Fairfax stock positions

[Viking]

Yep, the new option is currently worth a hell of a lot.  Even the BB shares that FFH has been holding for a decade have regained a healthy portion of their paper losses.  It's a very nice change!

The next question is, "What is FFH's exit-strategy?"  The recent paper gains are great, but at some point they need to be turned into cash-in-pocket gains...

SJ

Eventually yes, but what really matters now is that the stock price sticks. I think it is true to say that equity gains = capital = more underwriting in a hard market = more subsidiary profit = more dividend capacity to holdco = holdco deleverage etc.

If so, the simple fact that their holdings are going up unlocks a lot of good things.

Definitely a big piece of good news, and as you said, if the BB price is sustainably higher FFH could write more business.  My concern is that the BB YOLO effect could end up being a short-term phenomenon.  At some point, reality must kick in for some of the tech stock YOLO investments.  Will that be six months from now?  A year?  I don't know, but at a certain point I would be much happier to see cash or some other more predictable investment on FFH's balance sheet and not such a large slug of BB.

But, we now have a happier "problem" today than what has prevailed for the past decade.


SJ

A good example of this is Quess. It was trading at nosebleed levels for a while (then it was still embedded in Thomas Cook India). A small portion (i think it was 10%) was cashed out for something like $100 million. Years later the stock is trading down more than 50%. Looks like a great company. But selling more aggressively at peak prices makes some sense. Especially when you have other very good uses for the cash.

Imagine what Fairfax could do with the gains from a Blackberry sale... grow insurance op co’s in hard market, take out shares well below BV; reduce debt; buy another chunk of Allied from minority holders.

[Dazel]

You are all doing a great job!

Will add Fairfax have $10b in corporate bonds, Digit insurance (talked about on another thread) on the balance sheet as losses has little value as an asset that the public can value and its worth a lot! (IPO?), they are likely to sell Non core companies off in this environment (if Riverstone can be sold anything is on the table), AGT has a lot of value..expect a sale or IPO., Indian investments will rebound quickly as India will be leading global growth in this cycle. This year the street is expecting the highest growth numbers in a generation not sure if this will happen but any growth will help Fairfax’s portfolio greatly.

Most importantly, In the 18 years I have been involved in Fairfax their insurance business has gone from a hard time sleeping over reserves to reserve redundancy. Even as the business has grown into a global Goliath. In a hard market these potential returns are mouth watering and they are the reason to believe we are headed back to all time highs in the stock.

With the insurance business firing on all cylinders and capital investments and portfolio returns stabilizing the Fairfax corona virus blow up is not only over it’s time for offence. Prem and his team are great investors in blow ups and they have once again shown their strength , unfortunately, not unlike 2003, Fairfax was part of the blow up this time. It’s over...We are headed to all time highs.

I have been cleaning out some files (c-19 killing time!lol.) and I found an old box of newspaper clippings of the Fairfax battle with short sellers and all of the negative media articles. The one that stuck out was Fairfax insiders buying a boat load of shares in 2003...and now we have Prem buying a boat load of shares in the summer...17 years later.

BlackBerry’s moves and popularity will attract a new audience to Fairfax at the right time. Remember what Fairfax did in the late 1990’s...is the “Buffett of the North” in comeback mode!? I am betting on it. (Long and buying here)

“Most people invest and then sit around and wait and see what the next blow up will be,
I do the opposite, I wait for the blow up and then I invest.” Richard Rainwater

But it could also be Prem Watsa.


Dazel

[Xerxes]

Most importantly, In the 18 years I have been involved in Fairfax their insurance business has gone from a hard time sleeping over reserves to reserve redundancy. Even as the business has grown into a global Goliath. In a hard market these potential returns are mouth watering and they are the reason to believe we are headed back to all time highs in the stock.

With the insurance business firing on all cylinders and capital investments and portfolio returns stabilizing the Fairfax corona virus blow up is not only over it’s time for offence. Prem and his team are great investors in blow ups and they have once again shown their strength , unfortunately, not unlike 2003, Fairfax was part of the blow up this time. It’s over...We are headed to all time highs.

Hi Dazel, great post.
If you don't mind me asking since i am not verse in the history from 20 years ago in 2003.
Are you suggesting that FFH was unable to take advantage of the environment in 2003 just like today.

Was 2007-09 the only time they really nailed it ?

[Daphne]

Welcome back DAZEL, I've missed your enthusiasm.

[Dazel]

Investments nailed it 2003...Brian Bradstreet made a killing in treasury bonds...the gains were so large
They were significant in size compared to market cap. Fairfax did very well in equites after the 2000 crash through to 2007 as well. In 2000, Fairfax and Sir John Templeman bought puts on the dot com ipo’s and were very short tech which turned out to be a big winner.

