Q4 2020 Fairfax Financial Holdings Ltd Earnings Call
Good morning, and welcome to Fairfax toward the 20 year end results conference call.
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After the presentation, we will conduct a question and answer session.
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Your host for today's call is Prem Whatsapp with opening remarks from Mr. Derek view of US Mr. Bula <unk>. Please begin.
Good morning, and welcome to our call to discuss Fairfax is 2020 year end results. This call may include forward looking statements.
<unk> results may differ perhaps materially from those contained in such forward looking statements as the result of a variety of uncertainties and risk factors. The most foreseeable of 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 and which now include the risk of adverse.
Once at the Fairfax is business investments and personnel, resulting from or related to the COVID-19, pandemic Fairfax disclaims any intention or obligation to update or revise any forward looking statements, except as required by applicable Securities law I will now turn the call over to our chairman and CEO.
What's the.
Thank you Derek.
Good morning, ladies and gentlemen, welcome to Fairfax is 'twenty 'twenty earnings conference call I'm glad to give you of some of the highlights and then pass the call to Jen Allen, our Chief Financial Officer, So additional financial and accounting details.
When the 'twenty as all of you know it was an unprecedented year.
I'm not sure value of plants with the leads when we left our offices last March at almost a year of amigo.
We would still be dealing with the spend that make the this degree.
But we can see the light at the end of the tunnel as multiple banks seats now exist.
King has improved significantly.
Germany Yokohama employees worldwide.
Volume for most.
Cost of 2020, not missing a beat.
I wanted to again, thank all of our employees all of the world who have been fully committed over this period, we provide outstanding service to our customers.
Very grateful to all of them the.
Vaccines being Durban now all of the World. We expect this to come to an end and we expect to return to normalcy soon.
Now coming to our results.
Net earnings were $218 million in 2020 versus $2 billion in 2019, which equates to net earnings per diluted share of $6 29 and 2020.
$69 and 79 and <unk>.
2019.
Under the circumstances, we are very pleased about our performance in 2020 in terms of.
The real life stress test.
Gross <unk> book value per share of in 2020 increased five.
6% basically flat.
Adjusted for the $10 per share of common dividend paid in the first quarter of 2020, the $478 per share.
We had the earnings in 2020 of $218 million as I've said, reflecting the effects of the pandemic on both the underwriting and investment results.
Net loss on investments of approximately one 5 billion at the end of the first quarter of <unk>.
It can be reversed and we finished 2020 net gains of $313 million.
An increase of one eight.
And 35 years, we've never experienced swings of the stock rises like we did.
In 2020.
Rob float increased by 8% in.
In 2020% to $24 3 billion and outflows per share increased by 11% the $927 per the share.
Our insurance and reinsurance companies reduce the consolidated combined ratio of 97, 8% of the year.
<unk> included the catastrophe losses of $644 million of $4 seven combined ratio points and COVID-19 losses of $6 69 billion of <unk>.
The 0.8 combined ratio points, excluding COVID-19 losses, the consolidated combined ratio was 93%.
12 point of <unk>.
9% growth in gross premiums written on the back of the strong pricing environment.
In the fourth quarter volume.
Gross premiums were up 16%.
We had some significant growth in gross premiums as Allied world was up 22% of the year.
26% for the fourth quarter.
15% for the year of 24% of the fourth quarter and northbridge, 14% of the <unk>.
22% for the fourth quarter.
All of our all of our major insurance companies with the exception of Brit generated combined ratios of less than 100% debt.
The <unk>.
Despite.
Precedented times that included the high frequency of catastrophes and the global Pandemics more of on this from Jen Allen.
In 2020, net COVID-19 losses, as I said of $669 million across all of our companies of this approximately 35%.
The business interruption exposures, Brian really outside the United States and about 34% comes from the event cancellation coverages the balance comes from areas, such as casualty and surety and travel lines.
On a gross basis of approximately 60% of.
Covid provisions.
Enough.
Eight losses of about 20% and keeps the reserves makeup of the remaining 20% as you can see there is still considerable uncertainty as to the ultimate cost of the wireless the.
I'd been estimates may prove access shipments some of our companies and may or may not be enough of and others. In addition that we are all well aware of pandemic is ongoing as loans of the places of disrupts the economy new loss since may emerge the size of the ultimate loss will also depend to some extent on various court.
Outcomes as litigation has been declined in many jurisdictions all of the node we remain comfortable with the provisions we have made to date in the context of the current market environment.
Our reserves of course remained strong with consolidated redundancies in our insurance and reinsurance operations in 2020 of <unk>.
<unk> hundred $55 million of three 3% of the premiums.
Insurance businesses in many parts of the world are seeing price increases anywhere from 10% to 30%.
So of tightening the branch.
Some of our insurance business of excellent and we think we earned 100 market and well positioned to expand significantly.
The last quarter I mentioned, our excitement about key of Standalone business begun by gripped. The the first fully digital follow on syndicate at Lloyds.
It's doing very well I should also mention debt digits of fully digital insurance company in India run by combination of going out and another year of exceptional growth.
And three years it has grown from a startup of the writing in excess of 400 billion and is expected to be profitable, including investment income for the year ended March 31 2021.
Digit to raise 25 million from private equity investors at one 9 billion at year end of 'twenty the.
Continues to be valued on our books at $9 billion and we don't expect any changes of course sets of a 100% basis.
So the Indian budget allowed us to go to 74% from 49%.
