Author Topic: Fairfax 2020  (Read 128064 times)

StubbleJumper

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Re: Fairfax 2020
« Reply #600 on: September 28, 2020, 09:31:57 AM »
A good news finally!
https://www.fairfax.ca/news/press-releases/press-release-details/2020/Intention-to-Make-a-Normal-Course-Issuer-Bid-for-Subordinate-Voting-Shares-and-Preferred-Shares/default.aspx


Annual news.  They must file one every year on the off-chance that they wish to repurchase shares.  It's just a formality.

SJ

Thanks for cooling my excitement ;)
So, when and how would they report actual share repurchases?


FFH usually makes mention of the repurchases in its quarterly financials.  Alternatively, if you don't want to wait until the financials are published, you can look for filings on SEDAR or this site is a good option:  https://www.canadianinsider.com/company-insider-filings?ticker=FFH


SJ

Anyone else notice subordinate voting share count is actually up YoY? 27,242,281 at 9/16/2020, 26,067,450 at 9/16/2019.


I hadn't noticed that, but after you flagged it, I pulled up the Q2 financials:  https://s1.q4cdn.com/579586326/files/doc_financials/2020/q2/FFH-2020-Q2-Interim-Report-(Final-Milestone-July-30-0451-pm).pdf 

On Page 21 of the Q2, it says the June 30th subordinated share count was 26.3m shares in 2020 vs 26.9m shares in 2019.  It's not exactly Teledyne, but at least it looks like the share-count is going down slowly...


SJ


A_Hamilton

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Re: Fairfax 2020
« Reply #601 on: September 28, 2020, 11:18:03 AM »


Anyone else notice subordinate voting share count is actually up YoY? 27,242,281 at 9/16/2020, 26,067,450 at 9/16/2019.
[/quote]


I hadn't noticed that, but after you flagged it, I pulled up the Q2 financials:  https://s1.q4cdn.com/579586326/files/doc_financials/2020/q2/FFH-2020-Q2-Interim-Report-(Final-Milestone-July-30-0451-pm).pdf 

On Page 21 of the Q2, it says the June 30th subordinated share count was 26.3m shares in 2020 vs 26.9m shares in 2019.  It's not exactly Teledyne, but at least it looks like the share-count is going down slowly...


SJ
[/quote]

My point is just that it looks like FFH has been issuing treasury shares in Q3.
« Last Edit: September 28, 2020, 12:01:25 PM by A_Hamilton »

Cevian

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Re: Fairfax 2020
« Reply #602 on: September 28, 2020, 01:50:58 PM »
I think this press release is important since they need to be seen to be giving the public enough notice and enough time between when Fairfax makes purchases of its own shares versus the timing of Prem's $150mil. large purchase of shares for his own account. The market has had plenty of time to digest the news and shares are lower now than when Prem purchased so I don't believe there is a conflict or timing issue of Fairfax now purchasing shares directly in the public markets.

StubbleJumper

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Re: Fairfax 2020
« Reply #603 on: September 28, 2020, 02:14:45 PM »


Anyone else notice subordinate voting share count is actually up YoY? 27,242,281 at 9/16/2020, 26,067,450 at 9/16/2019.



I hadn't noticed that, but after you flagged it, I pulled up the Q2 financials:  https://s1.q4cdn.com/579586326/files/doc_financials/2020/q2/FFH-2020-Q2-Interim-Report-(Final-Milestone-July-30-0451-pm).pdf 

On Page 21 of the Q2, it says the June 30th subordinated share count was 26.3m shares in 2020 vs 26.9m shares in 2019.  It's not exactly Teledyne, but at least it looks like the share-count is going down slowly...


SJ


My point is just that it looks like FFH has been issuing treasury shares in Q3.


So, are the treasury shares destined for the employees, or do they need to issue some equity?  Let's hope it's for employee compensation...

We know that they are a bit tight on equity in some of the subs and that holdco can only draw on its revolver if consolidated equity levels are high enough.  Not surprisingly, Q1 was a clusterfuck.  Q2 was a bit of a disappointment because the equity portfolio didn't really bounce back.  Q3 ends in 2 days, and the major equity positions haven't done much over the past 89 days, plus Q3 is traditionally the worst for cats (what will it be, maybe $500m for the California fires, another $100m for covid, and maybe $150m for Hurricanes Laura and Sally?).  So is this a sign of a private placement? 


SJ

Cigarbutt

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Re: Fairfax 2020
« Reply #604 on: September 28, 2020, 02:56:18 PM »
^
-Treasury share issuance has been "reserved" for share-based compensation and it would be hard to issue those shares to the market (to raise capital) without appropriate disclosure.
-It looks like Q3 points to a major change in trend concerning the net result of buyback (to cancel and treasury) vs issue to employees. For the issue to employee part, the result on risk-based capital measures is essentially neutral. Treasury shares are deducted from regulatory capital and when they are issued to employees, in the case of Fairfax, the net result on total equity is about zero as the increase in equity capital (through decrease in the treasury contra-account) is more or less balanced by the intra-equity share-based payment reserves account.
-Reserve development is also something to look for.

