Fairfax Financial Holdings Limited
Q3 2021 Earnings Call Transcript

Published: 5 Nov 2021

[Operator:]

Good morning, and welcome to Fairfax’s 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. 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 Watsa, with opening remarks from Mr. Derek Bulas. Mr. Bulas, please begin.

[Derek Bulas:]

Good morning, and welcome to our call to discuss Fairfax's 2021 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, and which now include the risk of adverse consequences to Fairfax's business, investments, and personnel, resulting from or related to the COVID-19 pandemic. Fairfax disclaims any intention or obligation to update or revise any forward-looking statements, except as required by applicable securities law. I'll now turn the call over to our Chairman and CEO, Prem Watsa.

[Prem Watsa:]

Thank you, Derek. Good morning, ladies and gentlemen. Welcome to Fairfax's 2021 third quarter conference call. I plan to give you some of the highlights and then pass the call to Peter Clarke, our Chief Operating Officer to comment on our insurance and reinsurance operations and Jen Allen our Chief Financial Officer to provide some additional financial details. We have had record earnings of almost $2.5 billion in the first nine months of 2021. It already exceeds our highest annual earnings ever of $2 billion. Book value per share grew by almost 20% including our $10 per dividend. A combined ratio for the nine months was 97%, the third quarter was impacted by Hurricane Ida and the German plant, European plant with a combined ratio of 101%. Peter will give you more details on that. Our gross premium for the nine months were up 23% and 25% in the third quarter with steady rate increases across all our major lines of business with the exception of workers compensation. Our insurance and re-insurance business is growing rapidly all over the world and we expect to ride about 23.5 billion gross premiums in 2021 up about 24% from 2020. All through 2020 last year at our conference calls I had highlighted to you that as shown on page 188 of our 2019 annual report that that was all that was available then or now page 2001 of our 2020 annual report, there were only four years out of 34 years, when we had a negative investment return. In each case, we rebounded significantly the next year. Just to highlight that, again, the four years were 1990, we were down 4.4% 1991, up 14.6%. In 1999, we were the whole investment portfolio was down 2.7%. In 2000, then next year was up 12.2%. In 2013, the whole investment portfolio was down 4.3% 2014, the next year, up 8.6%. And finally in 2016, the portfolio was down 2.2% and 2017, the following year, up 6.8%, only four out of 34 years. And each time investors worried about our investments, investment results were much better than expected. In the first quarter of 2020, we had a negative 3.6% return on our investment portfolio. But by the end of the year, our investment returns more than reversed and we ended the year with a positive return of 2.4%. In the first nine months of 2021, our investment return was 7% which resulted in a total investment return of $3.3 billion. You will of course note that half of the investment portfolio was earning nothing because it is in cash