Of the year of operating income was strong at 916 million net gains on the investment for the year was $313 million with loss. This on net equity exposures of $157 million offset by net gains on bonds. The net losses on equities included losses on our last remaining short <unk>.
<unk>, which is finally closed at the end of the year.
Partially offset by net themes of the circle of Blackberry convertible in the Asian value Fund had mentioned the <unk> 2019 annual report, we will never short stock indices of individual companies the case.
Yeah.
Net gains on our bond portfolio was plenty of $162 million, primarily on our corporate bonds that were purchased in the first and second quarters of 2020.
I've mentioned at our annual meetings and other annual report on quarterly revenue.
With iron of progress accounting of stocks and bonds are recorded at market subject of mark to market gains or losses quarterly and annual income will fluctuate.
And the investment results will only make sense over the longer term.
In the first quarter of 2020, we had a negative three 6% return from the investment portfolio.
And by the end of the year, our investment returns more than reversed and we ended the year for the positive return of two 7%.
I have previously highlighted the CEO bill.
Well do it once more if you look at page 188 of our 2019 annual report last column shows the annual <unk>.
Total return on our investment portfolio for the last 34 years.
David of course for May of 2020.
Four years, when we had a negative investment return in each case, we've rebounded significantly from that table mid $90 90, we had of four 4% negative return $19 91, the following year.
Up 14, 6%.
$19 99 negative returned two 7%.
The following deal up 12, 2% in 2013 negative four 3% 2014 up eight 6% 2016 negative two 2% 2017 six 8% so.
That was only four times in 34 years, each time invested of worried about our investments each time.
<unk> results were much better than they expected.
At this time of our investments of rebounded more quickly on our history has shown that.
Turns are very lumpy and this has worked for us over the last 35 years the app.
Nevertheless focused on steady quarterly earnings as the.
I have said previously long term value investing has gone through a very difficult time for many of us now.
Valuation so Andrew oriented stocks was the growth stocks, particularly technology have never been so extreme exceeding even the extremes of the dot com the era in 2000.
As the economy normalizes, we expect a reversion to the mean value oriented stocks coming to the flow.
After the filing of the vaccine.
Maxine was announced in early November 2023 started to see the staging base.
Two examples very quickly may make it clear ore per year.
Net backs, India was selling at $6 80 per share at the end of the third quarter, while its book value was more than $16 per share today, it's up to $12 40 per share and we think the adobe amount of time and book.
But I can say India.
<unk> 2020 high end does exceptionally well as the Indian economy recover from COVID-19, the Indian government came out with an exceptionally this of friendly budget of recently after the scope of another one that I've mentioned to you run by David Sokol, and Bing Chen closed 2019 net protein.
Per share went down to $6, 30% margin today's net flows of 70 per share and post the financial very strong great management, and we think it's only a matter of time before it.
Since the previous high we expect a significant return on our stock portfolio as the economy continues to normalize.
In November.
Thanks, and Allied World entered into an agreement with core net of capital and Hudson structured capital. The settlements majority ownership interest in vault insurance book.
On the 10% stake in <unk> following the sale of Scott Campbell and he was instrumental in creating and growing all of them as evident from the zone with Fairfax. The chairman of the board of book closing of this transaction is subject to various regulatory approvals expected to occur in the first quarter of 2021.
Im very grateful to Scott for all of those contributions of Fairfax, especially at the Allied World.
On the routine debt from being the standup, becoming an industry, leading and highly successful worldwide insurance of reinsurance business.
In December.
<unk> Africa completed its previously announced transaction with Helios Holdings was renamed Helios Fairfax Partners and continues to be listed of the drawn stock exchange Eds Holdings has been investing successfully in Africa for over 15 years. We are very excited about this transaction and look forward to our partnership with <unk>.
<unk>.
<unk> founders of Helios Holdings also in December we entered into an agreement with CVC capital partners, whereby <unk> will acquire 100% of Riverstone Barbados are European runoff of operation almost half of October will also sell it's 40% of interest of part of the transaction on closing we expect to receive proceeds of approximately.
But the 730 million or of 60% interest in Riverstone, Barbados and of contingent value of note of potential future proceeds of up to two.
$136 million should certain returns the map.
Part of the agreement the company entered the interim agreement with it.
The Riverstone Barbados to purchase unless sold earlier certain investments mainly equity investments owned by Riverstone Barbados at a fixed price of approximately $1 2 billion variety of December 'twenty two so.
So we have to.
Yes.
Bob.
By the closing of this transaction.
Transaction, the subject to various regulatory approvals, we would like to thank Luke 10, So and all the employees of at Riverstone, Barbados and wish them the very best in the future.
Subsequent to 2020, Fairfax and entered into an agreement with the homeless.
The instrument to which almost will acquire a 40% interest in brick Ltd.
Cash purchase price for this investment is approximately $375 million the transaction is subject to customary closing conditions.
And is expected to close in the second quarter of 2021.
We have set for some time that we wanted to monetize many of our investments, including particularly many of our private investment head what we've done in 2020.
The merged Dextera with Horizon four of.
<unk>, 49% ownership of the public company.
How have the company, which we expect will have a billion in revenue and of 100 million of EBITDA for a few years.
In a few years, we sold day was 59 million with an additional amount of what time, we can show.
Shipments of debt of 100% return of our capital investment <unk>.
<unk> agreed to sell its eastern baseball operation to Rawlings for share of the cash at the significant profit for us and our partner our call net.
