YouSaid · the spoken record

Prem Watsa

lines on the record: 51
first: 2026-07-19
most recent: 2026-07-19
sittings or episodes: 1
sources: podcast

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“Well, folks, that's it for today, but I'd like to leave you with a quote here by Prem Watsa. Our earnings are lumpy. We have never had guidance in 23 years because we have ups and downs and take a long-term view. In 22 years, we have lost money just twice, but our book value and equity has grown dramatically. Now, it's pretty rare for a CEO to discuss his business with such transparency, but I think that you will find that Prem is basically an open book when it comes to Fairfax. And this is a characteristic we look for in all businesses we want to own for the long term. And with that, I'll see you next time.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“To place a lot of trust in Premoasa to do what's right. And I mean, that's probably a good place to put trust. I mean, he's been doing this now for four decades, but I just kind of can't get over the hump of the difficulty of kind of understanding all the different moving parts of this business. So for me, I think I'm okay with passing on this business for now. I will definitely be paying very, very close attention to it, though, because based on what's happened with this business and based on what can happen with catastrophes, the profits of the business can get hit pretty, pretty hard. And in that sense, if this business were to come down significantly, which it could, like, you know, if this business came down to, say, 1,500 bucks, I don't know if I could pass up not adding it, but that's just my opinion. Sean, what do you think?”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“So I apply a 55% probability to my base case, a 25% probability to my bear case, and about a 20% probability to my bullcase. With all that, I get a business that's worth about $2,400 at a 20% margin of safety. Now, this is a touch above the current price of $2,300, but if you'd like to take a closer look at how I arrived at these numbers, please subscribe to the intrinsic value portfolio and newsletter, which will give you direct links to the model so you can play around with it yourself a little bit and see if you have a different view on the value based on your own assumptions. I mean, really, I mentioned that this business is one that I've thought a lot about owning. And am I making a mistake in not owning it? Probably, but I think to the point that I made earlier about the insurance cyclicality, that kind of scares me off. And then the other thing that kind of gives me pause is simply just the complexity of the business. I mean, there's just so many different areas of the business that you have to understand. It's one of these businesses where you essentially have”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Heavily, heavily undervalued. So I think the business is pretty cheap in this scenario, and you still will make a positive return.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Right, Sean, and for the bear case, it's equally quite simple. So I assume that they just have a couple of weaknesses in the returns of their portfolio, which drops their ROE to about 11%. Now, ROE has gotten to this point, historically speaking, leading up to COVID. So it's definitely not out of the realm of possibilities. Perhaps they maybe decided to chase profits in some other segments that drag down profits for time. Now with the reduction in ROE, I apply a lower price to book ratio of just one times. And with these assumptions, I get a value including dividends of about $3,000 Canadian. And this is still an annual return of 5.3%. So I think this shows that this business does have really, really good downside production. Another thing to keep in mind is that this book value means that the business is trading somewhere around liquidation value. You can argue that some of the assets would be marked down further, reducing the liquidation value. But even this is probably wrong. So Fairfax actually holds some of its investments that are not marked to market. And they believe are”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“The book value and the business's net earnings. From there, it's a pretty simple path to calculate the ending book value, which I'm using at the end of 2030. I get a book value about $2,424. Then I assume the terminal multiple remains at the same number that it has today at around 1.3 times book. And this is a number somewhere around the midpoint of the last decade's multiple. But that was also a severely dragged down by COVID. So I think the business continues to grow at about a 15% ROE. And this is a pretty reasonable multiple to put on it. So applying that, I get a terminal value including dividends of about $4,600 Canadian, which offers about a 14.7 annual per return.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“The thing about Fairfax that's interesting is that the business of Fairfax is quite complex, but the actual evaluation, I think, is kind of simple, which is kind of surprising to me. So basically what you do with an insurance business is you tend to use book value to evaluate them. So a natural capital efficiency number that directly impacts book value isn't return on invested capital, but it's actually a return on equity. That's why we discussed ROE here today. And then you basically apply a price-to-book ratio to that terminal value and there's your terminal value and you're good to go. So I assume that Fairfax stays true to its long-term goal of achieving about a 15% return on equity. And this is a number that provides additional margin of safety, given that the five-year average ROE is nearly 21%. I assume that their ability to allocate capital remains top-notch and that the insurance and noninsurance businesses continue to turn a profit and are run very, very well, which they seem to be doing here. So with these assumptions, it gives me two numbers.