BMO In response to its Tuesday release on the effect of IFRS 17 on common shareholders’ equity, BMO Nesbitt Burns’ Tom MacKinnon raised his Fairfax Financial Holdings Ltd. (FFH-T) target to $1,225 from $1,150, reiterating an “outperform” rating. The average is $1,169.64.
“FFH is by far the biggest beneficiary amongst its Canadian P&C peers on the transition to IFRS 17 (which calls for discounting), largely because of its current conservative practice of not discounting its reserves—IFC, DFY, and TSU currently discount,” he said. “The substantial increase in interest rates is primary driver of the bigger increase at Q4/22 versus the Q4/21 guide. Unlike its Canadian peers (IFC, DFY, TSU), FFH conservatively does not currently discount its claim liabilities under IFRS 4 to reflect expected yields earned on its assets. We expect the increase in Q4/22 BVPS upon transition to IFRS 17 to be similar to the impact provided in company guidance for Q4/21, which was a 2.9-per-cent increase for IFC (already in our estimates), a 5.0-6.0-per-cent increase for DFY (already in our estimates), and a 1.0-5.0-per-cent increase for TSU, with these increases driven by the deferral of additional insurance acquisition expenses, and, in the case of DFY and TSU, a lower risk adjustment due to the change in methodology for calculating the risk adjustment on reserves.
“Now on an apples-to-apples basis FFH appears even more attractive relative its Canadian peers.”
Disclosure: I own all four of the companies mentioned.