As mentioned, we completed the merger of Fairfax Africa with the Helios holdings for the 32% ownership in the combined entity.
This is just the beginning of various initiatives that are underway and coding taking some of while other of private investment stomach.
<unk> recently announced of it was going public in the first quarter of 2021.
We continue to have approximately one 3 billion of the holding company predominantly in cash and short term securities.
Note that our cash in the holding company has to meet any and every contingency that Fairfax might face in this uncertain time period, youre not making any long term investment with this cash other than to support of our insurance and reinsurance of the operations with the closing of the roof of stolen Barbados transaction, which is expected to be in the quarter.
We expect to have $1 billion of cash and investment at the holding company.
With our credit facility fully paid off.
In December 2020.
Companies insurance of reinsurance companies held approximately $16 billion in cash and short term.
Securities, representing approximately 38% of our portfolio of investments.
The pricing of $13 billion of subsidiary of cash and short term investments of 2.9.
<unk> 9 billion of short dated U S strategies.
The investment portfolio of scale.
B launch of the unimpaired by rising interest rates as we have not reached for yield in fact, we would benefit of rising investment income we have.
Can they begun investing as you know with can be months and first of all can juice with the term less than five years.
The run rate at the end of 2020 of approximately $19 billion in Gulfstream Nims and the insurance subsidiary is expected to grow significantly in the next few years.
And huge focus on underwriting discipline of course.
Volume of over $40 billion in HW, IC operating and of stock pickers market.
All grounded on our fair and friendly culture of both of the look 35 years, we expect can be firing on all cylinders in 2021 and beyond.
In the past 35, the sweep ideas when our book value has grown by 40% to 50% and our stock price has increased by 150% the.
We expect to reward you our.
Our shareholders for your patients the feel of the best is yet to come I will now pass the call over to the Jen Allen, our Chief Financial Officer Jen.
Thank you Pam.
Wanted to let you know that in addition to the press release that was issued yesterday on our year end results. Fairfax is 2020 annual report will be posted on the company's website on March 5th 2021.
I wanted to also take a moment and thank all of our employees globally. We've been faced with many challenges throughout 2020, the each finance team showed their resilience and commitment to Fairfax of huge. Thank you for all your efforts you can all be very proud of your accomplishment.
Now looking to our results in the fourth quarter of 2020, the effects from the COVID-19 pandemic on the global financial market starting to reverse with significant improvements noted in the equity markets, which benefited Fairfax with fourth quarter results.
Core underwriting performance continuing can be very strong despite higher catastrophe losses in 2020, and the reported COVID-19 losses.
I will start with a few key highlights from our 2020 of results.
We reported strong underwriting performance with an underwriting profit of $309 million net.
Of that represented a combined ratio of 97 eight.
Which was achieved despite COVID-19 losses and higher catastrophe losses.
Our net gains on investments were $313 million for 2020 with over $1 2 billion of net gains on investment is being recorded in the fourth quarter.
And finally, we ended the year with the consolidated balance sheet position for our investment in associates with fair value exceeded the carrying value by $712 million that represented on a pre tax the noncontrolling interest basis appreciation of approximately $1 1 billion since March 31, two.
And in 'twenty.
Not reflected in our book value per share as these investments of equity accounted.
Taking the above the key highlights into account Fairfax reported net earnings of $218 million or $6 29 per share on a fully diluted basis in 2020.
Compared to 2019, when we reported net earnings of 2 billion or $69 79 per share on a fully diluted basis.
Looking in more detail to the results of our underline reporting segment, starting with our ongoing insurance and reinsurance operations.
As noted our core underwriting performance continued to be very strong with underwriting profit at our insurance and reinsurance operations in 2020 of $309 million kind of combined ratio below 100% at 97.8, which compared to an underwriting profit of 395.
And the combined ratio of $96 nine in 2019.
Underwriting performance in 2020 remains strong despite COVID-19 losses of $669 million.
Catastrophe losses of $644 million, which were higher than 2019 by $147 million. Despite.
Despite the COVID-19 losses, and additional catastrophe losses and aggregate that were 815 million Fairfax still achieved an underwriting profit of $309 million in the combined ratio of 97, eight or <unk> 93.0, adjusted for those of COVID-19 losses.
All of our insurance and reinsurance company achieved combined ratio was below 100% in 2020 with the exception of Brett primarily as a result of the impact of COVID-19 losses.
Overview of our core underwriting results for 2020 are as follows.
North Bridge reported a combined ratio of 92.4 and underwriting profits of $109 million, which was an underwriting improvement of $62 million from 2019.
The group reported an underwriting profit of 190 million with the combined ratio of $94 seven and underwriting improvement over 2019 of $100 million.
Current Forrester reported an underwriting profit of 60 million and the combined ratio of 97, five which was relatively consistent with our 2019 results.
The net national reported lower underwriting profit of 52 million and the combined ratio of 91.9, which reflected price decreases and lower payroll exposure. It gave the economic impacts of COVID-19, and their workers compensation business. This was partially offset by price increases and growth in other.
The property and casualty lines.
Break reported underwriting losses of 240 million and the combined ratio of 114%.
Which principally reflect the COVID-19 losses of $270 million or 15, eight combined ratio points and higher catastrophe losses.
Allied World reported an underwriting profit of $126 million combined ratio of 95, four and underwriting improvement over 2019 of $68 million.
Fairfax Asia reported an underwriting profit of 7 million and the combined ratio of 96, eight which is relatively consistent with their 2019 results.