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, they do have sort of the reinsurance businesses, so they clearly understand that part of the business and can deploy capital in some parts in that way to help reduce risk. But I don't want to dig.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so Fairfax is a very, very interesting business to me. When I release my episode on a great book covering the business called The Fairfax Way on TIP 783, which I'll link to in the show notes, I often wondered to myself why exactly I don't own Fairfax because I can honestly say I don't think I've ever written a book that made me want to buy a business more than that book did. You know, when I think about Fairfax, it checks off pretty much every single box I look for, high capital efficiency. Check high insider ownership. Check. Aligned incentives. Check. Long history of creating shareholder value. Check. Large one way for growth. Check. And since I've released that episode, you know, I keep asking myself, why don't I personally own it? And I think the reasons that I give are becoming harder and harder to justify. The one area of the business that I'm not craziest about is the exposure to catastrophe as well. I think Fairfax is a very well-run business. This is one of the reasons that I tend to stay away from insurance companies. I really find it hard to own businesses that are facing these really, really...”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Claims that it expects to pay, many of which won't be paid out for many, many years. And those estimates are never exactly right, so the insurer has to revise them in later years. And as a result, you get a redundancy or a deficiency. Now, you want a redundancy, as this means that the original reserves were more than enough. And once the claims are settled, you can actually release the reserves, which go straight to earnings. In a deficiency, you are under-reserved, and the insurer has to add more money to cover the shortfall. This raises the combined ratio and obviously negatively affects profits. But since 2020, Fairfax's PUID has been favorable, adding back hundreds of millions of dollars each year, which helps increase profits and makes sure the company is underwriting properly.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, totally. You know, if you screw up the underwriting part of insurance and end up having to pay a larger amount of claims relative to the premiums that you charged, like I've already mentioned, you can break the business. So you need to have insurance reserves stocked up to pay out any claims from any major catastrophes. And if you're under-reserved, that can spell an insurance company's doom. So in the early 2000s, due to a couple of insurance acquisitions, they brought in books that were pretty much poorly under-reserved. In 2001, Fairfax actually lost money for the first time due to the losses from the World Trade Center and reserve deficiencies amid a very poor insurance market. But since COVID, Fairfax has done a really good job with its KPI. Prior year development or PYD. So PYD refers to how an insurance reserves for claims from past accident years change as those claims actually settle over time. So when an insurer writes a policy, it has to estimate and set aside money, which are reserves, for claims.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Business once Prem decides to step down. It's worth noting that Watsa has actually stepped back as a vice chairman of Hamlin Watson Investment Council in 2019. So the investments have actually been running smoothly without participation from Watsa.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“So the board reviews this annually. So I don't think it's going to really come as much of a surprise for shareholders once Prem decides to step down. You know, Fairfax has said that they already have someone in place that would be more than suitable to take over many of his responsibilities. Now, there's no definitive answer to who would take over, but given that Fairfax has nearly always promoted from within, it would likely be someone a little younger than Prem who has been with the business for a long period of time. Now Peter Clark, who is the company's president and chief operating officer, appears to be at the top of that list. So as a president, all company officers report directly to him. And he's been with Fairfax for nearly 30 years. But even more importantly, he's had roles in Fairfax such as the vice president, the chief operating officer, the chief risk officer, the chief actuary, and he's been a member of Fairfax's executive and investment committees. So, you know, he's one of these executives who's adept in both insurance and investing, which I think make him a great choice to lead.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Leonard, but the decentralized nature of the business that he built also means that the engine is going to keep humming along even after he's gone, which he now is, you know, not a big part of the business. And Prem also controls 43% of the votes. So for some businesses, you might run the risk that the CEO steps down to, let's say, become the chairman. And then a new CEO comes in who's really just a figurehead while the chairman now runs the show. So Coca-Cola in the 1980s was like this before the power struggle finished in favor of Roberto Goizetta. But I think that he's done a really, really good job of making it so he's still important, but I think because of how decentralized it is, I think that the business is going to continue to run very, very well even after he's gone.