Q3 2020 Fairfax Financial Holdings Ltd Earnings Call
Good morning, and welcome to Fairfax, 2023rd quarter results Conference call I would like to inform all participants kept your lines have been placed in a listen only mode until the question and answer session of today's call. After the presentation. We will conduct a question and answer session at that time, just a question. Please press star one year.
Phone keypad free time say, we'd ask that your limit your questions into one.
Today's conference is being recorded if you have any objections you may disconnect. At this time your hosts for today's call is from whatsoever with opening remarks from Mr. Derek you Willis Mr. Viola please begin.
Good morning, and welcome to our call to discuss Fairfax is Twentytwenty third quarter results. This call may include forward looking statements actual results may differ perhaps materially from those contained in such forward looking statements. As a result of a variety of uncertainties and risk factors. The most foreseeable which are set out under risk factors.
In our base shelf prospectus, which has been filed with Canadian Securities regulators and is available on SEDAR, which now include the risk of adverse consequences to Fairfax is business investments and personnel, resulting from or related to the cold at 19 pandemic Fairfax disclaims any intention or obligation to update or revise.
Any forward looking statements, except as required by applicable Securities law I'd now turn the call over to our chairman and CEO from Watson.
Thank you Derek good morning, ladies and gentlemen, welcome to pay a Brexit third quarter 2020 conference call I plan to give you some of the highlights and then pass the call to Gen Allen, our Chief Financial Officer for additional financial and accounting details.
Like I said I know first quarter conference call. These are unprecedented times [laughter] and I'm not sure. Many up much at that time would have thought that seven months later, we would still be dealing with this pandemic to that degree.
Although we are seeing a recent increase in cases, we're getting closer to a vaccine and testing has improved significantly.
And many new therapies have been discovered.
At the end of the second quarter, almost 100% of my employees were working from home and not missing a beat in servicing our customers.
We are now slowly seeing people throughout the world returning to the workplace on a limited basis, following the necessary precautions and making sure.
All our employees are saying.
I want to again, thank our employees all over the world who had been fully committed over this time period to provide outstanding service to our customers I'm very grateful to all of them.
We expect this to come to an end and we expect to return to normalcy. So.
Coming now to our results in the current quarter Fairfax is net earnings in the third quarter 134 million compared to net earnings of 69 million in the third quarter up 2019, which equates to net earnings per diluted share a $4.44, what's is $2 and.
Four cents in 2019 for the first nine months of 29 2020, our net loss was 691 million, which was net earnings of 1.3 billion for the first nine months of 2019.
Primarily reflects net unrealized losses on investments in the first quarter was 2020.
Fairfax is book value per share decreased by 6.9% to $442 per share in the first nine months of 2020 adjusted for the $10 a share common dividend paid in the first quarter.
Most importantly.
Float increased by 7% to 22 billion.
And go for share increased by 8% or $900 per share.
Insurance and reinsurance companies produced a consolidated combined ratio of 98.5% in the third quarter, which included catastrophe losses of 210 19 million or 6.1 combined ratio points, and 143 million or four combined ratio points. So kobin.
19 losses.
Our cat losses, and coal with losses of approximately 10%.
Excluding COVID-19 losses.
The consolidated combined ratio was 94.5%.
14% growth in premiums on the back up a strong pricing environment.
All of our major insurance companies with the exception of grip generated a combined ratio was up less than 100% [laughter]. Despite these unprecedented times that included a high frequency of catastrophes and a global pandemic, but.
For the nine months, we had a combined ratio of 98.6%, but gross premiums up 11%.
Excluding covered losses, we had a combined ratio of 93.3%.
Mall from Jana Galan.
At the end of the third quarter, we have booked cope with losses of 536 million on a net basis across all our companies of this approximately 40% comes from business interruption exposure is primarily outside the United States and about 30% comes from event cancellation coverage as the.
Balance coming from areas, such as Cadseventy surety and travel lives.
On a net basis, approximately 60% of our corporate provisions are not being.
Paid losses at about 20% and cases of make up the remaining 20%.
As you can see this is still there is still considerable uncertainty as to the ultimate cost of the virus.
I'd be an IR incurred but not reported estimates may prove excessive in some of our companies and they may not be enough and others. In addition, there are all well aware the pandemic it's ongoing EPS.
As long as it persists and disrupts the economy, new losses may emerge the size of the ultimate loss will also depend to some extent on various code outcomes as litigation that's been filed in many jurisdictions and countries.
All in all we remain comfortable with the provisions we have made to date in the context of the current market environment and confident of running an underwriting profit of 2020 absent other extra ordinary events.
Oh reserves remained strong with consolidated redundancies of 74 million by 2.1% in the third quarter and 275 million, 2.7% in the nine months.
Hi insurance business in most parts of the ball that same pricing increases anywhere from 10% to 30% and tones of tightening.
The prospects of my insurance with says Oh excellent as we think ran a hug my good and well positioned to expand significantly in the us pick up.
Last quarter, Richard announced its plans in collaboration with Google Cloud to launch key a stand alone business and the first fully digital.
Outdoor outdoor rather than make me driven Lloyd's syndicate.
