Author Topic: Fairfax2019  (Read 75929 times)

petec

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Re: Fairfax2019
« Reply #100 on: December 20, 2019, 10:50:28 AM »
I wonder why this only covers the UK bit of Riverstone.
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Cigarbutt

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Re: Fairfax2019
« Reply #101 on: December 20, 2019, 11:39:30 AM »
Re the recent transaction: mixed feelings.

I remember very well around 2002 when TIG was put into runoff and when Riverstone was formed. The turnaround that occurred was highly linked to performance at that relatively obscure sub. They very efficiently handled claims and capital and eventually became an acquisition vehicle. The 2010 AR summarized well how this is a gem of a business even if results tend to be lumpy and sometimes messy (at least on the surface). Anybody here remembers ORC Re or nSpireRe? Or the TRG acquisition (with the final payment in 2017)?

It seems that there will be (are already?) huge opportunities for profitable runoff transactions. It makes little sense to sell an interest in one of the crown jewels and the argument of transacting for value surfacing is not convincing. The deal may make sense if they expect to raise capital ++ in order to grow ++. Also, building ties with OMERS is a way to become too large to fail.

petec

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Re: Fairfax2019
« Reply #102 on: December 20, 2019, 11:46:16 AM »
Also, reading it carefully:
1) seems to me Riverstone wants capital Fairfax can’t provide because it’s pouring money into the underwriting subs to support premium growth (the excess capacity they’ve long touted is concentrated in one or two subs, and not the ones in the hardest markets).
2) the release twice suggests that having OMERS on board will allow RiverStone UK to raise debt capital at low rates. Why couldn’t they do that anyway? This strikes me as very odd.


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petec

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Re: Fairfax2019
« Reply #103 on: December 20, 2019, 11:49:07 AM »
Re the recent transaction: mixed feelings.

I remember very well around 2002 when TIG was put into runoff and when Riverstone was formed. The turnaround that occurred was highly linked to performance at that relatively obscure sub. They very efficiently handled claims and capital and eventually became an acquisition vehicle. The 2010 AR summarized well how this is a gem of a business even if results tend to be lumpy and sometimes messy (at least on the surface). Anybody here remembers ORC Re or nSpireRe? Or the TRG acquisition (with the final payment in 2017)?

It seems that there will be (are already?) huge opportunities for profitable runoff transactions. It makes little sense to sell an interest in one of the crown jewels and the argument of transacting for value surfacing is not convincing. The deal may make sense if they expect to raise capital ++ in order to grow ++. Also, building ties with OMERS is a way to become too large to fail.

Agreed, although this makes a LOT of sense if a) Fairfax think they can pump proceeds into other subs at higher rates of return and b) RSUK can for some reason lever and grow in a way they couldn’t before. Then, it’s a win-win.
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petec

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Re: Fairfax2019
« Reply #104 on: December 20, 2019, 11:53:05 AM »
Also, they mention having the right to buy this back. That makes it sound like the Brit, Allied, and Eurolife deals. IIRC the way those deals worked, OMERS basically got a fixed return if Fairfax exercised their buyback option. The risk:reward was very skewed in Fairfax’s favour. I wonder if what’s happening here is Fairfax needs capital to fund other subs and has basically done a repo deal with OMERS.
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FFHWatcher

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Re: Fairfax2019
« Reply #105 on: December 23, 2019, 08:16:17 AM »
Also, they mention having the right to buy this back. That makes it sound like the Brit, Allied, and Eurolife deals. IIRC the way those deals worked, OMERS basically got a fixed return if Fairfax exercised their buyback option. The risk:reward was very skewed in Fairfax’s favour. I wonder if what’s happening here is Fairfax needs capital to fund other subs and has basically done a repo deal with OMERS.

Fairfax can further monetize the UK runoff, or they can buy it all back.  The current mgmt of Fairfax has been public that they are in the 'further monetize' camp at this point in time.  I assume they will use this capital to help buy back those minority interests (Brit & Allied) from OMERS that they have alluded to.  It sounds like Fairfax is simply rebalancing their ownership into their Primary Insurers by selling off pieces of their non-primary insurers/run-off.