and short term securities. History has shown that our returns are very lumpy. And this has worked for us over the last 35 years. We have never focused on steady quarterly earnings quarter-by-quarter. Even though the stock market really loves it currently. Here’s how our major common stock positions that are marked-to-market in financial statements did in the first nine months of 2021. BlackBerry was up 47% Stelco was up 64% Candy well in 17% IFL well 56%, to take the top 20 common stock positions which are marked-to-market in our financial statements they were up on average about 22%. Not included in the above, our associates and consolidated investments, which are not marked-to-market. Here's how the large positions did in the first nine months of 2021. Eurobank up 38%, Atlas Corp up 40%, Quest up 68%, Resolute up 82%, Fairfax India 36%, Recipe up 17% and Thomas Cook up 39%. On average for that group of names up 32%. Book value per share, as I said was up 20% the first nine months of 2021. However, this does not include the increase in our equity accounted investments and our consolidated investments which are not marked-to-market. As we mentioned in our press release, if we did mark them to market, we would add 483 million on $19 per share on a pretax basis being the excess of fair value over carrying value as of September 30, 2021. Also as mentioned, digit with closing up with share issuance and IRDA approval to increase our ownership about 49% would add approximately 1.1 billion or $37 per share. If these are added to our book value, our book value would be in excess of $600 per share. As I have said previously, long term value investing has gone through a very difficult period. For about a decade now, valuations of value oriented stocks versus growth stocks, particularly technology have never been so extreme, exceeding even the extremes of the.com era in 2000. As the economy continues to normalize, we expect a reversion to the mean with value oriented stocks coming to the fore. We continue to believe our common stock positions continue to be undervalued even though they've gone up significantly as I just mentioned. I remind you that in the three years 2000 to 2002 the downturn for the three years 2000 to 2002 most stock market indices in the United States, Canada and Europe were down about 50%, but our stock portfolio was up 100%. On August 23, Fairfax completed the sale of RiverStone Barbados receiving total consideration of 696 million. As part of that transaction we'd receive the contingent value instrument for potential proceeds for up to 235 million based on future performance of RiverStone in the U.K., which we have not recorded any value on. We wish to Luke and the entire RiverStone U.K. team all the best going forward, we expect them to do very well. We continue to have approximately 1.5 billion at the holding company, predominantly in cash and short term securities. Please note our cash in the holding company is to meet any and every contingency that Fairfax might face. We are not making any long term investments with this cash other than to support our insurance and reinsurance operations. I’ll now pass the call to Peter Clark, our Chief Operating Officer to comment on our insurance and reinsurance operations. Peter?

