Q3 2022 Fairfax Financial Holdings Ltd Earnings Call
Good morning, and welcome to Fairfax is third quarter results conference call. Your lines have been placed in a listen only mode. After the presentation. We will conduct a question and answer session at that time to ask a question. Please press star one on your phone keypad for time sake, we ask that you limit your questions to one.
Today's conference is being recorded if you have any objections you may disconnect. At this time your host for today's call is Prem Wassa with opening remarks from Mr. Derek Bolus Mr. Abuelas. Please begin.
Good morning, and welcome to our call to discuss Fairfax through 2022 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 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.
<unk> disclaims any intention or obligation to update or revise any forward looking statements, except as required by applicable securities law and now I'll turn the call over to our chairman and CEO .
Hey, David Good morning, Ladies and gentlemen, welcome to Fairfax is 2022 third quarter conference call.
To give you a couple of highlights to pass the call to pay to block, our president and Chief operating officer to comment on the quarter and Jen Allen, our Chief financial officer to provide some additional financial details.
Earlier, this week, Brent and issued a press release announcing that Matthew Wilson.
Following strict orders from his doctors has decided to step down as CEO to focus on his family and help.
Matthew returned as CEO in September following a leave of absence battling a rare case of blood cancer.
One of the hardest decisions you ever had to make.
Matthew has been with Brett, but 23, guys as being and through Mandel and building Brett to be one of the most all would thinking companies in the market and it leaves a lasting legacy of success across the whole organization.
Matthew recommended that Martin Thompson, who failed in for Matthew during his leave of absence become prominent group CEO and we are happy to say that Martin has agreed to take on that role full time.
Martin is a highly experienced leader in the insurance sector and demonstrated this when selling into Matthews.
I'm very pleased that Matthew will remain as an executive advisory director to Fairfax and.
Key going forward.
Now onto the quarter quarter.
Favorable market conditions continue and the property casualty markets and our companies continue to take advantage of that but gross premiums up 16% to $6 9 billion in the quarter and net premiums up.
19%.
Gross premiums for the nine months were up 20%.
Despite heavy catastrophe losses, driven by hurricane in our insurance and reinsurance operations at a combined ratio of a 100% next quarter and 96% for the year to date.
We benefit greatly from our diversification and global credit sense, when dealing with their brands such as catastrophes Coalbed All war to name a few.
Big advantage of Fairfax knowledge, that's diversified all over the world.
Congratulations to all our president so continue to grow profitably and a strong rating environment.
<unk> centralized approach works.
Our operating income in the quarter and in the first nine months was up significantly increasing year over year by approximately 75% for the first nine months, we had record operating earnings of $1 6 billion as we continued to deploy cash and short term investments at higher.
Our rates and with strong and increasing underwriting income we expect our operating earnings to continue to grow.
Our book value per share decreased by 8%.
Adjusted for a dividend in the first nine months as a result of net losses on our investment portfolio of two 3 billion.
Primarily unrealized mark to market losses.
In the nine months, we've had net losses on investments of $2 3 billion driven by losses of 1.15 billion in our bond portfolio due to continued rising interest rates and $766 million from mark to market movements on our common stocks, reflecting the decline in the stock markets.
The sale of our pet insurance business closed on October 31st and after we record the approximate the 1 billion net gain our book value is expected to be up for the 2022.
Almost all of our competitors will show large declines in book value per share because of rising interest rates for the first nine months declines in book value per share will range in the main from 20% to 50%.
Very very significant.
We have mentioned to you for many years now that we have not reached for yield.
We benefited greatly by having such a low duration, one two years coming into the on our fixed income portfolio.
Our low duration on October 7 billion fixed income portfolio reduce the impact of rising interest rates at our bonds two a decrease of only 3.1% on the fixed income portfolio.
Significantly less than many of our peer companies.
Notwithstanding our low duration, we had 1.15 billion of unrealized bond losses that went through our income in the first nine months of the year.
We expect much of this will be robust over the next 12 to 18 months in the meantime, we've been able to invest at higher rates, increasing our current normalized annual run rate for interest and dividend income to $1 2 billion up from approximately $530 million.
At the end of December 31, 2021.
No I have said previously many times long term value investing has gone through a very difficult time for about a decade now.