Finally, our insurance and reinsurance the other segment produced an underwriting profit of 6 million and of combined ratio of 99.5, and 2020, which compared to an underwriting loss.
Of $18 million and a combined ratio of one of one seven.
Key components of our combined ratio in 2020 of 97 eight included the following.
The COVID-19 losses of $6 $669 million of four eight combined ratio points increase in frequency of current period of cat loss events that resulted in higher losses.
644 million or four seven combined ratio points, primarily related to hurricane Laura Sally in the Midwest directly.
Benefit of strong reserving reflected continued net favorable prior year reserve development of $455 million or 3.3 combined ratio of point.
And improved underwriting expense ratios, reflecting the growth in our net premiums earned relative to increases in the underlying expenses.
Additional details on the catastrophe COVID-19 losses net favorable prior year reserve development in our combined ratios the impact each of the respective insurance and reinsurance segments will be disclosed in Fairfax is 2020 annual report in the MD&A.
As noted in 2020, we reported COVID-19 losses of 669 million, which were comprised primarily of business interruption exposure approximately 35% primarily from our international businesses.
Event cancellation coverage of approximately 34% the.
The COVID-19 losses, principally comprised of incurred but not reported at represented 51% of the net losses and the net losses were primarily recorded at Brett $270 million Odyssey group of $140 million and Allied world at $113 million.
Our catastrophe losses in 2020 of 644 million or four seven combined ratio points were primarily comprised and reported by the following segments.
North Bridge reported Canadian $39 million or two combined ratio points, primarily relating to Fort Mcmurray floods, and the Calgary Hailstorms Odyssey group of $190 million or five three combined ratio points, primarily related to hurricane Laura in the Midwest Draco.
Allied world of $165 million or six one combined ratio points related to hurricane Laura the U S western of wildfires and Midwest correct call.
And Forrester 95 million or three nine combined ratio points, primarily related to hurricane of Lora in Sally and finally, Brett of $157 million or 9.2 combined ratio points, primarily relate to hurricanes Laura in Sally.
Our combined ratio benefited from net favorable prior year reserve development of $455 million, which translated into three three combined ratio points compared to net favorable prior year reserve development of $480 million, which represented three eight combined ratio points in 2009.
<unk>.
Looking at the growth in our net premiums written by the insurance and reinsurance operations in the fourth quarter and full year of 2020.
And our fourth quarter 2020 of the net premiums written increased by 16, 1% to $3 7 billion from $3 2 billion in the fourth quarter of 2019 and for the full year 2020, it increased by 11% to $14 7 billion from $13 3 billion in 2019.
That full year increase in 2020 of approximately $1 5 billion, it's almost equivalent to all of North bridge of net premiums written in 2020.
And a few comments on our run off of operation as noted in prior quarters subsequent to the contribution of European runoff. The Riverstone Barbados on March 31, 2020, starting from April one 2020 of the operating results of run off only in Q include our U S operations.
Excluding the significant reinsurance transactions in part seven transfer at European runoff in 2020 in 2019 runoff reported an operating loss of 204 million in 2020 compared to an operating loss of 219 million in 2019 with runoff reporting and the operator.
The loss of $147 million in the fourth quarter of 2020, principally reflect the net adverse prior year development on asbestos reserves of $126 million.
Turning to the results of our non insurance companies reporting segment and.
In 2020, the restaurant and the retail reporting segment reported an operating loss of $70 million, but in the fourth quarter 2020 of the company benefited from favorable results from this segment that reported operating income of 12 million. The segment's revenues benefited from expanded E commerce platforms and strong.
Brand awareness that helped partially offset the decline in the in store revenue throughout 2020, as a result of the impact of COVID-19 Lockdown restrictions.
The operating losses in the other non insurance reporting segment of 54 million in 2020, principally reflected Fairfax Africa operating losses of $110 million per.
Pre deconsolidation on December eight 2020 pars.
Partially offset by operating income of Dextera and ADT.
On December eight 2020, Fairfax Africa completed the transaction with the Helios Holdings Ltd, and was renamed Helios Fairfax, the partners or H F. P.
Fairfax can be consolidated Fairfax Africa and commenced the county for its interest in H F. P. As an investment in associates.
Resulting in the net loss of 62 million that included recycled foreign currency translation losses of $27 million.
And those foreign currency translation loss of had no impact on common shareholders' equity at the reclassification in the financial statements.
Also of that included the $62 million of partial reversal of the initial impairment loss of 164 million that was recorded in the third quarter of 2020 related to an increase in the market traded share price of Fairfax Africa between then and clothing.
Now looking at our results of investment results for Fairfax, our consolidated interest and dividend income decreased year over year from $880 million in 2019, the $769 million in 2020.
That primarily reflected lower interest income earned principally on the U S. Treasury bonds in cash short term positions that was partially offset by higher interest income earned on our high quality U S corporate bonds.
Our consolidated share of loss of associates of 113, principally reflecting the impairment losses of $240 million that were recorded primarily in the first quarter of 2020 and were related to the Companys investments in quest resolute outlets tomorrow and at start of the share of loss.
And it also included our share of losses of Sandler of 49 million in Bangalore Airport of $31 million, which was partially offset by profit at Atlas Corp of $116 million and Riverstone Barbados of $113 million.
At December 31, 2020, our investments in associates had an aggregate fair value that exceeded the carrying values by $712 million and due to the equity method of the county for these investment this excess of fair value over the carrying value is not included in our book value per share.