[Peter Clarke:]

Thank you Prem. Our companies continued to produce outstanding underlying results. The 25% growth in gross premium written over the third quarter of 2020 was once again very strong, generating gross premiums of approximately $6 billion in the quarter. We produce the combined ratio of 101 or an underwriting loss of $47 million in the quarter, which included $605 million of catastrophe losses, principally from Hurricane Ida and the European floods. Total catastrophe losses added 13.9 points to the combined ratio in the quarter. By comparison, in the third quarter of 2020 we produced an underwriting profit of $53 million, or a 98.5 combined ratio, reflecting catastrophe losses of $219 million, or six combined ratio points, and COVID losses of $143 million or four combined ratio points. In the third quarter of 2021, we had no significant COVID loss -- COVID related losses. Adjusting for the above average catastrophe losses, our underlying combined ratio is running at a 94 combined ratio for the year-to-date and 92 for the quarter. On the underwriting front, Northbridge and Zenith reported the lowest combined ratios being 90 and 92, respectively. While Allied World also had a strong quarter at 94 Odyssey Group and Brit had elevated combined ratios driven principally by catastrophe losses. As mentioned, our gross premium for the quarter was up 25%, an increase of approximately $1.2 billion from the previous year. This growth has been made possible by the favorable market conditions that prevail in many of our markets, particularly in North America. Allied World grew its premiums by 24% with growth especially strong in directors and officers and excess casualty segments. Odyssey Group's growth premiums were up 23% and continued expansion in both its insurance and reinsurance segments. Risk premium was up 38% in the quarter, including Ki, it’s innovated -- innovative follow on syndicate that started writing business in 2021. It should be noted that under Accounting Standards, Brit must consolidate 100% of Ki’s results, as it has effective control of the company, even though it only has a 20% economic interest. Excluding Ki, Brit’s gross premium was up 18% in the quarter. In Canada, Northbridge’s top line expanded 21% in U.S. dollar terms, as it continues to register impressive rate increases, strong retention and new business. Crum Forster increased its premium 22% driven by its accident and health division, and includes the rebound of its travel and student health business that was significantly affected by the COVID shutdown in 2020. Growth at Zenith was more modest as it continues to face the headwinds of the competitive worker's compensation market in the United States. Expansion was strong in our international operations as well with growth of approximately $150 million year-over-year. Fairfax Asia's premium was up 29% this quarter, and included a full quarter from recently consolidated Singapore Re. Our companies in South America, Central and Eastern Europe and in South Africa all registered strong growth in the quarter. Across all of Fairfax, we expect these trends to continue as rate increases remain robust. Our diversified portfolio global footprint and exceptional management teams gives us the ability to generate significant organic growth. As previously mentioned, our combined ratio of 101.1 included 13.9 points of catastrophe losses. Hurricane Ida, and the European floods were the main drivers of the catastrophe losses, which resulted in losses of $340 million and $174 million respectively. Hurricane Ida estimated to be one of the top five costliest storms in history, made landfall in Louisiana as a category four and went on to produce flooding as its remnants pass through North-eastern United States. As mentioned previously, Ki is consolidated into Brit's results. For the year-to-date September 30, excluding Ki, Brit’s combined ratio was one on 103.1. As Ki’s earned premium catches up to it’s underwriting expenses, and its catastrophe losses, we expect Ki will benefit for its combined ratio going forward, beginning in 2022. Year-to-date, aggregate catastrophe losses and COVID losses of over $1 billion have been absorbed with us in within our reported combined ratio of 97.3. In the quarter, we recorded modest favorable reserve development of 70 million, or 1.6 points on our combined ratio. There were no material changes in our COVID ultimate losses in the quarter. And as of the end of the third quarter, we hold $431 million in net unpaid claims for COVID-19, of which 73% is IBNR. We believe the reserve position in our main operating companies continues to strengthen as we expand with today's well priced business with price increases exceeding loss costs. The companies are currently in the process of their annual actuarial reserve reviews, which will be reflected in our fourth quarter results. As has been the case in the recent quarters, our expense ratio has continued to benefit from the sharp increase in premium volume. Our overall underwriting expense ratio is 1.5 points lower quarter-over-quarter, helped mainly by Allied World, where the expense ratio in the quarter dropped 2.9 points in 2021 versus 2020. We expect market conditions to remain strong throughout 2021 and well into 2022. The main drivers of the hard market continue to be low interest rates, social inflation, and in this industry participants re-evaluating their risk appetites and capacity deployment. Our decentralized operating system continues to serve as well, allowing our companies to respond quickly to opportunities in their markets. I will now pass the call to Jen Allen, our Chief Financial Officer to comment on our investment results, our non-insurance company's performance and overall financial position.

