Author Topic: Fairfax 2020  (Read 199811 times)

petec

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Re: Fairfax 2020
« Reply #300 on: May 16, 2020, 03:18:11 PM »
They’re fairly short duration bonds, so the price doesn’t move much when the yield compresses. It will be a benefit, but not a game changer.
FFH MSFT BRK BAM ATCO LNG IHG TFG


Xerxes

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Re: Fairfax 2020
« Reply #301 on: May 16, 2020, 04:04:36 PM »
They’re fairly short duration bonds, so the price doesn’t move much when the yield compresses. It will be a benefit, but not a game changer.

It says average age of 4 years for the corporate bonds.
In their pre AGM memo update.

StubbleJumper

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Re: Fairfax 2020
« Reply #302 on: May 16, 2020, 05:35:23 PM »
They’re fairly short duration bonds, so the price doesn’t move much when the yield compresses. It will be a benefit, but not a game changer.

It says average age of 4 years for the corporate bonds.
In their pre AGM memo update.


Yes, the $2.9B of corporate bonds are about 4 years, plus, apparently the holdco bought a pile of commercial paper with the money that it drew from the revolver (on the call, Prem stressed that these were not corporate bonds, but after the ABCP debacle of 12 years ago, what the hell difference is there?).  The corporate bonds have probably gone up a shade, but with a 4 year duration, it's probably not outrageous.  The bigger question is, if FFH sells the corporates, into what should the proceeds be invested?  Governments haven't budged in the past month, so not much incentive to unload the corporates.


SJ

Xerxes

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Re: Fairfax 2020
« Reply #303 on: May 16, 2020, 06:42:48 PM »
Ok so it is really a yield thing. Getting higher yield, which was otherwise unavailable prior.
I thought credit spread snap back would mean meaningful capital gain.

TwoCitiesCapital

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Re: Fairfax 2020
« Reply #304 on: May 16, 2020, 06:44:11 PM »
Ok so it is really a yield thing. Getting higher yield, which was otherwise unavailable prior.
I thought credit spread snap back would mean meaningful capital gain.

It would've if they were longer dated and/or high yield. But they were primarily IG and short dated so spread duration wasn't huge and the move in spreads less pronounced.

Bryggen

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Re: Fairfax 2020
« Reply #305 on: May 19, 2020, 08:36:22 AM »
From CNBB : ''Coronavirus will be the largest loss on record for insurers, Lloyd’s of London says''

Would Fairfax insurance businesses face such a large loss as well?

https://www.cnbc.com/2020/05/14/lloyds-of-london-coronavirus-will-be-largest-loss-on-record-for-insurers.html

Bry

Throwing that one in again to get you guys' input. Could Fairfax insurance businesses face similar losses? As large as Lloyd's?

StubbleJumper

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Re: Fairfax 2020
« Reply #306 on: May 19, 2020, 10:19:41 AM »
From CNBB : ''Coronavirus will be the largest loss on record for insurers, Lloyd’s of London says''

Would Fairfax insurance businesses face such a large loss as well?

https://www.cnbc.com/2020/05/14/lloyds-of-london-coronavirus-will-be-largest-loss-on-record-for-insurers.html

Bry

Throwing that one in again to get you guys' input. Could Fairfax insurance businesses face similar losses? As large as Lloyd's?


I think you need to think about covid on a sub-by-sub basis. 

Prem assures us that the US subs (C&F) used the industry standard virus exclusions in their commercial contracts, which should protect them from business interruption claims.  It seems like about half of the US states have enacted legislation to provide immunity to nursing homes for covid claims ( https://time.com/5835228/nursing-homes-legal-immunity-coronavirus/ ) so that too should help limit litigation.  So far, I have not read about any litigation involving C&F, but there are definitely many cases already launched against other US primary insurers (KJP posted this in the P&C thread: https://www.law360.com/pennsylvania/articles/1273308 ).

Given that Northbridge didn't take a covid provision, one presumes that they used some sort of exclusionary language for business interruption.  What is more, nursing home litigation risk in Canada is less pronounced because getting a class certified is a bit more difficult, and you can usually only sue for actual economic damages in Canada -- punitive damages are very, very rare in Canada, and that would be the expensive part of the claim because the economic damage from the premature death of an 88 year-old is pretty minimal because most of them don't have a job or run a business (ie, when an senior citizen dies a year or two sooner than he should have, virtually no income is lost).

Zenith is one of the subs that causes me consternation.  Zenith has stated on its website that a covid related workers comp claim needs to demonstrate that the virus was caught in the workplace rather than in the community ( https://www.thezenith.com/wp-content/uploads/Zenith-Coronavirus-Update.pdf ).  In most cases, that's a pretty hard thing to prove, but I do wonder whether there won't be some employers/employees who argue that the existence of a covid cluster in a workplace is adequate proof of virus provenance.  In particular, nursing homes, public transit agencies and slaughter houses have all had a heavy incidence of covid, resulting in time off and sometimes death of employees.  I question whether some of that might ultimately come back to Zenith if groups of employees convince a judge or jury that the existence of an employment related cluster is adequate proof that covid was actually a workplace injury.  But, I don't recall seeing any covid provision for Zenith.