This is the significant positive change from the March 31, 2020, when the aggregate carrying value exceeded the fair values of the investment in associates by approximately $400 million.
That represents on a pre tax and non controlling interest basis appreciation of approximately $1 1 billion of these investment.
In terms of our net gains on investment I'll highlight the fourth quarter and 2020 of results.
In the fourth quarter, our consolidated net gain on investment with over $1 2 billion compared to net gains on investments of $640 million in the fourth quarter of 2019 the four.
Quarter of 2020, principally reflected net gains on our long equity exposure is just under $1 2 billion and net gains on our bonds of $112 million that was partially offset by a $138 million on our short equity exposures, which resulted from the closing of the Companys remaining short equity total return swaps.
Let me remind you that in the first quarter of 2020, we reported net losses on investments of just over $1 5 billion and for fiscal year 2020, Fairfax is consolidated net gains on investments was 313 million of.
One $8 billion swing within a year.
Our consolidated net gains on investments was 313 million, reflecting our net gains on bonds of 562, primarily as a result of unrealized depreciation of high quality corporate bonds.
And our net gains on long equity exposure says 372, which was partially offset by our short equity exposure of 529 million that was fully closed out of the company's remaining short equity total return swap positions.
And in closing a few comments on our financial position, our total debt to total cap ratio, excluding the company's consolidated non insurance companies increased to 29 seven per cent at December 31, 2020 from 24, 5% at December 31 2019.
<unk>, primarily reflecting increased total debt and decreased common shareholders' equity.
Principally related to the common share dividend paid in Q1, and unrealized foreign currency translation losses, which was partially offset by net earnings.
At December 31, 2020, our book value per share was $478 compared to 486 at December 31 29.
The need in the first 2020.
And an increase from the third quarter of 2020 of eight 2%.
The increase in book value per share in the fourth of eight 2% in the fourth quarter of 2020 gross.
<unk> at Fairfax. This core underwriting performance continuing to be very strong with excellent investment returns.
And now Prem I'll pass it back over to you.
The other day by your company name and try to limit your questions. So it'll be one so that the the spread to everyone on the call. Okay day, we're ready for your question of the questions.
Thank you so much and we will now begin the question and answer session.
If you'd like to ask the question you May press star followed by the number one.
Please state your name and company.
It is required to introduce your question and if you want to cancel the requests you May press star two.
Moving please further questions to queue up.
Our first question comes from Jeff Van <unk>.
And wink.
From <unk> Securities. Your line is now open you May proceed.
Hi, good morning prep.
Hey, good morning, gentlemen.
So as.
As you say are interesting time in the markets and good opportunities for stock Pickers. So my first question really is just around.
Your general thoughts on investment rotation in and are you being very active here and maybe selectively trying of think some positions I'm looking for some new opportunities and I guess, the one I certainly got a lot of questions on of rates not surprisingly is blackberry so of any any comments on the.
I guess, the the allocation and perhaps Blackberry specifically.
Yeah.
Just you know.
So on Blackberry, it's gone up and come.
Come down so just a couple of points first of all of it we don't comment on our Securities book, just the sales you know that.
I will just say two points one.
The insiders and half inside the obligations on the battery.
And to Blackberry closed in December 2020.
Most of the year at December 26, and five basis.
Having said that debt.
And.
In 2019 the.
Technology stocks were doing really well and have been doing very well for some time as you know, Jeff and the shift to value investing of big gun and then Covid can.
Uh huh.
In 2020 in March and of course significant 180 countries close down the economies. We didn't know what was going to happen and and stocks of the particularly value oriented stocks.
<unk>.
The need is sensitive to the economy.
You know crash.
The big come back and.
Now we've got the vaccines coming in we've got testing.
We just think the shift to value investing will take place over time and that's already begun in November with the size of of the announcement of the sides of vaccine many of them.
Many of vaccines of come to play countries of getting back to normalization.
I don't know exactly when but that's sort of it that does happen.
And and the economies will come back.
So we of course, the stock because we expect to make money on the things that we've invested in the past and we can.
Constantly looking at other opportunities. So so this is what we've done with 35 years.
Tremendous track record of it they've got a very good investment team led by way of a burden and garner share and a very exciting.
Jeff about job you know.
What will happen in the next two years.
Okay.
And maybe my next question I would like to just.
Focus on capital and uses of capital.
Obviously, you highlighted the how the balance sheets of balance sheet has strength and after your riverstone sale as.
As we look into this year with the insurance markets remaining hard.
Or were you thinking of that in your first priority I guess is pushing more capital down into the operating operating units, we're looking at a similar.
Magnitude of the investment down there I think it was $1 4 billion.
Or maybe you might look more of doing something like share buybacks here, if the stock's still trading below book value.
Yes. So the first thing to say is that influence of that business school of business as you've said, we've put a ton of money in 2020 and of the insurance companies. We don't think they need any more money now can side investment portfolio is coming back up.
Additional loss.
Based on some financing at the end of the year.
And I would be expected to grow significantly, but they grow they grow over time right. So when you write premiums of two of them.
You earned it.
More than the U S.
So you have combined as of yet.
Going forward, so the insurance businesses as.
Well, Brian that reminds me of 2001.
And what happened in 2002 after September 11th.
Some differences of course at all times, but as we've said prices are going up theyre going up over all over the world and in the terms of growing up.
