $318 last year
3.) reserve releases
- solid $295 million in Q4 across all subs
4.) BV = $486 versus $432 Dec 31 2018, +14.8% (including $10 dividend)
5.) As expected, lots of changes to equities, most positive. Will need more disclosure to fully understand individual impacts. Quess revised down. Digit revised up.
6.) no update on buying out minority partners (unless i missed it)
7.) shareholders
- no meaningful share repurchases; expect this to be discussed on the conference call tomorrow
8.) has Fairfax learned the lessons?
- very good quarter. Lots of good news and positive trends to continue to build on.

Stock closed today at US $460 or Price to BV of 0.95 (BV is now $484). Top line is growing due to hard market. Underwriting is improving. Interest and dividend income is growing. Investment results were very good and look well positioned moving forward.

[Viking]

Paul Rivett retires.  Sad news.  I thought he was going to succeed Prem when Prem decided to retire

https://ca.finance.yahoo.com/news/fairfax-financial-holdings-limited-executive-220110417.html

That’s worrying.

Petec, given he is going to continue to be involved with FFH in a small way i am not worried. Yes, it is unfortunate to lose a good person. My guess is Fairfax has a deep bench to pick a replacement from.

[Viking]

Here is what one investment house had to say in their preliminary report :-)

"Net/Net: Core insurance underwriting results were strong and growth was good across most units although this was significantly overshadowed by weak results from non-insurance operations, affiliates, and the run-off unit. While we think that Fairfax is well positioned for current favorable market conditions, quarters like this are why valuation has continued to lag peers. A conference call will be held at 8:30 a.m. ET (dial-in 800-369-2013; passcode Fairfax) on Friday, February 14."

[StubbleJumper]

I never particularly like this release because it's not accompanied by a full quarterly report, so it's a bit tougher to get the entire picture.  I eagerly await the annual report coming in March.  A few preliminary thoughts:

1) What's the deal with insurance operations?  Is it just a coincidence that the favourable development for 2018 and 2019 respectively almost perfectly offset the cats for 2018 and 2019 respectively (see the final two tables at the bottom of the presser)?  Is that a freakish occurrence, or is FFH pulling from the cookie jar to manage the numbers?  Seriously, WEB always said that one of the biggest challenges in P&C investing is trying to assess whether you believe the numbers. 

2) What's the deal with the Gross Written and Net Written in Q4 2019?  Are we not in the midst of a hardening market?  When you look at Q4's numbers, you see a visible bump in their ceding.  Why?  Is it the case that one or more of the subs is capital constrained, but still has plenty of profitable business to write, and is therefore throwing premium at the reinsurers?  What the hell is going on here?  If capital needs to be shifted from one sub to another, then do what needs to be done.  But, it's not at all clear to me that ceding should have increased.

3) It's nice to see a double-digit increase in Net Written.  Fixed income returns might be in the toilet and the CRs might be a little disappointing, but there's still room for growth in operating income if you can push up the underwriting volume.  It would be super nice to see a high single digit increase in Net Written in 2020, coupled with the CR being shaved by a couple of points.  A hardening market might just do that for you?

4) It will be interesting to read the annual letter and to get some colour from the conference call to better understand FFH's view of financial markets.  If Prem and Brian were fussing about broad market valuations three years ago, they must be shitting a brick today.

5) The earnings per share number is nice, but will the market give it any cred?  Quality of earnings over the past couple of years has been a bit suspect, but will anyone care?


Looking forward to the more detailed release in a few weeks.


SJ

[petec]

Paul Rivett retires.  Sad news.  I thought he was going to succeed Prem when Prem decided to retire

https://ca.finance.yahoo.com/news/fairfax-financial-holdings-limited-executive-220110417.html

That’s worrying.

Petec, given he is going to continue to be involved with FFH in a small way i am not worried. Yes, it is unfortunate to lose a good person. My guess is Fairfax has a deep bench to pick a replacement from.

It’s not the loss of a good person. It’s the loss of the heir to the throne. Weird, perhaps, rather than worrying.

[Viking]

4) It will be interesting to read the annual letter and to get some colour from the conference call to better understand FFH's view of financial markets.  If Prem and Brian were fussing about broad market valuations three years ago, they must be shitting a brick today.

SJ

SJ, regarding market valuations my guess is Fairfax is expecting the US and global economy to continue to chug along which should be good for stock markets. When you look at their specific holdings (Dec 31, 2019 valuations) there is nothing that i would call grossly overvalued and not much that i would call overvalued. The large position in Indian equities (Quess, Thomas Cook and the twin IIFL positions) have been in an 18 month bear market that looks to have finally turned in the last 6 weeks (for Quess and IIFL anyways). Similar for their position in Recipe - casual dining restaurant stocks in Canada have been getting crushed all 2019. Hard to see Recipe getting much cheaper and when they get back to same store sales growth (and improve profitability) there will be lots of upside (2H 2020?). Seaspan had a wonderful run in 2019 but i dont know if i would call it super expensive (perhaps a little expensive). Eurobank also had a great run in 2019 (it was crazy cheap at the end of 2018) and is probably fairly valued now with decent prospects. Blackberry is not expensive and if the Cylance acquisition works out it could increase 50% or more. Bottom line, valuations of the stocks they hold look pretty reasonable in aggregate. 2020 should be another decent year for investment gains.