Key will aim to significantly reduce the amount of time and effort taken by brokers took place that follow on capacity, creating great great efficiency responsiveness and competitive and competitiveness in September rich announced it had raised 500 and 500 million of committed cap.
Hello from Blackstone and Fred Fracs to fund the expansion of Pete can you is expected to be launched in the fourth quarter up 2020 and began writing business in January 2021.
This is a very exciting new venture and a and short text space and Matthew will send Mark Allen and team have done an outstanding job getting this initiative up and running.
Okay Allen has been appointed as CEO upkeep.
On August 28, we acquired the remaining 9.4% share of correct for cash consideration of 220 million.
No for the quarter operating income was 255 million.
And 600 than 1 million for the nine months net losses on investments in the third quarter were 27 million with losses on net equity.
Equity exposure is a 156 million, partially offset by net gains on bonds and foreign exchange gains.
The net losses on equities included an unrealized loss of 164 million upon recording fair Fracs Africa at fair value basis.
Susan to its announced mud there wed Healios Holdings limited.
The final gain or loss on Fairfax Africa will be based on the stock price at the company on closing.
As we have mentioned and I mentioned this again at our annual meetings and in our annual reports and quarterly calls with I., FRS accounting, where stocks and bonds are recorded at market and subject to mark to market gains or losses quarterly and annual income will fluctuate.
And investment results will only make sense over the long term.
The first quarter of 2020, if we had a negative 3.6% return on our investment portfolio. This is the total investment portfolio, while in the second and third quarter EPS, We had a positive return of 2.6% offsetting more than 70% of our investment losses in the first quarter.
<unk> total return as I previously highlighted to you. If you look at page 188 of our 2019 annual report last column shows the annual total return on our investment portfolios for the last 34 years.
That's helpful. Yes, when we had a negative return and each case, we have rebounded significantly in the next year, but.
If I can just highlight that from the table in 1990 went down 4.4% 1990, what no. One we were up 14.6% and 1999, but down 2.7% that's the whole investment portfolio and 2000, and we were up 12.2% in 2013.
We went down 4.3%.
In 2014, we were up 8.6% and finally in 2016.
We were down 2.2% and in 2017, we were up 6.8% only.
On the fall out of the third before you guys will be down.
And each time investors all of you on the line worried about our investments and each time they have a proven wrong.
As I've said to fall more than 70% of our first quarter investment losses, well made up in the second and third quarter.
History has shown that our returns are very lumpy and this has worked for us over the last 34 yards you have never focused on steady quarterly earnings.
Our long term value investing has gone through a very difficult time in 2020 and for many years now valuations of value oriented stocks versus growth stocks, particularly technology have never been so extreme.
Exceeding even the extremes of the dot com era in 2000.
As the economy normalizes, we expect a reversion to the mean and value oriented stocks to come to the fall.
Perhaps two examples may make it more clear for you.
Our Fracs, India is selling at seven and a half dollars per share while its most recent book value that came out at the end of <unk>.
September is more than $15 per share.
It is down from a pre corporate high of $13.70 and 2020.
We think it's only a matter of time that Fairfax, India exceeds its 2020 high and Thats exceptionally well as the Indian economy recovers from pull but 19.
Second example, I wanted to share with you was Atlas school formally Seaspan run by David So Colin being Chen.
And they closed the stock price closed at 2019 close together 2019 at $14 per share then.
Then it goes down to $6.30 in March and the height of the pandemic crisis and closed the third quarter at $9 per share.
Selling at a price to free cash flow ratio of approximately.
Four times with a dividend yield of 5.5%.
And actually very sound and but great management, it's only a matter of time before Atlas call exceeds its previous high.
We expect a significant return on our stock portfolios as the economy normalizes, the intrinsic value of our stock portfolios as billions of dollars greater than our carrying values at the end of the third quarter.
In September we have redeemed 500 million holdings in the blackberries, 3.75% convertible debentures and subscribed for 330 million up its new 1.75% debentures convertible at $6 per share and maturing in November 2023.
We have previously announced at Fairfax Africa and entered into a merger agreement with Healios to which Helios will acquire up 45.9% voting an equity interest in Fairfax Africa, and will be appointed sold and investment advisor to Fairfax Africa.
Closing of this transaction is expected to be in the fourth quarter of 2020 subject to various conditions, including regulatory and shareholder approvals upon.
In closing for FX Africa will be renamed Healios Fairfax spot Nuts Corporation and continued to be listed on the Toronto stock exchange.
Emeas has been investing in Africa for over 15 years, we are very excited about this transaction and welcome Toby and baobab the co founders opium Yos and the rest of the team from here to EPS to the Fairfax family.
Yesterday, we filed the circular for the merger and so if you you can get it because reply that yesterday.
We have said for some time that the one one to monetize many of our investments, including particularly many of our private investments, yes, what we have done in 2020.
Much dextera with horizon, not for a 49% ownership and the public company. We now have a company, which will have 1 billion in revenue and 100 million in EBITDA in a few years we.
We sold dashboards for 59 million with an additional earn out over time about 100% return on my capital invested.
Jess recent made big performance, which owns Bauer skates agreed subject to regulatory approval to sell Easton, which is like in our baseball bats, and blogs through Rawlings. The number one company in baseball manufacturer for shares and cash and that's it.