To quote what I said, a year ago valuation self 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 continues to normalize we expect a reversion to the main with value oriented stocks coming to the floor. We continue to believe our common stock positions are very undervalued.
I reminded you that in the three years 2000 to 2000 <unk> downturn, most stock market indices were down about 50%, but our stock portfolio was up 100% and of course this was about a year ago.
And the first nine months of 2022, particularly in the third quarter of this year technology stocks, including the bank stocks and Microsoft have come down significantly.
From its high in 2021 alphabet does down, 42%, Amazon, 51%, Facebook, 76%, Microsoft, 36%, Netflix, 61% Tesla, 48%.
Many of these companies stock prices made new loads yesterday for 2022.
Only Apple has dropped only 20%.
Of course smaller tech companies like zoom, and Shopify are down 80% plus from that high.
And if history is any guide there is more to come.
I will note for you that the NASDAQ dropped 50% in 2000, and then dropped another 50% in the next two years.
We have taken recipe private with the 99, 9% majority of the minority vote.
David Sokol has a deal to take Atlas private at 15, and a half dollars per shack, our shareholding in Annapolis will continue and we continue to be very excited to support David Sokol and bank Chang.
I should note that not recorded in our third quarter results is the previously announced sale of our pet insurance business, which I mentioned earlier to J P for $1 3 billion pre tax gain which closed on October 31st and will be recorded in the fourth quarter.
All right.
The additional pre tax gain of $3 75 million non digit insurance that will be taped and upon regulatory approval for consolidation.
I would like to thank all the employees of pet insurance operations for building, such a great asset and wish everyone. All the best going forward.
We continue to do all we can for our Ukrainian employees, our whole company is behind all three outstanding Ukrainian precedence as they look after our employees under extremely difficult conditions.
I should emphasize the game that Theres no truth to the rumor that we are selling Bangalore International Airport Bangalore International Airport is the jewel in the Fairfax, India trial and leave will be holders for a long long time.
I will now pass the call to Peter Clark, Our President and Chief operating Officer further updates Peter.
Thank you Pam.
We had a net loss of $75 million in the third quarter of 2022.
As Prem highlighted negatively affected by net investment losses of $519 million catastrophe losses of $803 million, partially offset by increasing interest and dividend income of $257 million and our share of profit of associates of 300.
$18 million.
Please remember that under Ifr S accounting unrealized gains and losses bonds and stocks are reflected in income not other comprehensive income like U S. GAAP.
Our combined ratio in the third quarter was 103.
Included above average catastrophe losses.
For the year, our combined ratio was 96 and generated underwriting profit of $609 million.
Gross premiums were up 16% in the quarter, 20% year to date as we continue to see favorable market conditions in many of our major lines of business.
More on the underwriting results later.
The operating income of our property and casualty insurance and reinsurance operations increased to $425 million in the third quarter of 2022.
Up from $245 million in the third quarter of 2021.
Driven by higher interest and dividend income and an increase in our share of profit of associates.
Our investment return in the third quarter was essentially flat at <unk>, 1% with interest and dividend income.
And our share of profits of associates offset by unrealized mark to Mark losses on our equities bonds and foreign exchange fluctuations.
The net loss on our bond portfolio was $242 million in the third quarter.
And was generally the result of increasing interest rates.
At the end of September our insurance and reinsurance companies held portfolio investments of $49 billion.
Of which approximately $8 2 billion was in cash and short term securities.
We continue to deploy that cash primarily into three year U S treasuries and pick up additional interest income.
Our net losses on our equity and equity equity related holdings were $155 million in the quarter.
Driven by the overall drop in equity markets.
As mentioned in previous quarters, our book value per share of $570 does not include unrealized gains or losses in our equity accounted investments and our consolidated investments, which are not mark to market.
At the end of the quarter the carrying value of these securities is in access of fair value by $424 million.
An unrealized loss position or $18 per share on a pre tax basis.
As previously mentioned, our insurance and reinsurance businesses continue to grow rapidly all over the world. We wrote $6 9 billion of gross premium in the third quarter of 2022.
And the third quarter combined ratio was 103, which produced a small underwriting loss of $17 million.
Our gross premiums in the third quarter were up 16% an increase of approximately 1 billion from the previous year.
This growth is driven by the continued favorable market conditions and strong margins that prevail in many of our markets, particularly in North America.