StubbleJumper

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Re: Fairfax 2020
« Reply #605 on: September 29, 2020, 10:07:04 AM »
^
-Treasury share issuance has been "reserved" for share-based compensation and it would be hard to issue those shares to the market (to raise capital) without appropriate disclosure.
-It looks like Q3 points to a major change in trend concerning the net result of buyback (to cancel and treasury) vs issue to employees. For the issue to employee part, the result on risk-based capital measures is essentially neutral. Treasury shares are deducted from regulatory capital and when they are issued to employees, in the case of Fairfax, the net result on total equity is about zero as the increase in equity capital (through decrease in the treasury contra-account) is more or less balanced by the intra-equity share-based payment reserves account.
-Reserve development is also something to look for.


Yeah, I'm not worried about the impact on statutory capital from share awards to employees.  I am, however, a bit curious about the impact of cats during Q3.  I trotted out the possibility that cats could total $750m, which would likely result in a considerable negative earnings number for the quarter (not at all unusual for Q3 of any year).  The magnitude will likely be driven by indemnities triggered by the California fires -- they paid out $233m in 2018, so what will it be in 2020 when the fires appear to be considerably worse?  I wouldn't at all be surprised to see a net loss in Q3 that roughly offsets the net income in Q2.  If that's the case, FFH might be a little bit tighter on capital than it would like (but not dangerously tight).   A private equity placement would be disappointing at current share prices, but I would at least understand the motivation.  However, all of that hand-wringing is a separate issue from employee compensation.


SJ

Pedro

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Re: Fairfax 2020
« Reply #606 on: September 29, 2020, 10:58:08 AM »
Yes - the increasing severity/frequency/payouts in cats was my #1 concern in the Fairfax 2030 thread. If the cats increase in frequency and severity then the hard market isn't as sexy for shareholders, its just paying catchup to the rising claims. Adding the Lloyds Covid rulings and then the Lloyds business in FFH may be facing some rough waters before year end.

 

StubbleJumper

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Re: Fairfax 2020
« Reply #607 on: September 29, 2020, 01:01:12 PM »
Yes - the increasing severity/frequency/payouts in cats was my #1 concern in the Fairfax 2030 thread. If the cats increase in frequency and severity then the hard market isn't as sexy for shareholders, its just paying catchup to the rising claims. Adding the Lloyds Covid rulings and then the Lloyds business in FFH may be facing some rough waters before year end.


Cats are okay if you've properly priced the risk when you wrote the business, and I think FFH generally does a good job of that.  The problem that occasionally occurs is that two or three really large cats stack up in one year.  So, this year we will probably see a total of about $600m for covid and another $400-500m for the fires in California, a $100-200m for the Atlantic hurricane season, plus miscellaneous.  In this particular year, it might be as high as $1.5B in cats for $15B of net written?  So, if you think that FFH would have been good to write a 95 CR in a modest cat year, now you need to think more like 102 or 103 for 2020.

It's like 2001 or 2005, with the large events stacking up.  Years like this happen, but they are bit harder to take when FFH is a bit tight on capital and needs to actively manage its cash (hence the hand-wringing).



SJ

Xerxes

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Re: Fairfax 2020
« Reply #608 on: October 02, 2020, 05:47:15 AM »
SJ,

In a CAT-heavy year, wouldn't those liabilities be paid out of the float. Yes, from an earning point of view, a billion paid out due to CAT events in a quarter would pass through the income statement and undo gains in the same quarter, with the net hitting the book value.

But from "cash usage" point of view, that $1 billion in liability payment comes from the conservatively run $38-39 billion float. Therefore, at corporate level in Toronto, the team should not be competing for resources, when it comes to capital allocation decisions, in a CAT heavy quarter. Fact is, as insurers, getting hit by liabilities is part of life, it is their cost-of-good-sold that just happen to come later and in a lumpier form, but it does always come in one form and another.

I think the {?} that might be coming would be the $10 USD jumbo-dividend in January. That is $278 million in Q1 of cash outflow, in a midst of a second wave, my guess they would keep it, but are probably feeling nervous about it. With an additional 482K of common stock added to his personal holding in July, I would think Prem needs the ~$4.8 million additional flow to his dividend stream as much as the next guy for his personal liquidity reason, but i also know that with so much of his wealth tied in, if he needs to take the axe to it to fortify the company's B/S, he will.

Xerxes

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Re: Fairfax 2020
« Reply #609 on: October 04, 2020, 02:31:15 PM »