Different profit for us and our partner follow up call. It cost a significant profit. This based on what we invested in and bio escapes and Easton and.
And as I mentioned previously we expect a much Fairfax Africa with Healios for 32% ownership and the combined entity.
I want to tell you. This is just the start various initiatives are underway, including taking some of our other private investments public and the New York, We have felt significant value as I mentioned, before which Josh which our shareholders vote soon see.
We continue to have approximately 1.2 billion predominantly in cash in short term securities in the holding company. Please note our cash at the holding company has to meet any and every contingency that Fairfax might face in this uncertain period.
We're not baking any long term investments with this cash other than to support our insurance and reinsurance operations.
All our large investments like Fairfax, India, Fairfax Africa or recipe at Thomas Cook are well financed and do not need any cash from Fairfax. They either have significant cash themselves all have large lines credit lines to comfortably take.
Them through this period of uncertainty.
They have survived an unprecedented time period right.
Lockdowns across the world have taken the revenues down significantly in the case of Thomas Cook for example is down 80%.
But that time will come soon.
Please remember we continue to hold the CP I link deflation flaw contracts with a notional amount of 76 billion and an average remaining term to a majority of approximately three years. We carry these contracts had only 12 million and they continue to provide us with downside protection in the event of a catastrophic.
Turnover and world events.
At September 30 it.
2020, the companies the insurance and reinsurance companies held approximately $15 billion in cash and short dated securities representing approximately 38% of the portfolio investments.
Comprised of 11.4 billion of subsidiary cash and short term investments and 3.7 billion of short dated us treasuries.
Investment portfolios will be largely unimpacted by rising interest rates as we have not reach for yield in fact, we will benefit from rising investment income.
With a run rate of approximately 19 billion in gross premiums are a huge focus on underwriting discipline a portfolio of approximately $40 billion and Hamlin Watts of investment Corporation H W. IC operating in a stock because market.
All grounded on op fast and friendly culture built over 34 yards, we expect to generate a good return for our shareholders over time.
Best is yet to come for our shareholders.
We were pleased to announce in October that the right honorable David Johnston has been re appointed as a director of Fairfax.
Mr. Johnson previously served as a director of Fairfax.
And was required to step down from that role that 22 and 2010 on his appointment as the government General of Canada, We welcome David back to our board.
On our last call I mentioned that I had joined the Canadian Council of business leaders against anti black systemic racism or the black not initiative.
The initiative is a call to action to rally that Canadian business communities to eliminate anti black systemic racism and create opportunities within the workplace for vivo from the black community and.
These to say Black initiative actions Committee is this is a Fairfax committee is up and running at Fairfax with one representative from the Black community from each of our seven companies in North America, and the United Kingdom and is being led by Craig.
Who is the CFO Chief financial Officer of North Bridge.
We have many initiatives in progress and we are quite excited about this initiative.
I will now pass the call over to Jim Allen, Our Chief Financial Officer.
Jan.
Thank you from.
We'll go bid 19 pandemic continues to affect the global financial markets in operating results.
Industries, but we're starting to see some rebound in the equity markets and improved operating performance in our subsidiaries that have been directly impacted by the lockdown restriction.
I'll start with a few key highlights from our third.
Third quarter 2020 results.
Posted strong underwriting performance with an underwriting profit of $52 million, which was achieved despite additional COVID-19 losses of 143 million higher catastrophe losses reported in the quarter.
Benefitted from the non insurance company that should be in pre tax income before interest expense and other 34 million.
And finally, our net gains on investments was $137 million after adjusted for the non cash loss recorded.
I'll pick a transaction of $164 million.
I'll provide additional comments later in my remarks regarding luxottica strategic transaction with Healios holdings and the positive performance of the restaurant and retail segments, which is reported within our non insurance group.
Thank you me about key highlights into account sales box reported net earnings of $134 million or $4.44 per share on a fully diluted basis in the third quarter of 2020.
That compared to the third quarter of 2019, when we reported net earnings of 69 million or $2 or four cents per share on a fully diluted basis.
For the first nine months of 2020 Fairfax reported the net loss of 691 million or $27.27 per share on a fully diluted basis.
Compared to the first nine months of 2019, when we reported net earnings of 1.3 billion.
$46.23 per share on a fully diluted basis.
Looking in more detail to the results of our underlying reporting segments, starting with our ongoing insurance and reinsurance operations.
Our core underwriting performance continued to be very strong underwriting profit at our insurance and reinsurance operations in the third quarter of two.
2020 at 52 million and a combined ratio below 100% at 98.5 that compared to an underwriting profit of 81 million and a combined ratio of 97.5 in the third quarter of 2019.
Underwriting profit in the first nine months of 2020 decreased to 142 million with.
With a combined ratio of 98.6 compared to underwriting profit to 71 271 million and a combined ratio of 97.1 in the first nine months of 2019.
Underwriting performance in the first nine months of 2020 remained strong despite almost 1 billion and losses recorded which related to cold at night keen losses of $536 million and higher cost of the losses at $420 million.
All of our insurance and reinsurance companies achieved combined ratios below 100% for the third quarter and first nine months of 2020.