Crum <unk> Forster had the largest percentage growth in the quarter among all of our companies growing 33% in the third quarter of 2022 versus the third quarter of 2021.
From added $316 million of gross premium year over year.
Crumbs growth was driven by increased business volumes within its surplus and specialty anh and commercial lines Division.
Odyssey group's gross premiums were up 27% or almost $350 million in the third quarter.
With the majority of the growth coming from their U S reinsurance division in both its property and casual casualty business segments.
Odyssey group's insurance segment continued to expand but at a slower rate with high single digit growth.
Yeah.
Rick grew 16% in the quarter with total gross written premium approaching 1 billion for the third quarter.
<unk> growth was driven by key Brit innovative follow on syndicate.
And as you know Brett has control of T. So it's consolidated in their numbers.
Excluding key Brett had low single digit growth driven by its direct business offset by reductions on its property Treaty reinsurance book.
Allied World North Bridge, and Zenith, all grew as well at lower levels, increasing their premium by 6%, 4% and 1% respectively.
The premium of our international operations continues to increase.
Although they are not seeing the rate increases experienced from the hard market conditions in North America.
Gross premiums were up almost 7% in the third quarter of 22 over the previous year.
Fairfax Asia led the charge with premiums up 22%.
Most of our companies in South America, Central and Eastern Europe registered strong growth in local currencies, although were somewhat muted in U S. Dollar terms by the strengthening of the U S dollar against most currencies.
Over time, we believe our international operations will be a significant source of growth driven by Underpenetrated insurance markets and strong local economies.
Our companies continue to grow into favorable market conditions.
While absolute rate increases may reduce in some lines overall rate level is expected to remain attractive and could be extended by a very hard reinsurance market leading into the one one renewals.
Our companies have taken advantage of strong pricing over the last number of years growing premium over 60% over the past three years.
Not unlike 2021, the underwriting result in the third quarter of 2022 was all about catastrophe losses.
The combined ratio in the quarter was 103 and included $803 million of catastrophe losses.
First as a combined ratio of one O 1.1, and catastrophe losses of $605 million in 2021.
Hurricane Ian added 10.5 points to our combined ratio.
While total catastrophe losses added 15 combined ratio points.
Through nine months of 2020 to our combined ratio is 96 versus 97 three for the first nine months of 2021.
Catastrophe losses in 2022 were driven by Hurricane Ian $561 million.
French hailstorms $93 million.
And a high frequency of other smaller but serious weather events included including the Brazilian drought.
South African and Australian floods and Hurricane P owner.
As our premium base has expanded and with the benefits of diversification, we have been able to absorb significant catastrophe losses within underlying underwriting profit.
Northbridge had another outstanding quarter, posting a 93 combined ratio benefiting.
Benefiting from the compounding of year over year price increases and increased new business.
Allied World generated the most underwriting profit in the group at $105 million and produced an outstanding combined ratio of 92.
While crum <unk> Forster continued its steady improvement with a combined ratio of $94 seven.
<unk> had another good quarter at $93 eight.
Odyssey group and Brett were affected the most by catastrophe losses in the quarter with Odyssey, posting a 107.8 combined ratio.
With 16 points of catastrophe losses, and Brett 117.4, combined ratio with 39 points of catastrophe losses.
Our international operations had a combined ratio in the quarter of $96 nine.
With favorable development from prior years and moderate catastrophe losses in the aggregate.
Fairfax Asia had a very strong quarter with a combined ratio of 92.
Our international companies continue to navigate the headwinds of inflationary pressures in many of their countries, especially in Fairfax Latam.
For the quarter, our insurance and reinsurance companies recorded favorable reserve development of $48 million or the benefit of <unk> nine points on our combined ratio.
This compared to the third quarter of 2021 of $70 million or one six points.
Our insurance and reinsurance companies are in the process of their full actuarial actuarial reviews.
Which are done annually in the fourth quarter.
Our expense ratio continues to benefit with our earned premium volume outpacing expenses. Our overall underwriting expense ratio was one seven points lower year over year.
With the underwriting expense ratio decreasing at essentially all our insurance and reinsurance operations.
Notwithstanding the catastrophes in the third quarter, we expect for the full year of 2020 to have another strong year of underwriting profit our insurance and reinsurance operations are very well positioned to capitalize on the opportunities in their respective markets.
