Subject: Re: Buying opportunity?
The trick is with these guys, because its internal, they can declare whatever future liabilities they want and provide an operating budget refreshed annually to manage expenses, payouts and (mostly) settlements. An entity like Riverstone, like any runoff, is incentivized to settle aggressively and cheaply to close down the future liabilities. But, they can use the prospect of future underwriting from the other FFXHF as an incentive to settle quickly. They also centralize or virtually organize the legal fraud-fighting units from the satellite companies into one entity to countersue the endless paid-expert witness frauds and re-litigating "ambulance chasing" law firms that take most of whatever they win from the plaintiffs. Oh, and manage reinsurance as well.
So, it's not wrong, it's just business. But several years ago, at least one of the satellites (Zenith? Odyssey?) was able to grow its premium book by something like 100% over 3 or 5 years once its toxic policies were extracted, making the regulators happy and their new underwriting pricing very attractive. And Fairfax didn't have to pay a dime to anyone else to take the toxic stuff on.
I'm still not seeing the problem. If they can make regulators happier by removing the problem claims from firms like Zenith and Odyssey, improving those companies' books, while obviously making Riverstone's books worse, I guess that makes sense. Riverstone is just another Fairfax subsidiary, and its losses affect Fairfax's financial results just as much as if they took place within Zenith and Odyssey, so it's not as if they escape the liability or disguise it any way. And centralizing these problem accounts to a group that is specialized in the legal aspects obviously makes sense. It seems to be standard operating procedure for lots of insurance firms, not just Fairfax, but do you see anything objectionable about how Fairfax is handling runoffs, compared to other insurance firms?
One potential concern would be if Riverstone had been underreserving, although this is a concern for any insurance operation, and can only be verified over the long term. Obviously Fairfax has to make regular capital contributions to Run-off to augment its capital, and an additional capital contribution of $115.0m subsequent to December 31, 2025. In 2024 this was $340.0m, in 2023 it was $185.0m, in 2022 it was $240m, in 2021 it was m, and in 2020 it was $131.9m. There doesn't seem to be a clear pattern; obviously Riverstone needs to constantly receive capital from the holding company in exchange for taking off other subsidiaries' problematic policies, and they have to reserve for this, but reserves seem ok.
Year Insurance Net adverse Capital
service prior year contribution
result reserve dev't
2025 $321.0 $298.5 $170.0
2024 $239.0 $221.1 $340.0
2023 $320.6 $259.4 $185.0
2022 $150.8 $147.2 $240.0
2021 $285.4 $212.0 $ 93.6
2020 $204.2 $125.6 $131.9
Maybe I'm barking up the wrong tree? How would you assess whether there is anything sinister lurking under the Riverstone business?