We have capital we purposely that the 14% on bridge so that we have another $375 million.
In the case, we need it but the.
Moment, we don't expect the didn't need any money from the holding company, Brian Chaunce companies, they are well capitalized and finance than on the ready and most importantly, many companies of pulling back.
Jeff The management team of one of the companies are ready to expand and expanding significantly as you saw in Allied and Northbridge Odyssey already.
And I guess, maybe a comment on the on share buybacks debt.
If you have some capital available for that yeah, yeah, so share buybacks as always the first financial soundness first.
A good opportunity to.
To support of insurance companies second is share buybacks and that's what we always look at we had.
This.
Opportunity as we mentioned on the total return swap it's an investment can be made.
I've said before many of the time.
Stock prices are incredibly cheap for the record that we've had.
Go through phases, the world, we're not looking at debt free.
Three months every quarter, we are up 10% of 5% that's not how big of rollout of company, but our long term record is perhaps one of the better ones Youll see and so.
We think a stock of <unk>.
<unk> had a total of when we looked at the potential investments that are available to Fairfax.
The investment portfolios.
Frank's was non ops.
Amongst the best if not the best and so we bought one of four 4 million shares as we said in a total of the swap and as an investment but that is in the investment.
So we look at all possibilities.
Hi, Jeff and and does and see what the future loss rate.
Okay. Thank you for that color I'll requeue.
Thank you Jack around the next question Dale.
The next question comes from the line of junior of Prime.
The Investor Your line is now open Sir you May proceed good.
Good morning.
Hey, good morning, Gratulation wanting more of it.
Congratulations on the wonderful quarter of two questions. So for the total credit swaps when does the expiry date for that and during the Red ex Yes did you guys take advantage of by hedging any of your investments.
The sorry, when you say the.
The credit swap Jamie.
A total of whatever the Fairfax.
The total watch I'm sorry, yes.
The total return swaps yeah.
One of your swaps and we book.
We've historically been able to extend that flow as long as we like.
Okay. Thanks.
And then on the <unk> question did you were you guys able to lock in any of the gains by taking any kind of hedging or.
Or is there no opportunity for the was just the short period of time.
So so as I've said right of that I made the point that are on Blackberry insiders and we are inside the obligations and we never talk about net.
The sales of securities.
Thanks.
Thank you very much.
The next question Dale.
Okay.
Our next question comes from the line of Matt.
The cannon from BP of cap of BMO capital. Your line is now open you May proceed.
Yes, thanks, very much good morning prep.
Oh My question one of them.
About the.
Selling off 14% of Brent to owners.
But I mean.
And Kate I think Youre quite your reasoning was Oh, we got 375 million of the resolve that and that's just in case, we need it.
Remember earlier in 2020, you went to the debt market.
The sort of in case you need it.
Why are you selling off say, 14% of Brit like in the height of some good hard markets here.
Why wouldn't you use debt, yes. So.
Yes, very good question, John we just Wanna be financially sound and we've done a very good relationship with Brett Gino with the almost you know that we had.
But you know of 40% on Riverstone U K that we sold to <unk> 600 billion and so they are taking $225 million of the reinvesting of $3 $75 million.
And Brent and we just think we've done a weighted relationship.
We bought back to our model.
And of about 89%.
Almost all of us.
And the vast in end of viewpoint, we had 89% of what we did the full 14% of we want all of it I think back in 2020 and so we.
Sold as 14%, but you know it's.
It's the $3 75 million principal of potential Oh, we're going to refinance sometime of.
Which we've always done.
Debt issues in the coming in the next three years.
We think it's just a good mix.
And so if anybody who said youre selling off of an insurance part of an insurance company and in the what would appear to be pretty good insurance markets.
In order to improve liquidity versus going to the debt market. How would you answer that question.
I'd answer that by saying that we've done this before and we will have the ability the buyback that 14% of.
Oh it was.
We've got maybe.
Can I get the simply can buy it in.
Two years of three us so so it gives us a lot of flexibility to them.
And the debt markets the bad we understand that.
Yeah.
Okay. Thanks for that.
Thank you very much Tom.
The next question Bill.
The next question comes from the line of Mark Dwelle from RBC capital markets sort of your line's now open you May proceed.
Yeah good morning.
A couple of questions good morning, Mark on the.
The on the.
The.
Barbados the.
The sale of the Barbados business.
You'd mentioned briefly in the it was mentioned in the press release.
About.
Our plan to buyback.
Part of the agreement requires the buyback of $1 2 billion of the investment assets can you just elaborate on that a little bit why why is that being left out there.
It seems like it's a $1 two is not an insignificant amount debt.
Presumably the holding company will need to come up with.
Within the next couple of years in order to fund the purchase.
So.
Basically we had the stock portfolio in Riverstone U K.
And we can of solar.
In December.
December whenever we enter 2020.
Feeling was that it was very undervalued. So we have the ability of one 2 billion.
Hum.
Based on 2019 prices RIN prices.
For 2022, we've got the ability to sell it or buy it back.
The test we think of it'll.
It'll be the right now the $1 2 billion of space very much what.
What it's worth in the stock markets getting the Sox in that portfolio of very much what $1 2 billion and we expect it to do very well and so we can sell it at the one where we can hold them and and.
We just think value of messaging is coming into the fall.
The companies that we own all of the end of it.
Alright exceptionally undervalued in our minds, so they take them to the.
Just don't.
But do you think the exception of advisors so exceptionally.