I will now pass the call to Jen Allen, our Chief Financial Officer to comment on our noninterest companies' performance overall financial position and recent transactions.
Thank you Peter Peter has provided detailed commentary on the operating income of our property and casualty insurance and reinsurance operations, which included a discussion on the underwriting performance the interest and dividend income and net gains losses on investments. So as Peter noted I'll begin my remarks with the results of our non insurance consolidated.
Company.
Looking to the third quarter of 2022 compared to the third quarter of 2021, and excluding the impact of Fairfax, India performance fee expense to Fairfax, which was $5 million in the third quarter of 2022 compared to 19 million in the third quarter of 21 operating.
Income of the non insurance companies increased significantly by $86 million or $230 million in the third quarter of 'twenty to.
Compared to an operating income of 44 million in the third quarter of 'twenty one.
This improvement at 86 million principally reflected higher operating income from our other segment of 51 million that reflected higher business volumes driven by strong retail sales and improve margins primarily at ADT.
We had higher operating income at Fairfax, India, a $35 million that was a result of their higher share of profit of associates from its underlying investments in Denmark, and the Bangalore Airport and higher operating income at Thomas Cook of $18 million, which reflected higher business volumes as a result of the continued easing of COVID-19.
Related travel restrictions that significantly benefited both domestic and international travel.
This was partially offset by lower operating income from the restaurant and retail segment of $18 million, primarily reflecting lower is lower business volumes at Gulf Count and the deconsolidation of Kuwait Iraq in August 21.
Looking at the first nine months of 2022 and comparing it to the first nine months of 2021 again, excluding the impact of Fairfax, India performance fee, which was a reversal of $45 million of a performance fee payable in 2022.
She is an accrual of 118 million other performance expense in 'twenty, one and if we exclude the impact of the noncash goodwill impairment charge that we recorded in the second quarter of 2022 of $109 million, which related to our investment in farmers edge we.
We had operating income from our non insurance companies, increasing significantly by $210 million or to 224 million in the first nine months of 2022.
That compared to operating income is only $15 million in the first nine months of 'twenty one.
That's significant improvement at 210 million reflected higher operating income at $90 million at Fairfax, India.
Again, reflecting a higher share of profit of associates from the underlying investments and saying, Hey, Edmar, Bangalore Airport and TSB Bank.
We had higher operating income of $44 million at Thomas Cook, India as noted, reflecting the factors that previously discussed for the third quarter.
B, a higher operating income of 42 million in our restaurant and retail segment.
That reflected higher business volumes for the nine months at recipe related to the reduced COVID-19 restrictions in the first nine months compared to the prior period and also the deconsolidation of quasi Rec, Canada that was partially offset by lower business volumes at golf town.
And we had higher operating income of $34 million and the other reporting segment at reflected the higher business volumes and improved margins at <unk>, which was partially offset though by our deconsolidation of mosaic capital back in August 2021.
If we look at our investment performance for our from our investments in associates in the quarter and nine months, our consolidated share profit of associates with 318 million in third quarter of 'twenty two.
And it reflected continued strong results from our investments in associates.
And it was principally comprised of share profit of $81 million from Resolute 80 million from Euro bank and $58 million from Atlas Corp.
Which compared to share of profits of $227 million in the third quarter of 'twenty. One that was primarily comprised of share of profit of $82 million from regularly $46 million from golf insurance and $43 million from Eurobank.
Similarly for the first nine months of 2022, a share profit of associates of $758 million reflected strong results with share of profit of $230 million coming in from Eurobank $180 million from Atlas Corp, $159 million from regularly that.
That was significantly higher compared to the $347 million a share profit of associates that was reported in the first nine months of 'twenty. One that was primarily comprised of share profit of $142 million from eurobank and $107 million from resolute.
We had a few key transactions that I would like to highlight and provide comments on.
First on July six 2022, we increased our interesting for valley of hospitality to the 78, 4% interest from a 33, 5% ownership by acquiring additional shares for cash consideration of approximately 195 million and we commence consolidating for value hospitality.
In the third quarter of 2022 Gabelli.
So value hospitality acquires develops and manages hospitality real estate in Greece, Cyprus and Panama.