A lot of those profits went to fixing the insurance company reserves that they inherited from take overs in the 1990’s...believe me the reverse of this is a tail wind of significant strength not unlike what Berkshire has had the benefit of for many many years.

Fairfax is taking advantage of this hard market right now premium growth is substantial.

2007-2008 profits were spent buying back all of the subs...so the profits we have going forward which I think
Will be significant we get to keep as Fairfax has reached critical mass....they will likely shrink the amount of businesses they own as stated earlier. I see “Farmer Edge” has filed a prospectus....much more to come in my opinion...including splitting up BlackBerry and getting return of capital.

Shareholders will benefit this time because we get to keep the cash (reserves are in excellent shape with redundancy in their book again last quarter) to buy back stock as they did in 1990. Their best investment at these stock levels is to participate in the hard market, monetize non core assets and buy back their own stock..that’s it.

[Parsad]

Shareholders will benefit this time because we get to keep the cash (reserves are in excellent shape with redundancy in their book again last quarter) to buy back stock as they did in 1990. Their best investment at these stock levels is to participate in the hard market, monetize non core assets and buy back their own stock..that’s it.

Couldn't agree more!  The fact that virtually all asset classes are fully valued, they will probably get the opportunity to also exploit the bond and equities market over the next 12-24 months.  But they don't need to do that to hit their targets...it would just be icing on the cake, just like the return of market price to book value.  Cheers!

[Xerxes]

Shareholders will benefit this time because we get to keep the cash (reserves are in excellent shape with redundancy in their book again last quarter) to buy back stock as they did in 1990. Their best investment at these stock levels is to participate in the hard market, monetize non core assets and buy back their own stock..that’s it.

Couldn't agree more!  The fact that virtually all asset classes are fully valued, they will probably get the opportunity to also exploit the bond and equities market over the next 12-24 months.  But they don't need to do that to hit their targets...it would just be icing on the cake, just like the return of market price to book value.  Cheers!

Dazel/Parsad
Apologies if i am bit slow on the insurance related acronyms. There seems to be a inconsistency in the statements above.

If the redundancy is high, that means the insurance businesses are well capitalized; if they are well capitalized what is this theme about "we need to invest first in our insurance business". Maybe i am not catching the overall concept, but it seems to me that the statement (1) there is enough redundancy and reserves being in excellent shape doesn't square with (2) FFH investing and adding capital into to those very same businesses.

Am i missing something very obvious

[Dazel]

It has to do with reserves on insurance policies already written as opposed to what those
Actual losses are. “Favourable reserve development” means you over reserved for future insurance losses and the difference becomes profit. The opposite becomes losses. You will see that Fairfax premiums growth was 13% higher than last year and it takes capital to back this growth and “favourable reserve development” reduce continued which means prior insurance policies written were OVERLY cautious as opposed to what actually losses were...that is pure profit and a great sign. As for capital needs, because of the very strong rebound in Fairfax insurance portfolio’s they will have the capital they need for growth in premiums and the $  that comes into the holding company will be used for share buybacks.


"In the third quarter of 2020, all of our insurance companies achieved a combined ratio below 100%, except for Brit. Our consolidated combined ratio of 98.5% in the third quarter of 2020 included catastrophe losses of $218.6 million or 6.1 combined ratio points and COVID-19 losses of $143.2 million or 4.0 combined ratio points. Core underwriting performance continues to be very strong with a combined ratio excluding COVID-19 losses of 94.5%, continued favourable reserve development and growth in gross premiums written of 13.9%, and operating income was $254.7 million despite the catastrophe and COVID-19 losses. We continue to focus on being soundly financed and ended the quarter with approximately $1.2 billion in cash and investments in the holding company," said Prem Watsa, Chairman and Chief Executive Officer.

[Xerxes]

Thanks so same idea as the banks then.

The reserved capital being released (assuming that will happen), will allow equity being unlocked in the subs to do its works in lieue of injecting fresh capital, allowing the latter to be used elsewhere at the headquarters.

[Cigarbutt]

Thanks so same idea as the banks then.
The reserved capital being released (assuming that will happen), will allow equity being unlocked in the subs to do its works in lieue of injecting fresh capital, allowing the latter to be used elsewhere at the headquarters.

You are using the assumption that reserve releases will continue at the sub level. Why is that?
There is also a reserving cycle which historically correlates quite well with the underwriting (soft and hard) cycle. What is interesting is that the reserve cycle typically crystalizes over time (especially long tail lines) and the correlation can usually be made only in retrospect. It would probably be reasonable to base the capacity to grow at the sub level based on investment profits at the sub level and financial flexibility at holdco.
If interested, look at the hard cycle that happened around 2003-2006 (and the preceding soft part):


Note that it took many years for the large amplitudes to develop.