The exception of Brit, primarily as a result of the impact of the COVID-19 losses.
Overview of the underlying core underwriting results in the third quarter and first nine months of 2020 are as follows north.
North bridge improve their combined ratio to 89.9% and 93.4 and reported underwriting profits of 38 million and 69 million respectively.
Odyssey group reported underwriting profits of 6 million and $20 million with combined ratios of 99.4, and 99 point Q, Despite COVID-19 losses and marginally higher catastrophe losses.
Forrester reported underwriting profits of 4 million and $26 million with combined ratios of 99.3 and 98.6.
Venus National reported underwriting profit, but 12 million 40 million and combined ratios of 92.7 and 91.6.
Looking to Brent in this third quarter 2020, the reported an underwriting loss of 59 million.
Combined ratio of 114, which reflected COVID-19 losses of $43 million or 10 combined ratio points and.
The first nine months of 2020, Britt reported underwriting losses of $119 million in a combined ratio of 109.6, which also reflected COVID-19 losses of 170 million or 13.8 combined ratio points.
Allied World reported underwriting profit of 48 million and 96 million with combined ratios of 93.1, and 90.5 0.2 in each respective period.
Rounding out, which goes back to Asia, and Paris, and the insurance and reinsurance other group.
Your facts Asia reported underwriting profits of 2 million and 1 million, respectively valuations of 96 to 99.4.
And finally, our insurance and reinsurance operations other segment reported underwriting profits of 400010 million with combined ratios of 99.8 98.8, even with the impact of coal that 19 losses, adding 8 million and 35 million to the respective periods.
Key components of the combined ratios and third quarter and first nine months of 2020.
Of 98.5 and 98.6 included the following.
Cobot, 19 losses of $143 million and $536 million or 4.0, and 5.3 combined ratio points respectively.
Higher current period catastrophe losses of 219 million or 6.1, combined ratio points and $420 million or 4.1 combined ratio points, primarily related to hurricane Laura of 112 million.
The benefit of strong reserving reflected continued favorable prior year reserve development of $74 million or 2.1, combined ratio points, and 275 million or 2.7 combined ratio points, and finally improved underwriting expense ratios, reflecting our growth in the net premiums earned relative.
The increases in the underlying expenses.
Additional details on the catastrophe losses net favorable prior year reserve development and combined ratio impact on each of their respective insurance and reinsurance segments are disclosed in the EMEA gearboxes interim third quarter report.
As noted in the first nine months of 2020, we reported COVID-19 losses of $536 million, which were compiled comprised primarily of business interruption exposure of approximately 40% principally from our international businesses.
And it then cancellation coverage of approximately 29% also from the international businesses.
COVID-19 losses were principally comprised of incurred but not reported losses, which represented approximately 60%.
Net losses were primarily recorded with $470 million Odyssey group of $125 million and Allied world at $113 million.
Looking at the growth in our net premiums written by the insurance and reinsurance operations in the third quarter 2020, net premiums written increased by 12% to 3.7 billion.
From 3.3 billion in the first nine months of 2020 increased by 9.4% to almost 11 billion approximately 10 billion in 2019.
Nine month increase in 2020.
$940 million is almost equivalent to all of North bridge. It net premiums written in the first nine months of 2019.
A few comments on a runoff operations.
Subsequent to the contribution of the European runoff to Riverstone Barbados on March 31, 2020, starting from April one 2020, the operating results of runoff only include our U.S. run off operations.
Runoff reported an underwriting an operating loss of 9 million in the third quarter 2020, compared to an operating loss of 14 million in the same period of 2019 with U.S. runoff reporting a reduction in operating expenses.
Turning to the results of our Noninsurance companies reporting segment.
As presented in our Mdna restaurants, and retail reported pre tax income before interest expenses other in the third quarter of 2020 of $45 million. This.
This segment's revenue benefited from expanded E commerce platforms, and strong brand awareness, which helped to partially offset the decline in in store revenue as a result of the impact of COVID-19, lockdown restrictions rather.
Revenue of restaurant and retail segment in the third quarter of 2020 exceeded that in each of the first and second quarters of 2020, reflecting a modest recovery of business volumes suppressed by COVID-19 government mandated restrictions during the first six months of 2020.
The majority of the stores and restaurants were reopened as the lockdown restrictions in the industries that they operate in began to live.
The restaurant and retail segment reported only a 3% decline in revenue in the third quarter 2020 compared to 2019.
Again these are businesses operating in sectors that have been significantly impacted by the shutdown restrictions as a result of the pandemic.
The operating losses of the other non insurance reporting segment of 24 million and 14 million in the third quarter and first nine months of 2020.
Principally reflected bears box office, because operating losses of $45 million 84 million respectively.
That was partially offset by operating income at horizon noise and AG.
The operating loss reported by Fairfax off with that excluded a non cash loss of 164 million recorded in net losses on investment upon we upon cost to find their effect also guys held for sale.
At September Thirtyth Fairfax Africa, with the exception of its equity accounted investment in Atlas Mara constituted a disposal group held for sale its carrying value exceeded its estimated fair value less cost to sell.
Accordingly, the company recorded a non cash loss on investments of 164 million in net losses on investments in the consolidated statement of earnings.