Like every other reinsurer in the world, Odyssey is a bit of a concern because it's impossible for a shareholder to have any idea of what exactly is being reinsured.  Odyssey took a $50m covid provision, so obviously there are at least a few policies that are a problem.  But, is Odyssey reinsuring a primary company that was sloppy in the wording of its business interruption insurance?  Hard to know, but it's a point of concern.

The other sub that might be a problem is Brit.  Brit does business in the UK and apparently some of the commercial policies written by UK insurers did not have a virus exclusion, so that might be the driver behind Lloyds' large estimate of indemnities.  Brit did take a covid provision in Q1, but who knows the extent of their problem?  Did they write many commercial policies with business interruption?  What reinsurance have they taken out on their commercial book?


At this point, we don't have many options other than to take Prem at his word and assume that the covid claims will not be very large.  We don't have many options other than to accept that the $84m provision in Q1 is a fair estimate of the ultimate covid liability.  But, I certainly don't blame you for being concerned about how this might evolve.


SJ
« Last Edit: May 19, 2020, 10:35:19 AM by StubbleJumper »

Bryggen

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Re: Fairfax 2020
« Reply #307 on: May 19, 2020, 11:13:25 AM »
Thanks SJ for your very informative answer to my question/concern.

On another matter, glad FFH got out of this on time a year ago:
https://www.bnnbloomberg.ca/reitmans-seeks-court-protection-from-creditors-under-ccaa-plans-restructuring-1.1438260

We don't have any positions left, isn't?

StubbleJumper

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Re: Fairfax 2020
« Reply #308 on: May 19, 2020, 11:30:14 AM »
Thanks SJ for your very informative answer to my question/concern.

On another matter, glad FFH got out of this on time a year ago:
https://www.bnnbloomberg.ca/reitmans-seeks-court-protection-from-creditors-under-ccaa-plans-restructuring-1.1438260

We don't have any positions left, isn't?


No, I think that FFH is out of Reitmans.  The larger concern is that FFH seems to like to buy POS companies that do not have a moat and that operate in highly competitive sectors.  Doing things like buying Reitmans outright while it is reorganizing would be right up FFH's alley!  Let's hope that Prem can resist!


SJ

Cigarbutt

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Re: Fairfax 2020
« Reply #309 on: May 19, 2020, 05:48:47 PM »
...
Zenith is one of the subs that causes me consternation.  Zenith has stated on its website that a covid related workers comp claim needs to demonstrate that the virus was caught in the workplace rather than in the community ( https://www.thezenith.com/wp-content/uploads/Zenith-Coronavirus-Update.pdf ).  In most cases, that's a pretty hard thing to prove, but I do wonder whether there won't be some employers/employees who argue that the existence of a covid cluster in a workplace is adequate proof of virus provenance.  In particular, nursing homes, public transit agencies and slaughter houses have all had a heavy incidence of covid, resulting in time off and sometimes death of employees.  I question whether some of that might ultimately come back to Zenith if groups of employees convince a judge or jury that the existence of an employment related cluster is adequate proof that covid was actually a workplace injury.  But, I don't recall seeing any covid provision for Zenith.
...
At this point, we don't have many options other than to take Prem at his word and assume that the covid claims will not be very large.  We don't have many options other than to accept that the $84m provision in Q1 is a fair estimate of the ultimate covid liability.  But, I certainly don't blame you for being concerned about how this might evolve.
SJ
In terms of COVID-19 by priority of potential impact, event cancellation comes first, then business interruption (dynamics developing) and then workers comp exposure (at Zenith). The evolving "presumption" definition makes sense. Typically, the presumption of a work related "disease" (infectious or not) does not apply and the worker has to "prove" that there is causality. However in certain instances (by using classes of work or criteria for exposure) the presumption threshold can be modified. Work-related exposure to COVID-19 will be specific to state or provincial jurisdiction but similar principles apply. Some areas will use a class of work method (ie healthcare workers, first responders, working in meat processing plants?) and states like California will use a criteria method. The end result (the story has evolved when compared to the Zenith link mentioned above; this was released relatively early in the game) was influenced by inputs given by players like Zenith. There may be significant pockets of costs but the typical accepted claim using the criteria will likely result in very manageable costs. Also, the typical person who will get COVID-19 will be asymptomatic or will have limited symptoms. Zenith has a long history of strong underwriting and this episode may even help them to strengthen their moat when rate increases will be authorized by regulators.
https://www.thezenith.com/wp-content/uploads/Agent-GovernorExecutiveOrder.pdf