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Progressive Corporation (The) (PGR)
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Fairfax Financial Holdings Limited Subordinate Voting Shares (FFH)
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Intact Financial Corporation (IFC)
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Arch Capital Group Ltd. (ACGL)
Q: In January, you compared FFH to BN/BAM, saying, "If rates fall it may be able to make more deals, AND, its assets owned already may increase in value further." Do you still hold to this glass-half-full outlook, or should we be concerned that the (dominant) insurance side of FFH's business will be penalized for a lowered outlook?
5i Research Answer:
We continue to believe that rates falling can act as a tailwind for the company as it can make more deals, and its existing assets may rise in value. Some of this is offset by lower yields on its bond portfolio, but this is also partially offset by a rise in the value of the bonds it holds.
Interest rate cycles are inherent for most financial companies, especially insurance companies, we don’t think investors should try to time the cycles but look for insurance companies with track records of profitable underwriting where the float is well-invested such as PGR, IFC, and ACGL. We would be comfortable with FFH today.