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“And that's the key right there. If you have a long-term time horizon for these businesses, the best time to pick them up is actually when their share prices are weak due to cyclical market exposure. So the thing I like about a business like Fairfax is that the market corrections tend to be quite short-lived. So if you buy near the bottom, you won't have to wait around for years for the cycle to turn as it usually turns within 12 months and often much quicker. Now the next risk that I'd focus on here is one that you can probably assume and that's key man risk. It's very similar to businesses that I've covered recently in SpaceX with Elon Musk or QXO with Brad Jacobs. I think Prem Watsa is a pretty big part of the thesis here with a pretty big caveat. So with QXO and SpaceX, those aren't businesses that I think are anywhere close to as decentralized as how Pram has made Fairfax. So this makes me think the better example might be more like constellation software Mark Leonard. I think Constellation would never have made it to where it is today with Outlook.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I like to focus on risk mitigation here too. And I think that having it as a guiding principle is very admirable. And since the business has been around for so long, I think it's quite clear that they follow these principles very, very closely. But I think we should get into the real risks to Fairfax because they most definitely exist. So I mentioned earlier that insurance isn't really a Modi business. I don't think that's a hot take by any means. And even the noninsurance businesses aren't exactly wide MOT businesses either as they range from mattress stores to restaurants to retail. So let's get started with the largest risk that I see for Fairfax, which is shocks to the investment portfolio. During the year when Fairfax struggled from 2010 to 2016, the reason wasn't that they were underwriting bad insurance. It was actually that their portfolio suffered drastically due to the equity hedges. But on top of that, if global equity markets were to experience large drawdowns, say in the 10% area, Fairfax estimates a $1 billion decrease in net earnings.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Value of the company. They mention things like compounding book value at 15% annually, focusing on the long term over quarterly results, being open with communications with shareholders, and then just having a lot of honesty and integrity. And really just a lot more characteristics that you'd be thrilled to have when you're investing in a business.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Right. And so just to briefly go over the other short term incentive plan, it pays out about double of base salary and it's discretionary in nature. It's made up of both cash and options. And these bonuses consider the performance of the executive in light of Fairfax's guiding principles. So for 2025, they gave about a 250% bonus as they had record results across the entire board. So the circular mentions a couple things. It mentions underwriting profits, interest and dividend income, as well as a high rate of achievement in compounding the book value per share. So my assumptions are that's kind of what they're being paid off of. Now, normally I don't like incentive plans that are really so vague because I kind of like to be clear about what management needs to do in order to get their bonus. But I think when you look at Fairfax as guiding principles, it's pretty hard to argue that following them to a T won't produce stellar results and won't increase the intrinsic”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Has no pension plans, so these options kind of serve as its replacement. So, you know, I think I like the long-term nature of the options along with the non-dilutive effects, but they still are to some extent time-based awards. Now, I will commend them for having these expiration dates for executives that go out past 2040. I mean, I think that's quite impressive and something that I don't think I've ever seen before.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so it's probably not a huge surprise, but the remaining executives are making a very reasonable base salary kind of in that 600K to $1.5 million per year range. There's nothing obvious to me here that would raise any red flags, but most businesses have red flags and they're kind of short and longer-term incentive plans. So let's look there in a little more detail. I could already see your eyes rolling here, Sean. You know, as Fairfax does have an options-based award, but this system reminds me a lot of LyftCo's options plan in that the options at Fairfax grants are actually non-dilute of a characteristic that's incredibly rare in most corporations. So Fairfax's equity-based awards are based on subordinate shares that have already actually been issued. So you can kind of think of it as Fairfax buying these shares on the open market, then granting them to their employees. So once they grant, no dilution is actually taking place. And the vesting schedule is quite long with 50% vesting in five years. And the other 50% vesting in 10 years Fairfax.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“As it helps compensate the CEO, who you can argue is very, very underpaid relative to how much value he's created at Fairfax.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and that's exactly the case, I would say, with Fairfax. So Prem Watsa had a salary of about $600,000 since the year 2000, and it hasn't changed at all since then. And he also receives no bonuses, no profit participation, nor does he participate in any equity or pension plans. So, you know, I think this is a very reasonable deal for a leader who has compounded his business at high rates for over four decades. But I also think it shows that prem understands how to create alignment between himself and his shareholders. So PRAM WASA through a holding company, as well as his personal ownership, has 43.3% voting rights of Fairfax Financial. Fairfax has been through a period where it was attacked by shorters, so this large voting sake helps kind of the business stay protected from potential short attacks in the future. But Prem's economic stake is somewhere around 10% of the total shares. And with his current holdings, he makes somewhere around $19 million per year in dividends. So I would say that this is definitely part of the reason that Fairfax pays a dividend.