Which after accounting for income taxes, and non controlling interest decreased common shareholders' equity at September Thirtyth 2020 by 44 million.
In closing of the merger transaction between Fairfax African Helio your facts expects it will deconsolidate backstop okay.
And account for 32% equity interest in the new merged entity yields Fairfax partners as an investment in associates.
According the initial carrying value of the investment based on the market traded share price on closing.
Now looking to the consolidated investment results Fairbanks, our consolidated interest and dividend income decreased year over year from $215 million and 672 million in the third quarter and first nine months of 2000 $19 million to $182 million and 605 million in the respective periods.
2020.
Reflecting lower interest income earned principally due to sales of maturities of us treasury bonds in the second half of 19 and throughout 2020.
In a general decrease in sovereign bond yields partially offset by the reinvestment of our U.S Treasury bond proceeds into higher yielding high quality U.S. corporate bonds.
Our consolidated share of profit of associates, a 51 million in the third quarter 2020 consisted principally of 30 million from Euro Bank.
18 million from Atlas core 14 million from Riverstone, Barbados, which was partially offset by losses from investments in associates at Fairfax, India and South Africa.
Our consolidated share of profit of associates of 150 million in the third quarter of 2019 consisted principally of $73 million from Euro life.
That related to mark to market gains on its long dated bonds and 62 million from iPhone finance that primarily related to a spin off distribution gain of approximately 56 million.
Our consolidated net loss on investments of 27 million in the third quarter of 2020 compared to a net loss on investments.
About 97 million in the third quarter of 2019.
With the third quarter of 2020, reflecting foreign currency gains of $84 million compared to losses of 91 million 2019 increased net gains on lawn equity exposures of $177 million and that's after adjusting for the non cash loss of 164 million related to the Fairfax.
Sockets Red box.
That was partially offset by increased net losses on our short equity exposures.
And in closing a few comments on our financial position, our total debt to total cap ratio, excluding consolidated noninsurance companies increased to 31.3% at September Thirtyth 2020 from 24.5 at December 31st 2019, primarily reflecting our increased total.
Debt related to the principal draw on our credit facility of 700 million and our April debt issuance at 650 million and.
And decrease common shareholders' equity that related primarily to our net loss and our common share dividends paid in Q1 2020.
At September Thirtyth, our book value per share was $442 compared to $486 at December 31st 2019, representing a decrease of 7% adjusted for the $10 per share paid in the first quarter of 2020, but it increase since the second quarter of 2020.
1.6%.
The increase in book value per share of 1.6% in the third quarter 2020 reflected Fairfax is core underwriting performance continuing to be very strong. Despite recording additional COVID-19 losses, and higher catastrophe losses and favorable contribution from our non insurance operations from.
Your pre tax income before interest expense and other and finally, our net gains on investment after adjusting for the non cash loss recorded on the Fairfax Africa transaction.
And now I'll pass it back over to you probably.
Thank you Jan we now look forward to answering your question. Please give us your name your company name and as always try to limit your questions to only one so that it is fair to all on the call.
So oh, no we're ready for the questions.
All right. Thank you so much speakers.
<unk> expenses will now begin the question and answer session.
I would like to ask question. Please press Star followed me number one.
We ask that you limit your questions to one please UN mute your phone or record your name when prompted your name is required to answer to your question.
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All right speakers, we now have our first question in queue coming from the line of Tom Mackinnon from BMO Capital. Your line is open you May proceed.
Yes, thanks, very much good morning, Frank.
Hey, good morning, John.
A question on the <unk>.
So 1.1 billion.
Thank you I.
I think you've always said you'd like it to be at least $1 billion there.
I'm just trying to gauge your comfortable one is where it sits right now I'm just.
Are you expecting some dividends from the operating companies in the fourth quarter, because you do have a.
275 million dividend that you're going to be common dividend that you are seeing in January. So just trying to gauge how comfortable you are with the holdco cash position as it stands right now $1.1 billion.
Yes that told me basically want to keep a an excess of a billion dollars. So we expect to get.
Some dividends and some other.
Payments and.
And you know we have a huge credit facility that we pay back as you know from 2 billion down to 1.3 billion. So that is about 700 million that be abused and over time, they make to the payback.
Hey that back also to zero, which it was at the end of last year. So yes. So thats a time were very focused on keeping a billion plus in cash they're focused on having enough money to support I Trust companies and that's how it might get that so we are witnessing and and finally.
The extra money, we would have taken by buying back shares. So that's the auto when we look at it.
And if I could quickly squeeze in another.
The equity hedge losses.
I'm, sorry that I would have expected.
You got to have a notional, but you're the unrealized losses were 89 million.
I mean that seems high relative to the Notionals anything I'm missing here.
Yeah, No that's a that's right Tom its.
It's a it's the remnants of.
What be Bob.
Covering it so I told you that the fall and the and the and the I.
I guess in the first quarter second quarter, EPS slowly, but steadily up covering it then it's it's gone so it's on the on the way to Oh, it's on the way out.
Okay. Thanks.
Thank you Paul our next question is coming from the line of James line from National Bank Financial Sir. Your line is open you may know race or question.