I wonder how this type of deal would come about?  Who pitched who the idea?  Did OMERS see it and want it or did Fairfax see the asset and pitch it to OMERS?  I would assume it was Fairfax's idea to sell it.

petec

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Re: Fairfax2019
« Reply #106 on: December 23, 2019, 09:40:55 AM »
The current mgmt of Fairfax has been public that they are in the 'further monetize' camp at this point in time.

About Riverside specifically? Source?
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Viking

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Re: Fairfax2019
« Reply #107 on: December 23, 2019, 10:18:52 AM »
OMERS paid US$560 million for 40% of Riverstone UK, which gives it a total value of $1.4 billion. If we did a sum of the parts valuation for Fairfax before this transaction my guess is no one would have said Riverstone UK was worth anything close to this much. It is encouraging that a business as hairy as this is worth $1.4 billion. And i applaud Fairfax for surfacing value in a most unexpected way. This is one of the strengths of Fairfax: they can be very creative. Benefits of this transaction:
- Proceeds of $560 million
- increase in BV of US$10
- clarity of total value of Riverstone UK

Fairfax has a market cap of only US$13 billion.

The question, as is being discussed, is what to do with the proceeds?
1.) buy out minority partners in Brit and Allied. If the pricing in the insurance market continies to harden then this becomes more important to do sooner rather than later
2.) grow premiums at insurance operations
3.) buy back stock.

We know FFH thinks their stock is very undervalued right now. Lots of good options. Nice to see for a change :-)
« Last Edit: December 23, 2019, 10:42:28 AM by Viking »

petec

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Re: Fairfax2019
« Reply #108 on: December 23, 2019, 02:38:31 PM »
OMERS paid US$560 million for 40% of Riverstone UK, which gives it a total value of $1.4 billion. If we did a sum of the parts valuation for Fairfax before this transaction my guess is no one would have said Riverstone UK was worth anything close to this much. It is encouraging that a business as hairy as this is worth $1.4 billion. And i applaud Fairfax for surfacing value in a most unexpected way. This is one of the strengths of Fairfax: they can be very creative. Benefits of this transaction:
- Proceeds of $560 million
- increase in BV of US$10
- clarity of total value of Riverstone UK

Fairfax has a market cap of only US$13 billion.

The question, as is being discussed, is what to do with the proceeds?
1.) buy out minority partners in Brit and Allied. If the pricing in the insurance market continies to harden then this becomes more important to do sooner rather than later
2.) grow premiums at insurance operations
3.) buy back stock.

We know FFH thinks their stock is very undervalued right now. Lots of good options. Nice to see for a change :-)

You're assuming the proceeds go to FFH and aren't a capital increase at RSUK.

I suspect you're right but the release isn't totally clear. If so, the proceeds are to support premium growth - the release does seem to indicate that.
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Viking

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Re: Fairfax2019
« Reply #109 on: December 23, 2019, 04:22:22 PM »
OMERS paid US$560 million for 40% of Riverstone UK, which gives it a total value of $1.4 billion. If we did a sum of the parts valuation for Fairfax before this transaction my guess is no one would have said Riverstone UK was worth anything close to this much. It is encouraging that a business as hairy as this is worth $1.4 billion. And i applaud Fairfax for surfacing value in a most unexpected way. This is one of the strengths of Fairfax: they can be very creative. Benefits of this transaction:
- Proceeds of $560 million
- increase in BV of US$10
- clarity of total value of Riverstone UK

Fairfax has a market cap of only US$13 billion.

The question, as is being discussed, is what to do with the proceeds?
1.) buy out minority partners in Brit and Allied. If the pricing in the insurance market continies to harden then this becomes more important to do sooner rather than later
2.) grow premiums at insurance operations
3.) buy back stock.

We know FFH thinks their stock is very undervalued right now. Lots of good options. Nice to see for a change :-)

You're assuming the proceeds go to FFH and aren't a capital increase at RSUK.

I suspect you're right but the release isn't totally clear. If so, the proceeds are to support premium growth - the release does seem to indicate that.

My guess is FFH is pretty motivated to do all three (take out minority partners, support premium growth and buy back stock). I expect we will see more transactions in the next year or two that position them to execute on all three objectives.