The next few transactions I'll highlight closed or are closing subsequent to September 30th 2022.
First as Prem noted on October 31, 2022, the company sold its interest in coming Foresters Pet insurance group in pet health, including all of their worldwide operations.
The company received proceeds of $1 4 billion that was in the form of 1.15 billion in cash and $250 million in seller debentures.
Our consolidated financial reporting in the fourth quarter will record the gain of approximately $1 3 billion and the after tax gain of just under $1 billion.
Our second transaction on October 31st.
Our consortium that was comprised of the company, the Washington family, David Sokol, which as the chairman of the board of directors of Atlas.
Ocean Network Express.
Signed a definitive agreement to acquire all of the outstanding shares of Atlas.
Other than those shares that are owned by the consortium and the cash purchase price of $15.50.
Plus the payment of any ordinary course dividend up until the closing of the transaction.
Fairfax will transfer its approximate 45% and Acura Atlas, which is comprised of the eventual exercise of the holdings remaining outlet equity warrants plus our current investment in associate interact into a new entity formed by that consortium.
Fairfax is not obligated to purchase any additional interest not already owned by the consortium and.
And we're committed to fully fund the consortia sorry. The consortium is fully committed to fund the cash component of the transaction.
Fairfax will continue with ownership in outlet as part of that consortium with the transaction expected to be completed in the first half of 2023.
The third transaction as noted on the prior conference calls we had mentioned the ability for the company to increase its ownership in good yet above the 49% to.
If you are controlling interest upon receipt of regulatory approval in India.
In June 2022 digit insurance and the company apply to the insurance regulatory development authority of India, where the I R. D AI.
For approval to convert our company's holdings.
<unk> convertible preferred shares to gauge it.
I go digit infill work is referred to as the digit C. C. P S. It in our financials.
Equity shares of go get your info works.
I R. D. A phy subsequently communicated that the application cannot be considered in the current form.
As the conversion of digits U E. P. S is would result in budget, which is currently been classified as an Indian promoter of the underlying digit insurance Bill.
Becoming a subsidiary of the company, which is currently prohibited for India promoters notwithstanding the foreign direct investment rules that were amended to allow foreign investors to own up to 74%.
<unk> company.
Did you did you in insurance and the company intent and continue to explore all avenues under applicable law to achieve the company's majority ownership and to get to a conversion of the companys digits D. C. P. S. At.
We expect to report a gain of approximately $375 million when we achieve majority ownership and good yet.
The fourth transaction relates to recipe and on October 28, 2022, we acquired all of the multiple voting shares and subordinate voting shares that recipe other than those owned by the company and approximately $9 4 million multiple voting shares owned by terror for a cash purchase price of Canadian.
$20 73 per share or approximately 342 million in aggregate.
It increased our ownership in recipe from 39, 4% at September 32020, Q2, approximately 84% in.
In the fourth quarter of 2022.
As Fairfax controlled and consolidated recipe pre and post the transaction any impact as a result of this transaction will be recorded directly and our shareholder equity.
Lastly on July 5th 2022 don't car Corporation entered into an agreement with resolute to acquire all of the outstanding common shares of resolute for a combined cash consideration of $20 50.
And the contingent value right per resolute common share of up to $6.
That contingent value right provides the holders with the right to share of any future softwood lumber duty deposits.
Closing of this transaction is still subject to regulatory approval and is expected to be in the first half of 2023.
As a result of the proposed transaction on July 5th we re measured our investment and regularly.
The held for sale and vaccinate and we ceased to apply in the equity method of accounting.
Our carrying value of that associate at September 30th 2022, equaled the fair value of the cash consideration at $20.50 per share or $508 million in aggregate.
Consequently, the company currently does not expect to record any gains on closing of the proposed transaction.
In closing a few comments on our financial condition, our liquidity of the company remained strong with our cash and investments at the holding company at approximately 900 million at September 32.
2022, which is predominantly held in cash and short dated investments remains strong and we still have access to our 2 billion unsecured credit facility.
Subsequent to the quarter on October 31st excluding the $250 million in seller debentures, the holding company cash increased by approximately 900 million, reflecting the net cash proceeds that we received on the sale of crummy Pet insurance group and pet health.
As discussed previously the holding company cash and investments is there to meet and any and every contingency that Fairfax I mean, as we did not make any long term investments with the cash other than to support our decentralized structure for our insurance and reinsurance companies.