Yeah. Thanks, good morning from AG Goodbye Jamie.
First a rush. So my question is is it related to the the North bridge.
It was losses I see that it was increasing.
In terms of its combined ratio percentage, where pretty much every other subsidiary had that you know that was either flat to down on a combined ratio basis. So I'm wondering a.
What was changing in north bridge to take those higher losses in Q3 on an absolute and relative basis.
Yes, it does.
No.
Not much you can.
Extrapolate that.
I mean, there was some long term care.
Okay facilities.
Well see I've been our most see that but.
But yeah, we like to reserve conservatively and.
And what the reserves up front and then get redundancies that we've had for the last 10 yards and Jan would you like to add to that.
[noise], Yeah, No thing I'd point you.
Highlighted the biggest one which is the long term care facility, there probably won't be significant additional exposure I'm coming through but it was related primarily to that long term care facility recorded in the third quarter.
It's just being conservative Jamie and you know just putting up the reserve we like to put them up as soon as we see it as.
And as I've said, many times before the past has to come and help us and not have to us and so if you have redundancies as we continue to have it.
So that's helping us if you have deficiency.
That means you are under his that's hurting us and you know.
For the longest time now we've had a reserve redundancies all in all our companies amount of reserves or breaks wrong.
Thanks Saket.
Thank you. Our next question is coming from the line of Jonathan Chin.
Private management group your line is open Sir.
Jonathan Your line is open inventories your question. Please.
Morning.
Was this just a little talking about underwriting through where you're seeing opportunities Johnson another louder. Please Jonathan.
Yeah, Yeah. So what was the good morning, once you get through underwriting and maybe where you are seeing on the opportunities rate versus exposure and if it's more on the insurance side, there's the reinsurance side and some of the geography. Thank you yeah.
Yeah. Good question, Jonathan that's of no insurance is where you're getting the rate increases, but it's all over the world Jonathan It's like in the United States, particularly in the casualty and.
But it is in the United Kingdom.
It is in Singapore, we haven't no operation that that's actually Asia.
So prices are going and as I've said tended to 10.
10% to 30% depending on.
Which specific dairy and looking at Reinsurances going up more in the third quarter than I did in the second quarter, but its not going up as much as eight 910%, but insurance is going across going up significantly and the terms of being tightened we know that when you see a hard might get that.
Tones get type.
And the terms that being tightened all over the place.
In Asia than London, and North America. So.
So we have room, there were thinking when the mix of a very good market done if history is any guide these last for a few years.
Jonathan.
Okay, Great and then.
A couple couple couple of quarters ago, maybe a couple of years ago, you got you outlined some goals.
Turn on equity things of that nature, and you've obviously made a lot of progress on increasing your net written premiums is there anything that stops you from achieving those goals. Thank you.
For anything that stops us from achieving our goals.
No no no I get off 15% not another call I had though let me just tell you you know in the I've been in the business for 45 years.
And I have rarely see that time period, where there is such a divergence from growth oriented.
Stocks like technology.
And value oriented stocks. So I gave you a few examples in our own portfolio, but let me just give you a one that I just came across today I just looked it up I looked at it again zoom, which we all use so technology. So in video, it's got a market cap of $139 million.
Our lives.
At the end of July for the first six months it had a revenue base of approximately 1 billion.
And a net profit of 200 million.
139 billion that by the way is about the same size as a exxon.
So we have this situation him web if your growth oriented and it's growing significantly.
And that you have market capitalizations that we haven't seen and it can only be justified for a short period of time and the stock market.
So in the insurance business and I don't follow those too much I just know that and then sure. There's a few days ago, a roof went public company called route.
$7 billion, that's got $500 million of the premium.
And it's 7 billion market cap is almost as big as Fairfax, which has $20 billion of Brooks.
Proximately $20 billion a premium.
Like exceptional divergence.
And I've seen this over a long periods of time and it reminds me many of the 19 late sixties and the early seventies. When you had the nifty 50.
And the next six FC where stocks like Mcdonald's Johnson, Johnson, Boulder, ROI, Kodak and I talked about that and I can report and what happened is and these things went to 50 times earnings hundred times earnings.
And then a 1970 fall they picked out within 70 273 in 1974, they dropped by 70, 580%.
And some of them like Eastman Kodak unfold right never came back.
But even the ones like Johnson, Johnson, and Mcdonald's, which are great growth companies.
Companies they never saw those stock prices for 10 to 15 years in the future after 70 fall.
And Ben Graham, who has been a father of value investors. He came out in 1976 and he called it the Renaissance of value investing.
And you gave a speech on it than that I said remember reading. It I was just an analyst at the time and value came out and did exceptionally well and I think when they were going to see the similar type of phenomenon than the next few years I don't know if it's a next three months or the next two years no one can forecast that.
But these type of speculations like zoom at 139 billion.
If history is any guide.
You know it just it just doesn't make any sense it will not they would love to have a good ending.
Next question was.
Thank you the next question Ella.
Our next question is coming from the line of John you're right.
Mr. John Your line is open your question please.
Morning.
So I'm wondering about the private investor.
Investments or are you guys might you multiply fuels next year or is there only one you're thinking of doing for the private investments.