[Jen Allen:]

Thank you, Peter. The results of the third quarter of 2021 continued to be positive, building on our momentum we achieved in the fourth quarter of 2020 in the first half of 2021. We reported net earnings attributable to shareholders of Fairfax of $462 million and just under $2.5 billion in the third quarter in first nine months of 2021 respectively, with book value per basic share at September 30, 2021 of $562 which represented a year-to-date gross and book value per share of 19.7% adjusted to include our $10 common share dividend paid in the first quarter of 2021. Peter has already provided detailed commentary on our insurance and reinsurance company, so I'll focus on highlighting the results from our non-insurance companies. Excluding the impact of Fairfax India's 18.6 million of performance fees to Fairfax recorded in the third quarter of 2021 and nil in the third quarter of 2020, the operating income of our non-insurance companies improved by $43.7 million, which principally reflected higher share profit from Fairfax, India's investment in their associate IFL Finance, stronger results from our restaurant and retail segment, which reported an operating income of $59 million, compared to $47 million in the third quarter of 2020 with the third quarter of 2020, benefiting from the government subsidies that reduce those 2020 expenses. Revenue grew by 12.8% reflecting easing of COVID-19 restrictions across Canada that drove the increase foot traffic at the bricks-and-mortar locations. The growth in those revenues combined with expense management programs that were already in place, noted healthy gross margins across the key operating companies. And lastly, a lower operating loss and our other segments which primarily reflected the deconsolidation of Fairfax Africa and its subsidiary CIG and our fourth quarter of 2020, which negatively impacted the third quarter of 2020 by $45 million. And it was also we saw the benefit in 2021 of increased business volumes at Boat Rocker and Dexterra Group. If you exclude the impact of Fairfax India's $118 million of performance fees to Fairfax in the first nine months of 2021 and the reversal of a performance fee of $47 million in the first nine months of 2020, the operating income of the non-insurance companies have improved by about $175 million, with $141 million attributed to our restaurant and retail segment and improvement of about $29 million at Fairfax, India. As noted in the first nine months of 2021, Fairfax, India recorded a performance fee accrual of $118 million, with pretax earnings attributed to Fairfax shareholders benefiting by about $83 million as a Fairfax India's non-controlling interest will be allocated 70% of India's expense. At September 30, 2021 our pretax excess of our fair value over the adjusted value of our non-insurance associates, and certain consolidated non-insurance subsidiaries that the company considers to be portfolio investments was $483 million, which compared to a deficiency or adjusted carrying value was higher than the fair value at December 31, 2020 of $663 million. That improvement in the first nine months of 2021 of over 1.1 billion has not been reflected in our book value per share, but it's regularly reviewed by manager -- management as an indicator of the investment performance. The non-insurance associates accounted for 912 million of that appreciation principally attributed to Atlas Corp of 422 million, Quest at 243 million, Eurobank of 184 million and the improvements in certain consolidated non-insurance subsidiaries of 234 million, which are primarily Fairfax, India of 128, and Thomas Cook at 78 million. I'll refer you to page 79 in our third quarter interim report for further details on the underlying positions that drove that 1.1 billion improvement. As we mentioned before, we're focused on organic growth supported by smaller friendly acquisitions with a commitment to growing long term shareholder value, focusing on growing long term shareholder value with end with our concerns on inflation. We continue to hold a significant portion of our investment portfolio in cash, short term investments and other short dated fixed income securities that represented about 21.2 billion or 44.1% of the insurance and reinsurance company's investment portfolio. As we said previously, this position dampens interest income in the short term but will protect us from rising rates and inflation. Our interest in dividend income of $167 million in the third quarter of 2021 was down from the $182 million in the third quarter of 2020 and primarily reflected lower interest income earned principally due to a general decrease in our sovereign bond yield, sales of maturities of our U.S. Treasury bonds throughout 2020, and net sales of our U.S. corporate bonds in 2021. That was partially offset by higher dividend income on common and preferred stocks. We added net purchases of 1.2 billion of Indian government bonds with an average maturity of 4.0 years and first mortgage loans of 501 million in the first nine months of 2021, which are secured by high quality real estate in the U.S., Ireland, U.K. and have terms of less than five years. These investments will provide some benefit to our interest income in the remainder of 2021 in the coming years. Looking at our consolidated share profit of associates of $227 million in the third quarter of 2021 reflected strong results from our investments and associates and were principally comprised of a shared profit of $82 million from Resolute, $43 million from Eurobank and $20 million from Atlas Corp. Looking to our net gains on investments