And we think they're going to do very well. So we didn't want to sell it at these prices that's the squeeze.
Yes.
Yes. These are primarily in any of these are these are.
As far as the these are common equities or these are private equity holdings.
These are the these are the predominant of peak.
The common stock positions of the App.
Okay. Thanks can we can now.
Right.
Okay.
My second question relates to.
Executing the total return swap with respect to.
Fairfax shares.
I guess I was just curious why you would pursue that structure.
Rather than just buying back the stock if if you felt like that was the good opportunity.
Does this is this the capital constraints that you couldnt really by background much.
We would have to be careful right. So.
Not so much of it yeah.
To be very careful in terms of how much we can buy back.
When we looked at the San.
Thanks, as the stock price and looked at everything else that we can buy we just don't.
Total return swap one suezmax was the right now.
We paid $344 per share as you know U S dollars.
Book value of 478, I mean, if you work the math just on a book value basis.
We'd have a broken the $100 million game.
Fairfax stock prices go to book value It was.
The $200 million, we just thinking of terrific investment of my total return.
Swap structure. It was a very good way for us to do it.
And so we are so we did it.
I don't disagree with you that it was a good a good strike price. So I guess it was really the.
The form of the transaction rather than just actually buying the shares.
Using the derivative of instead of just a little bit unusual out of it usually we've seen that with most of the companies sort of.
Following sort of how was really my main question.
So so.
So mark I'll point of just that.
<unk>.
We wanted to keep up we can.
Where you have more of an opinion and cash at the holding company once or most of the non relapse.
$375 million.
We just wanted to be financially sound and Hum.
In all of them in all the ways as opposed to use of cash.
At this point of time.
Okay.
Thanks for the answers and good luck for 2021.
Terrific. Thank you Mark next question. Please so dale.
Thank you. The next question comes from Jamie Laurie <unk> from National Bank financial.
Your line is now open you May proceed.
Okay.
Okay.
Hey, Jamie.
I'm so sorry.
The yours. This is Jamie has disappeared.
Would you like.
Since the day and the other question.
Or Jamie Please press star one again.
Okay.
Dale do you want to go onto the next question. Please.
Oh sure. The next question comes from.
The Macau Brookfield from Brooklyn Holdings. Your line is now open you May proceed.
The oil friends.
Hi, Michael.
Yes, Terry Mcgill.
The lines got disconnected or.
His line is disappeared would you like the 13, Jamie from the line.
Yeah.
You can get them go onto the next question. Please.
Sure.
Jamie Your line is now open you May proceed.
Yeah, Good morning, my coming through.
Hey, good morning, Jeremy I can hear you well.
Alright.
So.
First question is the surround the the farmers edge.
The IPO of that that seems to be a you know that'll be coming up pretty soon here can you can you maybe talk about.
Some of the other.
Industries or companies that that Youre looking to maybe tap into this pretty robust IPO market as a way to realize on <unk>.
The value in some of those holdings.
Of the Jimmy we're not allowed to say too much till they filed and the until they are done so farmers edge as you know is filed.
We'll be filing some more you'll be able the guests them.
And and we'll be filing them in India and Fairfax, India.
Many of them down and.
We've got some really good companies and.
And we've developed them over time and Dextera as of classic web.
With the.
The only of horizon, non physical deck story of 49% and we expect that to be a very successful company over time. So so we are we.
We have many of them and when you look at our non insurance companies.
The most of you analysts of.
Worried about the fact that we don't make any money be reflect the losses.
But we don't show the gains of the gains come over time. So when you look at on the investment portfolio. You know this is Jamie we've got common shares the and more than 20%. They become associates. If you have a 40% of interest or.
The numbers like that.
Capes of Thomas School of Coke, 65% of any of the consolidated some of our annual report in 'twenty 'twenty one for the.
Two of 2020 annual report the they come out in a few weeks, we're going to show it to you. So that you can now.
I'm going to take another attempt to show you our common share positions.
And the some of them are as common stock some of associate somewhat consolidated it gets a little confusing, but thats the accounting.
I am for the rest we have to follow the accounting rules, but we're going to show that to you in a way that I think will be easier to understand.
And and over time all of these investments some of them some do very well in a short period of time and some take longer.
And we've just the rare patient long term investors.
Okay, great. Thanks, and then just following up looking into the insurance sector and as we think about COVID-19 risks of losses and reserving there.
Yeah, I would of I would expect that loss reserves would would diminish as the vaccine rollout of unfolds, but can you talk about maybe some of the exposures in the event cancellation and business interruption. So it had been.
The event gens yeah event cancellation JV, we've taken the next six months these event cancellation policies.
Very few if any have been written after March 2020, and so we've looked at the.
And of bridges looked forward than a light where the two and basically written off of the first six months.
What are the way, we think there'll be a written so so we don't expect it to be of any significance, but as I've said in the minds.
Comments at the risk of that uncertainty, but we don't expect it to be very significant.
Okay, and then on Nab the eye as well do you have a quick comment to sort of frame that that risk like can you just did with event cancellation.
Well all of which are risk again, Jamie.
Business interruption.
Oh of business interruption of business interruption is isn't in the national the recipient debt.
So it's outside of North America, we've taken most of the head Youll see debt.
Like 50 60 per cent of the gross.
The numbers of each setup of I'd be not right. So that's of course of that.
The allocated.
Incurred but not reported that we expected the com.
The conservative.
All true.
The history, we've been conservative.