On August 16, 2022, we completed an offering of $750 million principal amount of five six to five unsecured notes that are due in August 2000.
2032.
And we received proceeds of $743 million.
Subsequently on September 27, 2022, we increased our ownership interest in Allied World.
82, 9% from 79% for total cash for total consideration of $734 million that was inclusive of a fair value of a call option that we exercised an accrued dividend that was paid as a result of loss was recorded in retained earnings for approximately $228 million.
In closing a few final remarks on our total debt to total cap ratio. If you exclude our investment in the consolidated non insurance companies.
$28 three at September 30th 2022, an increase compared to 24% at December 31, 21, primarily due to the issuance of the unsecured notes that I noted that were completed in the quarter. We don't have any significant holding company debt maturities now until August 2024, a day.
Kris and shareholders' equity that reflected the net loss of 830.
$1 million in the first nine months of 2022.
Also other comprehensive income loss of 493 million that related to primarily unrealized foreign currency losses, our payment of common share price dividends of approximately $283 million and as noted the decrease in Noncontrolling interest as a result of the acquisition of the additional common shares and Allied world.
That concludes my remarks for the quarter and I'll turn the call back over to Pat. Thank.
Thank you very much and please give us your name and your company name and trying to limit your questions. Tony one so that's fair to all of our calls okay. Catherine we're ready for the questions.
And once again to ask a question you May press star one on your telephone keypad. The first question is coming from Tom.
Mackinnon of BMO capital your line is open.
Yeah. Thanks, good morning from and good morning, everyone.
Question, just with respect to if you could just tell.
Tell us again, what's happening with digi.
When is it that you expect this $375 million to come in gain to come in and why does this get to keep getting pushed out and then I have a follow up thanks.
Yeah no. Thank you.
Good morning.
On digital we as we've said in the disclosure it's.
Subject to regulatory approval.
The government has allowed companies to go from 49% to 74% and and.
While there.
They have accepted that they have theres some mid tunnel rules on.
A subsidiary of a subsidiary are merging and so we're just working through all of that we just think it's a question of time and.
And we will get the approval, but the government has already taken the 49 to 74 and so that's that's the key and it's the internal Hum the workings of the legal system and and.
India that'd be a rug looking through.
Do you think it's imminent or is it a 2020 as a later 2023 event.
I'd love to tell you what the timing okay.
But [laughter] when you're dealing with that government did have a good deals.
And Uh huh.
And on the Atlas transaction.
Oh, how much are you spending what are you taking your ownership up to and how much are you spending for that.
Strictly Fairfax with Fairfax is portion.
Okay.
Yeah. So we're not spending anything other than the warheads and for the warrants are Jan how much money was less than 100 million, Tom it'll take our ownership up to 45% approximately so to take it up to a 45% and basically we're rolling a little we had about a 1 billion three plus.
<unk> in terms of our cost and it's done very well and our average cost might be $10 and change and it's at 15 and a half but we are so excited as I said before backing David Sokol, and Bang Chen and David of course belt, Midamerican energy and books.
Had the way over 20 years.
With a 20% compound revenue and earnings and so he's already done extremely well and Hum and we think Hum the best is yet to go.
Okay. So that's just really moving you currently have 41 years moving up to 45% with respect to that is that correct.
Yeah, approximately that's right yeah, Okay, and then finally, just with respect to the revolver.
<unk> deal that was done in the quarter is this now an investment in associates.
Yeah.
It would be on about 78% of Goodbody a hospitality.
Run by a guy by the name of judge Chris It caused so you might remember when Goodbody. It was public and it's just a fantastic operator fantastic real estate.
And and how how do we account for it Jim So it wasn't an investment in associate and then when we stepped up to the 78%. It's now consolidated and that's our investment.
In our non insurance segment now reporting as of Q3, so it's consolidated.
Okay great.
Alright, okay.
Over into that segment with the recipe and the others is that is that right.
Okay and then the last one maybe for.
As you know with one and a half.
Over $1 billion in proceeds coming in from the JV to Hum.
It doesn't look like there's much to be spent for recipe or a much to be spent for atlas.
Can you talk about your appetite for buying back stock I mean, it's a I mean, we had the biggest that it'd be before but.