in the third quarter of $375 million, just over $2.5 billion for our nine months 2021. The net gains on investments in the third quarter of 2021 were comprised primarily of net gains of $397 million on our digit compulsory convertible preferred shares, which I'll provide further details shortly, and net gains of $31 million on our long equity exposures, primarily reflecting net gains of $157 million on our common stocks, and a net gain of about $86 million on the sales of Toys “R” Us Canada. That was partially offset by net losses of $117 million on our other equity derivatives that were mainly our long equity total return swaps, and net losses of $106 million on convertible bonds which primarily related to our blackberry convertible debentures. A few additional comments on the $397 million unrealized gain recorded on our investment in Digit. If you recall from our second quarter conference call, we hold a 49% equity interest in an associate Go Digit Infoworks Services, or we refer to it as Digit, who entered into agreements with third party investors where its underlying insurance subsidiary Digit Insurance is going to raise 200 million in new equity shares that value Digit Insurance at $3.5 billion. In addition to that 49% equity interest in Digit, Fairfax also holds Digit compulsory convertible preferred shares, which are accounted for at fair value through profit and loss. At September 30 2021, Fairfax estimated the fair value of its investment in those Digit compulsory convertible preferred shares by updating the probability weighted valuation model that we described last quarter. We've now attributed a higher weighting of 65% to the risk adjusted transaction fair value and ascribe 35% weighting to the fair value that was determined through an internal discounted cash flow analysis. With the change in that probability weighting reflecting positive developments occurring in the third quarter of 2021, relating to the closing of the underlying $200 million capital raise. The implied fair value of investment in the Digit compulsory convertible shares was approximately 1.3 billion which resulted in that unrealized gain of 397 in the quarter, and 822 in the first nine months of 2021. Upon closing of the Digit Insurance 200 million equity ray, that's now anticipated to be completed in the fourth quarter, and the company consolidating Digit upon attaining specific regulatory approvals to increase our equity interest above 49% to a controlling interest, we anticipate to record an additional gain of approximately 1.1 billion that will increase our book value per share by about $37. Looking at a couple of key transactions just to highlight that completed in the quarter, with our insurance companies, we mentioned earlier last quarter. On July 14, we increased our interest in Eurolife to 80% from 50% by acquiring the joint venture interest of OMERS for cash consideration of approximately $143 million and started consolidating the assets, liabilities and results of Eurolife. We re-measured our 50% joint venture interest in Eurolife to its fair value of 450 million and recorded in net gain of $131 million. On August 23, we completed the sale of our 60% joint venture interest in RiverStone Barbados to CVC and receive consideration of $696 million. And then on August 27, Brit issued its shares representing about a 13.9% equity interest in two OMERS for cash consideration of $375 million that was subsequently paid by Brit as a dividend to Fairfax. And lastly, looking at our non-insurance companies, we continued to look for opportunities to monetize our investments, and we completed the sales of Toys “R” Us Canada. On August 19, 2021 we sold the operations, we still maintain the underlying real estate of Toys “R” Us Canada for consideration of $90 million and we de-consolidated the Toys “R” Us Canada from the non-insurance companies reporting segment and recorded a realized gain of $86 million. The liquidity position of the company remains strong with our cash and investments at the holding company of over $1.5 billion at September 30, 2021. And our credit facility borings have been fully repaid. The holding company cash, as we have mentioned before, supports the decentralized structure and enables us to deploy capital to our insurance companies efficiently. We continue to be prudent in terms of our capital deployment strategy, and our total debt to total cap ratio, excluding the consolidated non-insurance companies decreased by 4% to 25.7% at September 30 2021, from 29.7% at December 31 2020, which reflected significant increase in our shareholders’ equity, attributed to our net earnings of just under $2.5 billion and a reduction in the debt both at the holding company and our insurance and reinsurance operations. During the third quarter, we repaid $500 million on the credit facility leaving no amounts drawn at September 30. And in addition, subsequent to the quarter on October 29 2021, we redeemed 85 million principal of our unsecured secured notes that were due in February 2020, for at par. In summary, after the first nine months of the year, the company is very well positioned to continue to benefit from the strong insurance market, remaining focused on organic growth, underwriting profitability and prudent reserving. And with the easing of the COVID-19 restrictions, our non-insurance associates and certain consolidated non-insurance subsidiaries that we consider to be portfolio investments are now benefiting the company's consolidated results, helping to drive the growth in our book value per basic share. Thank you. And I'll now turn it back over to Prem.

