Fairfax is a holding company which, through its subsidiaries, sells property and casualty insurance and manages the investment of the insurance premiums.

Fairfax’s goal is 15% growth in book value per share over the long term.

Fairfax differentiates itself through disciplined underwriting and investing its assets on a value oriented total return basis, believing that this approach will provide above-average returns over the long term.

✅ Higher interest rates benefit Fairfax

✅ Fairfax still trades below book value, despite strong recent performance and attractive growth prospects

The two engines that power Fairfax:

In the past, Fairfax's insurance business would actually lose money; but the money that was collected in insurance premiums would be invested, and those investments made more than the insurance losses.

Prem Watsa is the founder / CEO, and he was able to compound Fairfax's book value per share at 24.7% for the first 25 years of the company's existence.

However, low interest rates in the 2010s hurt the investing side of the business because they have a large bond portfolio as well as defensive equity hedges and even made a good amount of bearish macro bets that didn't pan out.

Ultra-low interest rates were bad for Fairfax's bond returns for a decade. Showing a lot of restraint, Fairfax never bought long duration bonds (which is what got Silicon Valley Bank in trouble as $SVB searched for yield). Now Fairfax has bonds maturing soon and can reinvest in much higher-yielding instruments.

Fairfax's fixed-income portfolio will likely produce over $1.5 billion in interest and dividend income this year, up from $530 million in 2021.

On the insurance side, Andy Barnard was put in charge in 2010, and was able to refocus the insurance operations on underwriting profitability. They began acquiring high-quality insurance businesses as well. Fairfax's insurance operations have been profitable in all but two years since 2010, and those were in 2011 and 2017, due to catastrophes). Gross premiums written increased more than 5x.

I just bought $FRFHF at $777. Both it's insurance operations and investing operations are doing well at the same time, which the market isn't used to. I think there's a good chance that Fairfax's multiple rerates to around 1.25x book value, which would place Fairfax's intrinsic value at $1,005.