You've got a 10% MTI in place stock trading below book, So maybe share with us with onto your thoughts.
Yeah sure Tom like where you know, we bought 2 million shares last year, but Hum AR at the end of the year and.
We always look at being financially sound for US no significant maturity that though as Jen said for the next three years, we got a line of credit of 2 billion, which is basically will be unused and available cash after the pet a sale of approximately 2 billion. So financially very sound at the first steps.
Drums of buying back any stock. The second is a we've got a very good insurance market as Peter has explained our businesses 28 billion U S worldwide now, but we expect for the too.
2022, 28 billion worldwide and I'll remind you we started with 10 million.
As ago 37 years ago.
And and we were able to absorb this a hurricane and some other cat losses, 800 billion plus and still at a combined ratio of one quarter of a 100% for the year for that at year to date, 96%.
And and more importantly, as Peter has highlighted a reserve so looked at that in the fourth quarter and then though if history is any guide we had significant reserve redundancies.
But we wanted to take advantage of the insurance market. The pricing is good and and so we'll be looking at that and and finally number one after that is stock buyback. So we'll certainly be looking at stock buybacks as we have in the past and.
No that's that's the priority.
Yeah.
Okay. That's great. Thanks for the color.
Terrific. Thank you Tom can be go onto the next question Catherine certainly and once again, if he would like to ask a question. Please press star one on your telephone keypad. The next question is coming from Mark Dwelle RBC capital markets. Your line is open.
Yeah good morning.
One other follow up question related to the Atlas transaction as well.
Well the closing of that transaction allow you to mark to market your carrying value on that position.
Where you continue to carry that out.
The current book value plus whatever you pay into to buy the warrants.
That's a very good question Mark and of course are counting as odd as a debt that you have.
A significant transaction that is done from an outside party at 15, and a half and that still has to be carried a like you've said that Alaska agenda, just highlight that sure. So mark because our ownership percentage still stays within a significant influence. So we go from about a 41% ownership up to 45 wells.
Equity account or have made it as investment in associates. So it's still at a carrying value concept. It's only if we crossed over in into maybe a consolidated position or be dropped down would you then.
Fair value increment at that time, so there's no change in our carrying value, but the disclosure. We always provide you with that fair value of what the investment in associate is so you can look at that are value compared to the carrying value to get the unrealized or might that sound in our book value per share yet.
Okay. That's helpful.
I ask because it would have been a fairly tidy up to Q4, if you're able to get that fair value accounting, but I guess, that's not the case.
The second question that I had.
The the holding company cash was less than a $1 billion, that's probably only happened a couple of times in the past 20 years that followed the shares.
Thought I'd ask you know what the movements were there and in particular, if there was any downstream ing of cash into operating subsidiaries during the quarter.
I'm sure we'll gen will be yeah, it's all in the quarterly report.
Mark, but remember like at all it wasn't a.
A month later that we add 1.4 billion Sheila that after that sale, but we knew that was taking place and so there'll be a question that we are I don't know when we are announced.
All of this stuff done sometime in August .
All of this we had that was just so you know our cash basically is running as I said above 2 billion now but.
Jan you want to add.
Amongst question Yeah sure. So mark on page 53 in the interim report, we gave you kind of disclosure within the significant movements of Holdco cash a lot of it as Prem said really is the timing of when we did the noncontrolling interests by backup Allied World. So we get that right at the end of September , but we didn't receive the pet probe.
Proceeds until subsequent so it really is primarily a timing of those two instances that are reflecting a lower hold co cash at that time, but it gives you more details in the interim report.
Let's see okay. Thank you and then the only other question.
That I had related to the the derivative contracts you have related to the Fairfax shares.
Those I recall that it was about two years ago that those were initially entered is that a contract that is just now on a month to month or quarterly basis or is that a contract that would be kind of up for renewal here on an annual basis. When you know when that comes due.
Yeah, Peter Yeah, no. It is a I think it's extended out a couple of years now so yeah.
Yeah. It it doesn't and then it can always be a renewed going forward. So it's it's ongoing and we just look at look at it on a quarterly basis.
Okay. I think those are all my questions. Thank you.
Thank you very much next question Catherine.
And our last question is coming from Howard Clinker, a flanker and company. Your line is open.
Hi, Fran.