[Prem Watsa:]

Thank you very much, Jen. We look forward to answering your questions. Please give us your name and your company name and try to limit your questions to only one so that it's fair to all of the call. Okay, Cedric, we're ready for the questions. Sure.

[Operator:]

The first question comes from Jr. Ron, who's a private investor. Your line is open.

[Unidentified Analyst:]

Congratulations on the wonderful earnings. Question for you. Fairfax India, and Fairfax Financial now the gap is over, like 40%, 50% between book value and the actual share price. But what do you guys plan? Or how do you guys think we could get it narrower, closer to the actual book value for Fairfax India and Fairfax Financial?

[Prem Watsa:]

Thank you, Jr for your question. First of all, we're focused on performance, right? Long term performance and stock price we can control. We can buy back our stock. When we buy back our stock, we think it's very attractive. We've said that before. We look at financial soundness first. We got to be financially sound, which we are. We've got one and a half billion, as Jen said, and cash and marketable securities $2 billion of credit line undrawn five years. So we're very, very strong and no maturities for a few years, three years. So financially sound, we have insurance businesses are expanding significantly all over the world, as Peter said. And so the second point is to always have capital for to take advantage of the marketplace because you're getting paid to take risks today. And finally, if all of those are met, then we'd look at buying back shares. So that's how we look at it. But we're focused on performance.

[Unidentified Analyst:]

Thanks. And congratulations again on a wonderful quarter.

[Prem Watsa:]

Thank you, Jr. Next question, Oliver, Cedric.

[Operator:]

And next question comes from Mark Dwelle with RBC Capital Markets. Your line is open.

[Mark Dwelle:]

Yes, good morning. A couple of questions. First, and maybe it's a question for Peter. The catastrophe losses in the quarter were probably a bit higher than I would have thought based on your historical performance. And I appreciate the events this quarter, we're very large. Brit in particular was one that kind of stood out to me as having a much higher percentage of its equity exposure to Cat losses. Can you talk through how you kind of manage the overall catastrophe exposure to risk aggregation from an overall company standpoint and kind of how you felt when the numbers came out relative to your expectations?

[Prem Watsa:]

Yes, I’ll ask Peter to add to that. But overall, we look -- cat exposures are very, very important. They can destroy a company's markets, so we're very focused on cat losses. And we take we take extreme events. We take like $100 billion and $150 billion in Miami, which would be like Hurricane five category five getting into Miami and or Houston or a large earthquake. So we're looking at that at all times. And we have said this previously, but we don't want to lose more than our investment income. So we don't want our capital shareholders equity that drop because of cat exposures. So given that, Peter just your view on cat exposures, the fact that our previews are going up, and specifically on Brit.

[Peter Clarke:]

Sure, Hey, Hi, Mark. Yes, cat exposure is something we look at quite closely at the Fairfax level. So it's managed, it's managed at the company level, and then we aggregated as well at the Fairfax level and monitor, monitor that on a quarter-to-quarter basis. Generally speaking, our premium which has been growing like 25%, our CAD exposure hasn't been going up, it has basically been flat. So on a proportional basis, our CAD exposure, when we look at our overall book of business is decreasing. As a -- as a risk exposure to overall Fairfax, it's coming down. And specifically in the quarter, it was a heavy cat quarter. And Hurricane Ida was a big event. And when we when typically when we get bigger events, our reinsurance books get hit. And that's what happened in the case of Odyssey, when there's big hurricane losses they're going to get, they are going to get a higher proportion of the losses. If you go back to and look at Odyssey for the better part of 10 years, this is only the second quarter that they've had a combined ratio above 100%. And the other quarter was the third quarter again in 2017, where there was heavy Hurricane activity with Harvey and Irma, and I think the other one was Maria. So outstanding results, but when when these events take place, Odyssey is going to have losses, and half of their book is reinsurance so, so not on an not an unexpected result. At Brit, Brit again, 20% of their book is reinsurance business. So again, the same applies to, to Odyssey. But they also have a property binders book and an open market property book. So they get they get catastrophe losses on the insurance side as well. And in this quarter, Ida, which added about 33 points to their combined ratio. Ida was the region in it hit in Louisiana and on its open market property book, they have a lot more exposure in that region. So that affected the results somewhat as well. And lastly at Brit, they didn't get any benefit from their cat reinsurance program. So basically as of now, their aggregate cat losses for the year are just coming up to their the retention of their cover. So the good news is any further, any further development or losses in the fourth quarter will be minimal for Brit.