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“You know me very well, Sean. So obviously I'm not crazy about dividends either. Over the past 12 months though, they paid about $350 million in dividends. And so like you just said, you know, that's money that could have been used to fuel the M&A engine. But, you know, it's also a small enough number that I think I'm okay with it, provided that the yield doesn't continue to rise. And the number of support that the yield is actually continuing to trend down. So I'm not super concerned here about the dividend. The dividends have actually decreased over the past three years while profits have increased. So the fact that they pay a dividend is definitely not a deal breaker for me when it comes to Fairfax Financial.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“You are completely correct, Sean. Fairfax shows a great chart showing just how their share account has meaningfully shrunk over time. And the most meaningful number is just how many shares they bought at prices that are a fraction of today's price of about $2,340. They bought back shares in 2019 at an average price of just $473. In 2020, they bought back shares valued at about $500. I think this just kind of goes to show you that they're very good at buying back shares and understanding Fairfax's value and kind of pulling the trigger when Fairfax is at a depressed price level.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Right. And another really interesting strategy Fairfax took to raise even more money for buybacks was their use of these things called total return swaps or TRS. So you can think of a TRS as kind of a derivative, kind of like an option, but with a few differences. And the main one being that you take part in the gains of the upside and you take part in the potential losses if the value of the TRS goes down. But you don't actually have to own the stock. You just kind of put down a deposit. So what Fairfax did was during COVID-19, they bought these total return swaps in Fairfax's stock. Now, they knew at that time that Fairfax was undervalued, having just gone down about 50% in price. And from that time, Fairfax recovered very, very well over the years. Netting Fairfax about $2 billion in cash from these total return swaps. And much of that cash was then used to repurchase even more shares of Fairfax.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, they did some really, really interesting financial engineering, which I think helps explain just how savvy they are with capital allocation. So with Odyssey, they actually ended up selling off just a 10% stake in the business at one time. So here's the Nifty Financial Engineering, though. They sold the 10% stake in Odyssey at a book value of 1.7 times. Now, that number might not mean anything to people who don't follow insurance, but that's actually a pretty high multiple for an insurance company. And once Prem realized that he could earn the premium by selling off a piece of Odyssey at a high valuation, he just jumped on it. But the real reason he did this was to increase Fairfax Financial Shareholders' ownership stakes. So the proceeds from this divestiture were used to buy more Fairfax shares, which at the time of the deal were actually trading for only 0.9 times book value. And this is just, you know, capital allocation at its finest. You see something expensive and then you buy something cheap. It sounds really easy, but it's very, very rare to see in reality.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so ROE actually went negative because of something I mentioned earlier, which was the erroneous thinking that other GFC type events were right around the corner that Fairfax could benefit from. So these investments into the CDSs were expensive and directly consumed much of Fairfax's operating earnings. Additionally, the market actually did really well during this time. So the opportunity cost of shorting the market was very, very high. So during that time, the book value decreased a couple years in 2011, 2013, and 2016. But that wasn't the only reason for the depressed operating metrics. 2011 was a brutal year due to a multitude of catastrophic events like the Japanese earthquakes and tsunami. And this caused their combined ratio to go up significantly up to about 114%.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“That's right. And speaking of acquisitions, I actually think this is probably a good time to assess the capital allocation of Fairfax because this is a very, very important part of the thesis. So I think there's just a lot of positives here. First is the 18.7% compounded annual gain in book value per share over 40 years. I think this alone just shows you that they have deployed capital very effectively and have continued to grow profits at a very strong rate. So ROE return on equity is a primary metric that they use here to analyze the capital efficiency. And it's a very, very positive story with ROE at 19% for fiscal year 2025. Now they have a stated goal of 15% ROE. So if they can do that, which they've been doing for well over 40 years here, I think you'll likely earn returns that track this ROE number.