I don't think I heard something like high I don't think I heard something correctly.
Once the operational profits all of the industrial industrial business is up $196 million and not $86 million I seem to here.
Yeah D of na and non insurance businesses had a very good quarter.
Yeah, Jan you remember with the the numbers well we.
We won't disclose it up because what.
Oh, no. It's 86, yeah, we're just talking about the quarter only.
Inclusive of the share of profit of associates as well.
Give the disclosure on the non insurance in the.
Back of the MD&A.
Oh I see so the quarter was 86 186 without the nine months.
And then I was just hearing correct kit.
Did they change for the nine months was 210.
I say, okay that that is that was adjusted for the noncash goodwill impairment charge that we took in Q2. It was a couple of adjustments in that number okay and I'd like to correct conjecture I made in the previous conference call I Wonder if the stock and bond prices would rise.
If property and casualty companies would get looser underwriting would develop a looser underwriting standards.
Of course stock and bond prices have fallen.
And that would be a catastrophe losses couldnt, we have a period like the early seventies when rates really took off.
Yeah. You know this is a very good question.
Howard and no one knows the answer to that but I do remember I do think that Mr. Sam Zell very good interview yesterday or day before on CNBC, where you said that you can't flood the system with liquidity.
And not have consequences.
So inflation is a big problem. The economy is still strong the numbers came out today you saw the payroll is very strong and you know and so we could we could have Oh you know, we just have to be careful so the bonds that we buy a three year duration.
<unk> has won six tell them was about a little less than two years and so we are interest and dividend income go up and we don't take a hit from a lot of.
Competitors have reach for yield in the past.
And and the thought of it is matching our outward and the liabilities, but the net net is that book values have dropped from 25, 20% to 50% and you know that book value unless interest unless interest rates drop.
Are those book values are going to be there for quite some time.
I met Tanzanian rates like the early seventies.
The arg broken until they are into the front of the business rates really took off in the early seventies patency rates that is.
And in the DNC.
P&C rates could go up significantly.
Cap rates could go up so you know you have to be very careful with cat of course, and because of the exposure that you know the end could I head Tampa.
You know it might have been two or three times, what a N is so you have to be very careful but having said that the the market insurance markets are looking good for people who are careful.
Okay.
So long as though you avoid another north range with some people that experience 30 years ago.
Yeah, No that's right that's what I was very large.
Thank you our next question Catherine.
And the next question is coming from it junior right. He's a private investor Your line is open.
Good morning from a two quick questions how does your buyback changed with the.
Pretty good thank you.
How does your buyback change with the 2% buyback rule that the Liberals are trying to introduce and then any plans on Fairfax, India to basically get more market visibility by either IPO ing it in to India market or doing some sort of marketing because it seems like the volume on Fairfax, India is very low and there is not really as many buyers, which is the which is affecting.
The actual shareholder value.
Yeah.
What was your first question again.
The first question was on how does the Liberals, 2% buyback, 2% tags that 2% that we don't know the details yet, but it looks like it's coming for 'twenty 'twenty four and.
No. That's some time away. So we'll just have to wait and see it's it's not a huge much attach.
Attacks, but that's perhaps not the best allocation.
But having said that a well just have to wait and see the details first Fairfax India is concerned.
Fairfax, India. The stock prices is a ridiculously low the book value. The net asset value was about $19, we bought two and a half million chats. So what can you do when the stock price is low what you can do is only a you know we can't control the stock prices, but what we can do with buying in stock and so we have retired.
A lot of shares of Fairfax, India, we think its unbelievably attractive like by the way many many companies and in North America and also outside our non North American stocks are very attractive and so we're taking advantage of it by retiring that struck me about two and a half million shares.
In the.
2022 so we've already in nine months, two and a half villages and we're buying it significantly below net asset value.
Mine's net asset value of Bangalore International Airport.
So that was one example of a significantly undervalued stock prices reflect that you never know how long it'll take.
But we expect it to reflect the underlying values.
Okay. Thanks, a lot.
Thank you Julien our next question.
Catherine.
At this time, we have no further questions.
No more questions Catherine well there are no more questions. So thank you very much for.
All of you for joining us on this call and thank you Catharine They a conference called <unk>.
This will conclude today's conference. Thank you so much for joining you may disconnect at this time.