[Prem Watsa:]

Yes, so just to add to that Mark. The – as Peter has mentioned for the nine months, we had cat losses of approximately $1 billion. In the past, if we had a $1 billion, our combined ratio would have been above 100. We've got a combined ratio of 97% for the nine months. And remember when you look at Brit, we're consolidating Ki. And that's just as Peter has said, it's just on the on the expansion mode. And if you take out Ki take only 20% interest as we've disclosed in the notes for the financial statements in our press release, we’re like at 103% for nine months. And they're very well was then as Peter was saying we do our reserves in the fourth quarter and we expect with some good fortune that reserve redundancies will get that combined ratio below 100% But they're very well reserve. We don't look at reserves every quarter, we did it once a year as Peter was saying in the fourth quarter so yes, so that's how we look at cat. But your points well taken. Cat is a big risk in the insurance, reinsurance business and we are very careful about it.

[Mark Dwelle:]

Appreciate the color on that. That's very helpful. If I can ask one other question, juggling through a number of points related to Digit, and I appreciate the color there. But I, one thing I guess I just wanted to talk to, again, briefly is, what are the remaining steps, what needs to happen in order to see the recognition of that remaining $37, estimated $37? And then you've suggested fourth quarter is the timeframe, which is great, just trying to get some, some feedback in terms of what needs to happen and when it might happen?

[Prem Watsa:]

That's, that's good question Mark. Basically very simply, they did a $200 million issue, as Jen and Peter have said, that three and a half million. That 200 million stock issue from outside investors has been asked to be approved by the IRDA, which is the Indian regulatory body. So that's number one. That should happen anytime. The Simple Approval Process and should happen anytime. We don't see any problem about that. The second step is that the Indian Government has passed this into law, that the limit for foreign companies was 49%, it goes to 74%. That's been passed in the Parliament. Now the administrative stuff has to be done by the IRDA, the regulatory body, and it's waiting for that. And I think those are the only two things Peter and Jen.

[Jen Allen:]

I think that's right. There is one other competition filing in relation to our step up to the 74%. So there might be a little bit of timing on that second leg of the consolidation, but do anticipate the larger piece of the Digit CCPs has to come through in the fourth quarter as Prem indicated.

[Peter Clarke:]

So we don't Mark see any risk in it. But timing in India, the approvals and all of that. So if it doesn't come in the fourth quarter, it will be it'll be the first quarter. We were expecting that come there's no, it's not a big deal. The Parliament's already passed the 74% that $200 million will get approved. But, but I just caution you that these approvals take time and in a country like India, and so, they're, they're trying to do it as quickly as possible. But all sorts of approvals take time. But the, in our mind, the reason we disclose that is because we think that very little risk in terms of it taking place. So it's going to happen, and we didn't want it not to be disclosed. So we disclose that and everyone knows it, and we don't think there's any risk. It'll only be accounting, whether we account for it in the fourth quarter, the first quarter. So, we expect it to be as we said, fourth quarter, but you know how these things are.

[Prem Watsa:]

Any other question, Mark?

[Mark Dwelle:]

No, that's it. I appreciate the insight. As we all know, governments are going to move at the pace, they're going to move, there's not much we can do. Thanks for the color.

[Prem Watsa:]

And that's all over the world. But our next question, Cedric?

[Operator:]

Sure. Our next question comes from Craig with Leucadia Investment. Your line is open.

[Unidentified Analyst:]

Hello, I'd like to applaud all the insurance subsidiaries that came in under 100%. So that's great. I like to see those combined ratio stay low out here in California. I noticed Zenith consistently comes in under 100. So like to give kudos to Kari Van Gundy, doing a great job out here. And also Prem, personal, personally like to applaud your buyback last year of $150 million. So you're showing confidence. So I guess that gives us a little confidence to as far as that Fairfax actually doing the corporate buybacks, probably a good thing. I mean, the stock price is so low, might as well do it. Normally I don't like to see that. It just rewards insiders and short term traders. So my question is, how can we reward the long term investors? I know Wall Street doesn't have us on the radar. Fairfax is not on their computer algorithms. But it seems like we have enough free cash flow to raise the payout ratio for the dividend. So I'd like to see like a $20 just double the dividend raise it to $20 this year, what's the chances of that Prem?