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“I think that given they've had this kind of debt to capital number that stays in a pretty tight range around 30%, my assumption is that probably is going to stay that way into the future. So as long as they're continuing to generate profits and increase their shareholders' equity and capital base, I assume they'll continue to take on moderate amounts of debt. Now, the good thing about this for Fairfax is that they can raise debt quite easily and don't have to dilute shareholders in the name of growth. Since 2018, diluted shares outstanding have trended downward from about $28 million to about 23 million. And the businesses they bought over the decade have had various pricing tags, some as low as $103 million for Singapore Re. Then you have some larger kind of billion dollar plus acquisition, such as Allied World Insurance for $4.9 billion, and golf insurance for $1.4 billion. So, you know, they definitely do need access to leverage to buy some of these bigger deals.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Their interest expense. Right now that sits at a very comfortable level at about 10x, but it's actually trended a little lower over the years from 14 times in 2023. Now, total debt to capital has ranged from about 26% to 33% and currently sits right in between that number. And I think sticking within that range makes a lot of sense as they can continue to add new businesses, whether that's insurance or noninsurance to their portfolio to help continue driving more and more growth, or they can buy out minority shares in the businesses that they already do own once they know that it's a really, really good fit and that the business model has been validated.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Right. So I like to switch gears here and look at Fairfax's debt situation. So through much of Fairfax's history, they haven't really feared debt and have used it to actually help fund a lot of their M&A. So as of today, they have about $14 billion of debt. And this is split among the holding company insurance and reinsurance companies and noninsurance companies. But with cash, their net debt position is about $11.6 billion. But this cash position doesn't actually include the insurance float, which is currently valued at $73 billion. So even though the cash available for investments for Fairfax is pretty low, they're actually still in a very, very good financial position. Fairfax has always carried debt to fuel its acquisition. But when you have an ROE as high as they do, it makes sense to purchase businesses with a little leverage. I'm focused on a few key metrics to evaluate Fairfax's financial health. First is just their interest coverage ratio. And this is simply operating earnings divided by”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Just incredible operators. Fairfax has an exhaustive list of presidents who have been with their company for literally multiple decades, both before and after being acquired by Fairfax. And, you know, I think it's kind of easy to see why. Given Fairfax's decentralized nature, it often buys insurance companies that were already very well run. All Fairfax requires that they really just keep running them well and then Fairfax takes care of growing their float. And Fairfax also tends to internally promote their executives. So this is really good for culture because If you are inside of Fairfax and you're just great at what you do, if a promotion becomes available, you know that you're probably going to have a really, really good chance at getting it because Fairfax is unlikely to look for an outsider to fill that position. The best example of acquiring talent was actually from Odyssey. Fairfax got Andy Barnard and Brian Young. So as of today, Brian Young is the president of the Fairfax Insurance Group, a position that was previously held by Andy Barnard, who then moved.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“That's right. And I think you just brought up the kind of key point there where in order for these businesses to really, really succeed, you need both of those. You need the talented operators of the insurance businesses and you need people who can invest really, really well. And it's very, very important, both of those kind of work in conjunction. And even if you do have really, really good investors, they're still handicapped to some degree because regulators basically won't allow you to invest 100% of a float, for instance, into just equities. I don't think there's any place that does that just different jurisdictions have different regulations, but you have to obviously be, really, really careful with that money because if a whole bunch of claims come in, you have to pay that out and you can't just be gambling on the stock market. You have to be able to have that float available to be paid out. So the last competitive advantage that I want to mention here isn't really a traditional one either. And that's just the culture, I think, that Prem Watts has built inside of Fairfax. So throughout the years, Prem has acquired some...”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“The fact that PREM has access to an ever larger float and can earn higher and higher returns on it than most insurance companies is also just a massive advantage. Just to give you an idea, the float has grown to about $40.8 billion up from $13 million in 1985. The second advantage is the capital allocation track record, which spans over 40 years. So their long-term return on investments is about 7.7%. And even though that number is trending to down somewhat since the early days, I think it's one that they can reasonably maintain for quite a long period of time. If the average insurance company earns a return of, let's say, 4%, which is closer to the longer-term return of bonds, then this is just a very, very big advantage because it means that an insurance company will just earn more money simply by being part of Fairfax rather than remaining as a single entity.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Besides that, though, I would say there still are a number of advantages that Fairfax specifically has, but they're also available to competitors to some degree. I just don't think that they can take advantage of it. So the first advantage, like we already been talking about here for the last few minutes, is the combined ratio.