A a junior piece repeat that if you don't mind.
So I think earlier on the call you guys stated that in 2021 are there might be one couple of appeals.
Yes, no we've got.
Some IPO as you I know we're looking at you know we've got some private companies I gave you. The example of Dextera merging with horizon not the way we have for 49% a very strong company.
And that case horizon, north with already public, but we're planning so we've got some private investments I can't talk about them of course still it goes public, but but yeah. We think that would be worth a lot and they're good companies and mostly the books at very low values compared to where we take.
The public at and now we're getting them better base significant companies, we think over time, just like horizon not won't be overtime.
Okay, and if you could provide an update on DG, how its doing and if you guys plan to bring some of the lessons learned there and to the other insurance companies, sorry, I'm really talking does it.
Digits are you guys have a digital digital digital is phenomenal company thats growing and so it's in the period. So in our three us maximum since it began and become a square out its run its revenue this was much.
And up much 2021 would be you know plus minus 400 million 375 to 400 million from scratch is breaking even already it's funny digitized and and it's in India and the Indian markets is so wide open so the growth opportunity for this company is huge it's going at it.
Aim is to grow at 2025 percentage points more than the industry, which is growing at 20%. So it's been growing at 45% something like that and and combinations zone. He's an insurance guy who's been into.
The second largest insurance company in India, and so every time, we think it's going to be.
Ill phenomenal successes.
Succession, we own them you.
You know a little below 50% and and when the government gives us the ability to go to 75% we expect to be at 75%.
Good thanks.
Yes. Thank you.
Next question.
Our next question is coming from the line of Christopher cable.
Private Investor Christopher Your line is open your question. Please yeah. Good microserver.
I have a question a question, but first a concept.
Let alone because if I if you don't mind Oh, no problem I do have a question, but first a little bit of context from the last proxy statement.
There's a chart that shows that between 2014 2019 relative to the standard and poor's part because the composite.
Facts underperformed by 47%.
During that period that was pretty cool.
Going back to 2009 through yesterday, which includes covance.
I calculated that over that period of time market was up by a factor of 3.3.
Berkshire was up by a factor of 3.4.
Fairfax declined from 375 to 266 or 30%.
With all due respect it is a significant amount of underperformance.
Over relatively long period of time and.
And I'm wondering my question is what does management have been wanting to do to.
Do something for long suffering shareholders like me and one way to do it.
Well first of all because thats a very good question and you are exactly right.
We havent performed as well in the last five years as you pointed out and the proxy circular and now.
20 us as you pointed out the fact that if you're looking at a very low price right now like I've I've companies selling below book value is sitting at about 70, 580%, 70% of book value. What I've said is a ridiculous fries I went in and bought the whole time of stock myself and we can't we.
I can't tell you what the stock price is going to do but we understand the intrinsic value of our company and I can tell you and I told you on this call its much higher.
You have got a speculative situations taking place in the marketplace have highlighted that where you're just now to resume and.
And we've got a tremendous insurance company operations and across the world and I investments, which are out of favor because value investing is out of favor let's come back in spades right. We've got to you look at our track record over 34 years and it's a very few companies have been able to beat that.
What you are seeing today is from today's stock price you're exactly right. The last five years I've been being a good then the tenure is having been good and but I think if you look in the next five years, we'd like to think that our returns will be quite exceptional.
But thank you for your question John.
Christopher.
Next question Ella.
Your next question is coming from the line of Quakes Dockyards, our private Investor. Your line is open your question. Please.
[noise] [noise] retail.
I think if my memory serves me correct from the annual meeting and 2019 I think we're doing about 3.5 billion in revenue.
And I want to have you compare 2020 revenue income.
From the likes of.
All of our restaurants, the cake sporting life William Ashley on it on if you could just give us an overall summary, yeah. Just said that's a good question just a quick one that retail has caused some directional on suffered greatly because they have a close down and then they opened up at the third quarter.
And and you'll see it sounds like a recipe for example, so they have a window when it closes that goes down you have to work you got to have a audio yet a tad call curbside pick up all of these things and and they are you will see that numbers when it comes.
They made money.
They have a profitable.
And.
If you go down the list that golf town had record earnings and revenues more than last year.
Because I guess all of us to adapt to what choices on the base of golf and at at what are the pad that makes that part 40 life is doing.
Doing well and.
And adjusting to the pandemic and toys R. US up that was positive on an EBITDA basis adjusting in terms of.
Reacting to this up endemic so the point I made as you add restaurants close for self drive Ariad you had.
You know golf that others also close and but they've negotiated this time period and then come out.
Very strong so we think we think they allow them.
And do well as we as the economy returns to normalcy.
And we've had an unprecedented a closing hill and as we come back we think will.
Our companies well come back strongly but that's a good question. We have those are right investments.
And we expect all our investments in that retail area to come back.
Thank you.
Thank you and next question Ella.
Our next question is coming from the line of Howard Flinker from clean drink company. Sir Your line is open.
Question. Please thank you.
Hey, good money Alan.
Oh digital equipment data general IBCM Avon products.
50, 50 with 74, you'll recall those names he asked of course.
No.
Yes, you go back out.
Unfortunately.
Hmm.