[Prem Watsa:]

So Craig first of all, thank you for your compliments and Kari Van Gundy has done a fantastic job. We think Zenith is perhaps the best workers compensation business in the United States. They are underwriting the services they provide their customers is second to none. I've experienced it when I go there and visit them. And I must tell you, it's a special company. And results. I mean, I think Peter, it's like 15, their last ratio is about 15 points below the, the industry. The loss ratio for Zenith is about 15 points below the industry and they're reserving as they're so conservative, year in year out. So your points well taken. Craig on buybacks and dividends and stuff, we look at it all the time. And by the way, on dividends, I've never taken more than a $600,000 salary. I have no bonus. And I don't get any shares. And compared to all the people in our company, I’m the among the lowest paid among the officers. I'm not asking for a raise, but I did. But it makes it easier for the board of directors because when I'm recommending something, it doesn't come back to me. So it's not like I'm saying Peter has to make more money, and then I have to make more money than Peter. Peter already makes more money than me. But, but I’m the largest shareholder. And I like to have won Fairfax for 35 years as a shareholder. And so I'd be paying a dividend of 10 bucks, every shareholder gets it. And I get $10 also have a few more shares. But but that's how it works. Everyone gets the same amount. I like as a controlling shareholder I think that's the right way to do it. Now in terms of, we we look at all the possibilities, our shareholder came to us and said, one of our large shareholders and said, why don't you increase the dividend on a regular basis? We think buying back stock is a good idea. We bought as much as we can. I think it's cheap. But I'll tell you over 35 years, Craig, our stock has been very expensive sometimes. And sometimes like right now, it's very cheap. And it's incredibly cheap. I've said that. But this is a market where cryptocurrencies are like ridiculously priced. And now you have a Hi-tech, everyone's looking at Hi-tech, and they're growing like a weed, making no money. And then you see what happens Peloton missed some estimates and the stock is down 30% There's no underlying fundamental value that in the.com time period, these stocks dropped, like 75%, 80%. Someday we think that will happen. Our stock provides unbelievable value for our shareholders. And we think it's only a question of time, I've been in the market for a long time. And, and the market will shift I say in 2000, 2001, 2002 most markets cumulative, dropped by about 45% to 50% Craig. In United States, Canada and in Europe, and our stock portfolios went up 100%. In fact, in the following year, they went up another 50%, 60%. And so value investing the names that we have. Atlas is containership company, and David, they're run by David Sokol, and they showed their earnings, their earnings, they are going to double in the next three or four years. It's all in the marketplace, stock has hardly moved. Everyone wants to buy the cryptocurrencies of this world and, and so that's just how the stock market behaves. And, but that will change. And when it changes, we'll be the beneficiary. That's how we look at it, Craig. So thank you for your question. Thanks for the support.

[Unidentified Analyst:]

Okay, thanks. I think maybe we should give you a raise.

[Prem Watsa:]

Yes.

[Unidentified Analyst:]

Hopefully we can raise the dividend because I totally follow your philosophy. And I personally own ATCO and they do pay out a good dividend. So maybe we can pass that along to the Fairfax people too. Thanks for that.

[Prem Watsa:]

Thank you, Craig. You're from Leucadia. And we've always admired Leucadia. So thank you very much, Cedric. Next question?

[Operator:]

I'm showing no further questions at this time.

[Prem Watsa:]

Okay, no more questions. So, Cedric, thank you very much for hosting the call. And we look forward to all of you joining us on our next call. Thank you.

[Operator:]

Thank you. And that concludes today's conference. You may all disconnect at this time. Speakers, you may stand by for post conference.