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“That's exactly right. And I think Buffett talks a lot about this about being a disciplined insurance underwriter. And the reason being when insurance is sparse, when people aren't willing to go out and underwrite properly what you can basically do is you can make business by selling for the wrong price. And unfortunately, what happens in the future is if you do that, well, then you're going to be hit with a number of large claims down the road. And that can literally just break an entire insurance business. I want to move on here a little bit and look at Fairfax's competitive advantages because I think on the face of it, it's not really a business that looks like it has any obvious modes. You know, insurance is most definitely a commodity business. And it's also very, very competitive. So when you look at it that way, I mean, insurance doesn't really seem like the type of business that anyone would want to get into. And like I said, you know, if you aren't running an insurance business properly and you're not disciplined, you can literally implode and destroy the entire business.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“People in place to lead those insurance businesses. So Prem trusted the managers of the insurance businesses and gave them time to fix things. Fairfax has presidents who stayed on literally for decades. They show this in their shareholder letter, which helps insurance companies focus on the long term rather than chasing risky premiums just to boost kind of your short-term performance numbers.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“That's right. So the turnaround really started many years before the numbers, I think, started showing up. We have to actually rewind back to 1996. So Fairfax acquired Scandia America, which was a reinsurance business. They ended up renaming it Odyssey. But when they bought it, it had about $250 million of gross premiums and $290 million of equity. And by 2020, that number swelled to $4.3 billion in premiums and $4.8 billion in equity. This was arguably the best acquisition that Fairfax had ever made. But during this time, Fairfax had to fix a number of issues with some of his other acquisitions. So TIG, Crum and Forrester arrived carrying just these very, very large reserve deficiencies. They had to spend years fixing how they underwrote insurance just to bring their combined ratios down, which definitely made Fairfax's numbers look kind of uglier until they were able to fix those things. Another lever that they really pressed on was leveraging their decentralized business model and putting the right”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Exactly. But as we know with Hamlin Watts Investment Council, they clearly have the right people in place to earn very high returns on the float while keeping risk relatively low, which you have to do. So since Fairfax today now aims for an ROE of 15%, we can just see how they'd get that with a business like Allied. So if you can increase the returns on the float, you don't need to make any incremental returns on the underwriting profits, and you'll actually still earn a really high return on equity on that investment. So according to the great book, The Fairfax Way, Fairfax believed it could earn a 20% ROE on Allied simply by just increasing the floats return from 4% to 7%.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“For most other insurance companies, though, the float makes just single digit returns. You know, a great example is Allied World, an insurance company that Fairfax bought in 2017 for about $5 billion. So the insurance company had been great with an average combined ratio of 91%, but its float had a track record of just about 4% returns.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Exactly. And I think this really matters because the combined ratio affects the insurance float, obviously. When an insurance company collects premiums, it holds them until it eventually has to pay it out as insurance claims. But there is a gap in that time. It could be years until it needs to be paid out. In the meantime, that money is generally invested in low returning assets like bonds for most insurance companies. So the combined ratio tells you what the float costs the company. If it's below 100%, which it has been for Fairfax since 2006, you're essentially getting paid to hold other people's money, which is just a great situation and exactly what Buffett took advantage of his entire career with Berkshire Hathaway.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“So now I think we need to discuss the insurance business in more depth here because that segment is really what I consider to be the motor of Fairfax. So the underwriting profits from insurance for 2025 were $1.8 billion of Fairfax's operating profits. So we're about 32%. So it's generating a substantial profit for Fairfax. So I mentioned earlier that Fairfax started out as more of an investment company that utilized the float to grow. But in Fairfax's early years, the insurance businesses just weren't really that great in terms of the quality. So from 1986 until 2005, Fairfax's average combined ratio actually exceeded 100%.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“The second group are larger stakes, so where Fairfax definitely has some influence, but it's not a majority shareholder. And the third group consists of companies at Fairfax actually controls and runs their day-to-day operations. For these, instead of just taking a slice of the profits, Fairfax actually combines that company's entire financial results with its own. And then it sets aside that portion that belongs to any other owner so it doesn't get mixed with Fairfax's numbers.