Right exactly.
I've got a question, where we may disagree, but I'd like to know your thoughts anyhow.
What are you what is your feeling about gold, which you have avoided so far.
We felt we've avoided that.
Never being able to I understand that how and then and.
And so weve never owned at we've always looked at it but we've never been able to figure out the price of gold and so we've ashok.
Okay, that's a fair enough answer.
So to add to the.
Comment about their father, who was moaning.
Moaning that your stock has underperformed.
Last I measure you didnt during dumb overnight.
So.
I'll go through these periods of underperformance no matter what our fields.
Well, you know very kind allied add to send the previous guy.
It's a good sign.
We you know I understand what he's talking about and not a lot of our shareholders.
Concerned that we haven't.
Performed recently, but.
But we are telling what revenue as focused as we've ever been and this is thirtyfifty here and now we want to do well for our shareholders. Our company has always been focused on it in the past several people will remember I insurance companies, what doing well and our investments were doing really well more recently I insurance companies have been.
More recently about 10 years, plus and trust companies have been.
Goldman I've done really well and I'd reference value investing and some more choices on how far haven't done while well out of a changing all that and now he's well am I correct that this is the first time this last year or so it's the first time and essentially when your stock has sold below book value.
Long long time, our debt.
And it does not sell below book value.
Revenue uptime that you've been able to buy outside cash below book value and I when I saw that Howard I jumped on it myself, so I'm suffering from all with all of you.
Okay. Thank you vacuous. Thank you highlighted you're welcome.
Yeah, well talk show yeah. Thank you very much.
And our next question.
Our next question is coming from the line of Mike Beal, Davenport and company Mike. Your line is open your question. Please.
Thank you Brent could you give us a little more color on that short equity exposure exactly what are we short.
And the notional or size relative to our portfolio.
So just a strategy in general there that but that is a pretty big number and I don't mean to Monday morning, or Friday morning quarterback because the third quarter was a strong one, but a 168 million and losses on short equity exposure I think deserves a little.
More explanation.
So Michael you know, we don't talk about individual names as you know till we buy the sold them a couple of them and down on the short. So let me show you that it's over this was just a remnant and unfortunately as you pointed out has gone up and down but other than that you know not not too much.
So not too long in the future will be out of it it's all mark to market of cost. So you see it and we.
And when you said quite significant in the third quarter and down and relatively soon I just don't want to fix a time, but relatively soon that will be gone and then and we've said publicly we will not shut the DSC and not sure the indices, meaning the assemblage all any of them. So we are not will not do that and.
He won't short companies at all ever and so rest assured there would be no more of those.
Okay. So exactly broadly what where are we sure you just said, we don't short individual companies and we don't short.
The T.F.C. or I guess, the EPS and T.
So I still don't understand what.
With this hedge is design you know what it's about.
Yes, so I so Michael <unk> basically what it was was a position that we've had.
In the past so it's not a new a short position on an individual physician that we've had in the past that Steve.
Copper than covenant covet and this is the December last revenue itself, but.
Okay. Thank you.
Thank you Michael next question then perhaps the last question Ella.
Our next question is coming from the line of James line from the National Bank Financial Sir Your line is open your question. Please.
Yes, Thanks, I wanted to I want to follow up on a few things actually just first on the on the coated losses that were taking this quarter looks like it was about 33 million related to business interruption. Another another chunk related to that.
Cancellation.
Is that is that it for those those items should we expect to see more flowing through on a quarter to quarter basis. As this evolves and then you know that only captures a third of the cold it related losses on what was really driving those those other cold losses I would have amounted to about like 95 to 100 million.
This quarter.
Yeah, Yeah, and Matt can Dr. Jan Jamie later on but Tim you know and then cancellation rates. So event cancellation losses I told you. This is a live chat so we've taken a pretty well on what we know.
For the for the next.
You know for the next three months what 2021 if that's.
If this pandemic wireless continues and 21.
So there will be some losses in a event cancellation, many mainly coming from Lloyds and Brett Brett.
It's.
He has got a business that that's where the losses have come from but but it's in the <unk> that we just think it's and.
Cindy.
On the way.
No.
Becoming insignificant we.
We don't think its going to be significant in the future.
And so thats why I made the point that in spite of some of these losses will make a underwriting profit for the whole year, we made an underwriting profit for on to.
That night that nine months, and then should we expect to make a underwriting profit for the whole year, but the underlying business. If you if you remove these.
I always have cat losses, they'll always be some cat losses, and but if you remove the cold weather losses, the and the <unk> and you remember that the prices are going up significant VNB and the claims are not you don't.
The prices are going up way above claims and we haven't adjusted our loss ratios and so we are keeping our loss.
The loss ratio is high but if history is any guide them. We founded in the fast when you look two or three years from now those loss ratios that.
Well develop very well and so on so we expect the insurance business to do very well, Jamie as though the us.
You know, it's a very good.
Good environment for property casualty insurance companies.
Right now.
So Jamie Thank you very much for your question then Hello.
Thank you for.
Hosting this and and and and I, thank everyone for joining us and and this will be the yen.
Thank you Alex.
You're welcome.
That concludes today's call. Thank you all for your participation have a great day.
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