So we expect that.
Even in the case of business interruption of another one.
Some of the lawsuits and the regulatory bodies, making decisions you have to watch.
How did that come through web.
All in all right now.
Yourself.
Okay. That's great. Thank you.
Thank you Jamie.
Yes, Dan.
Next question please.
The next question comes from the line of the caliber.
Alright investor.
The open.
The moment.
On time and I, followed you guys for a long time.
And I believe that.
At this time that you stepped down from having primary index since responsibilities I know the Jamie managers some capital weighted managed some capital. We all know that those are very small portions of the capital base.
And I think you were always clothing, youre long term track record, but I can I know when the man is the out of tune with the markets.
Also think debt.
It was the huge mistake, if you did not take the Blackberry gift. This was given to you by the market and I also don't think that Youre doing deep analysis of your holdings I suspect the.
Can you probably don't do a lot of diving into the the financials. The statements you've probably got to understand the microeconomics of the business just sort of by.
You probably are not.
I'm talking to.
The customers suppliers competitors of all of our employees the compared to the the investment businesses of very compared to the business it's not like.
It used to be and a lot of things that are.
No you should go out and buy technology stocks.
The answer on the man is not it.
Competitive in the field and there is not the working hard and I think it's time that you stepped down from.
Primary of investing I'm sure many of the other associates agree with you, but because of their Canadian and tend to be nicer than the Americans. They are they just don't say anything in the banks want to ask you on the difficult questions because there's so few good tick.
The companies in Canada, and they get financing fees from you. So they ask out of the questions. Thank you.
Oh, good good points.
You're entitled to your opinion and.
The Titan decided that okay. So thank you very much for your comment ex question Bill.
The next question comes from the line of Bruce of course in run time private Investor. Your line is now open.
Hi, Brian Thanks for taking my question.
My question is regarding Fairfax, India could.
Could you. Please provide an update on your investment in Bangalore Airport.
Total bullish about the prospects of debt investment.
And with Covid and all of its gonna involved in the next two three years and also could you provide an update regarding the view of you had written won't man of steel So I love to take a coupon of 7 billion valuation.
And can we expect to now you can own hazard closed at like in the one could you provide an update there and also could you tell us whether we are still looking to do the IPO of.
It was written in the last day and one of the report by the end of this year.
Yes, so the Bangalore International airport of the World class, yet or great value.
Well the at the start of costs during the cold, but stay of the business is coming back significantly passengers a day, it's running at about 60% of capacity.
And so.
So the the terminal is delayed but the.
2022, the second terminal that will be built the.
The second one base already belt, and and we expect it to be around <unk> excited about Bangalore International Airport as we always flow.
We've got a drove the guy running it as you know how are the morale and and so the company will be on its way in terms of bits.
In terms of Fairfax, India. So there's a tremendous opportunity the India is a land of opportunity has become very business friendly and Mr. Modi has come up with the very.
The budget and.
We expect the anchor.
And which over time will take it public we think of.
You know of $2 $72 8 billion for Bangalore International Airport, 100% basis now.
<unk> is a very reasonable price and and so so that's.
Very very possible in terms of the anchorage of approvals the sale.
India, there's a lot of approval of sensitive at the one more approvals that debt.
Necessary Ed.
And we think it will come soon.
And so so asics are excited.
Our go to somewhat of an outlier in terms of at Fairfax, India and discuss the lots of possibilities.
That day, and let me take the last question if you don't mind.
Thank you.
Sure the net.
Question comes from the line of Alan Parsow from Elkhorn partners.
Thank you very much for taking the call.
I just need a hell of a little bit of clarification.
If I can on the questions regarding the Blackberry I understand that you don't.
Discuss.
Changes in portfolio of et cetera regarding any of your positions.
But there were filings made and this goes with regard to your insight.
Comments inside her comments of directorship.
There were some filings made in January where six of the hamblin.
Lots of Fairfax team sold the entire position.
<unk> and Blackberry.
I understand that's the subsequent event to the end of the quarter.
But can you explain how they're able to.
Sell their shares.
And Fairfax may not be able to sell theirs.
Or in the past you've had you of two different positions of Blackberry one convertible.
The bonds and common stock.
Are you, saying you have restrictions on both of those for clarification.
For me please.
Yes.
The securities.
Doesn't distinguish between the convertibles and the common shares.
And.
And in the case here inside of Amazon Insider and the Fairfax is in the insider.
With some of the people you know the may not be inside of those and I don't know, who you're referring to all of them, but some of them may not be incentives and so they can do all as an example, Wade Burton Wade Burton.
Roger lays I mean, there the there were significant.
Investor of people.
Yeah, No no that's right but.
But the company is is in the insider versus so we pull all of these rules very carefully and no one can sell anything on the signal through our legal department.
So we're very very careful of and.
The type of situation and we just we don't talk about individual securities still until they're done that.
Just kind of well.
So that's how we run a refresh of about 35 years.
So do you like the bear with Us Alan and I. Thank you for your question and thanks to all of you.
Dale I think we're ready to go on too at the end the call and.
At the as far as we have announced previously for you of safety and the safety of all of our employees of the global pandemic. Our annual meeting will once again be have largely on April 15.
At which time I look forward to add some of your game all your questions instructions on how the join the webcast will be published on our website. Soon so thank you very much.
The terminate the call. Thank you.
Yeah.
And that concludes today's conference.
You all for participating you may now disconnect.
Okay.
Yeah.