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. And I think that, you know, premises has probably shown that he is a great investor and you can obviously see that right here with digit, which was just a massive winner for them. So digit is really interesting because it kind of intersects insurance with India and to some degree technology. So Fairfax has invested about $140 million in that business and is carrying value now as a touch over $2 billion. One area I think I should highlight is that Fairfax owns non-insurance businesses in kind of three different ways, which can be kind of confusing. So they list their investments as common stocks that are mark to market, common stocks that are equity accounted, and then common stocks that are consolidated. So just briefly, let me kind of try to break this down for you in a simple way. So the first group is stocks where Fairfax owns just a small piece, you know, just kind of too small to have any real say into what goes on in that business. So their earnings either go up or down along with the stock price plus whatever dividends that they get paid from that business.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, you know, the noninsurance segment definitely makes some money for Fairfax, but it's actually pretty low margin. So in 2025, it reported $397 million in operating profit, which is a nice improvement from $241 million in the prior year. But the segment has margins of just 4.6%, you know, pretty razor thin. The business model for the non-insurance seems to be based on taking these kind of controlling stakes and mispriced assets, then trying to improve them, finance them with non-recourse debt. And then, you know, just take advantage of being decentralized, let management do its thing to help increase the value of that business. This can then add book value to Verifax, or they can sell partial or full parts of these businesses at a profit or to fund other high returning areas of the business that we'll get into later on today.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. So I think you're completely correct about Fairfax being kind of a difficult business to look at. I mean, it's not a simple business that just has one product or one service that it sells. It has. Obviously, it's based around insurance, which is great. But yes, there's a lot of moving parts here. So hopefully I can make it simple for everyone to really understand well.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, he has, I think. So HWIC does earn fees from the entities whose money that it manages. So in 2025 and 2024, those fees were about $233 million and $186 million. So this business is generating revenue, but the important caveat is that HWIC is fully owned by Fairfax. So while one subsidiary is paying a fee to the other business, Fairfax, the parent company, is getting the fees at that parent level, which means that no money is really moving. It just kind of nets out. So HWIC is basically just a vehicle for investing money at better returns than its insurance companies could generate by themselves. That's kind of how I look at it. HWIC makes money by earning returns for Fairfax subsidiaries, not by charging these exorbitant fees. The exception to this is in Fairfax, India, where Fairfax does charge them a fee. The fee is paid in cash or in Fairfax India shares based on a management fee and a performance fee that's tied to a target for increase in the book value of Fairfax India.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Buying out of favor businesses when they're obviously pretty cheap. And then, you know, just holding cash when the market isn't offering opportunities, which is something that a lot of businesses tend to have a hard time doing.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“That's right, Sean. So HWIC is the investing arm of Fairfax, like I mentioned. But really interestingly, Fairfax was actually born out of HWIC and not the other way around. So HWIC today is a wholly owned subsidiary of Fairfax, which basically acts as the investment arm of multiple parts of Fairfax's operations. So they invest funds for the Fairfax Holding Codes, the property and casualty insurance and reinsurance businesses, the insurance and runoff companies as well as for Fairfax India. If you look at Fairfax investments, you can get a pretty good idea that they are deeply, leaply rooted in value investing. The businesses just tend to be quite cheap. So one of their positions, Metland Energy, trades for a P of 0.2x. You heard that correctly. So when I was looking at it, I actually had to double check to see if it was an error. So, you know, they follow traditional value and principles, whether that's preservation of capital above returns, using a margin of safety, focusing on thorough business analysis.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT
“Many other places as well. Then you have the life insurance and runoff section, and then you have the non insurance business. So this includes restaurants and retail segments and Fairfax India, Thomas Cook India, and a bunch of other fully owned private businesses. Now, I really like the noninsurance part of this business. So I actually own a restaurant franchisor that exited to recipe, which is a restaurant business with about 3.5 billion dollars in system sales. So I followed that segment a little closer than the others. And the other assets in the noninsurance businesses that I find really interesting are Fairfax India and then Hamblin Watsa Investment Council or HWIC. So Fairfax India is actually a TSX listed company. It's kind of like a mini Fairfax. Only its holdings are only in India. And Fairfax owns about 43% of their business. So that business invests in both public and private businesses as well. And they also invest in debt too.”
2026-07-19 · We Study Billionaires · TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley · IDENTIFIED FROM THE TRANSCRIPT