Catching Fish in Muddy Waters: Fairfax claims, Uninsured CA Flood Victims and New Minnesota Brokerage

In this weeks podcast Nick Hartmann and I were a bit disappointed by the Chardonnay that we drank with 69 Miles. But, in the defense of the winemaker, we really don't like Chardonnays. So that's the disclaimer.

This podcast is becoming a bit of an addiction for me. Not the wine but the conversation. This is my third iteration of a podcast and I can tell you that having someone to record with as a partner is far more fun than doing this by myself.

The idea behind the podcast is to help the insurance space become more attractive and show that it can be an incredibly exciting career. It's not just home and auto; it's systemically ingrained in our every day lives.

This week, we talked about two main stories -

1. Fairfax and Muddy Waters and the Muddy Waters accusation of stock manipulation.
2. A new MN broker in town. They happen to be in our backyard.

First off -

Fairfax Denies Manipulation Allegations in Muddy Waters Report, Highlights Long-Term Performance

Canadian financial holding company Fairfax Financial Holdings Limited has strongly denied recent accusations by short-seller Muddy Waters of manipulating its valuation and income through "destructive transactions."

Fairfax claims Muddy Waters' allegations are "false and misleading," and accuses the short-seller of attempting to profit by manipulating the stock price during a quiet period. They emphasize their commitment to transparency and long-term growth, pointing to a 38-year track record of strong performance.

Key points from Fairfax's rebuttal:

• No contact from Muddy Waters: Fairfax states that Muddy Waters never contacted them before issuing their report, raising questions about their research and motives.
• Rejections of specific claims: Fairfax refutes specific claims made by Muddy Waters, including: Excessive leverage: They deny the Allied World acquisition put a strain on their insurance operations and highlight improved profitability. Dubious accounting: They defend transactions with Brit and Odyssey, stating they provided legitimate value and did not manipulate valuations.
• Focus on long-term: Fairfax emphasizes their commitment to building long-term value, highlighting impressive historical returns and strong fundamentals.
• Transparency and communication: They reiterate their commitment to transparency and shareholder communication, both in their annual reports and upcoming earnings call.

Fairfax remains confident in its financial position and prospects, and looks forward to addressing any questions during their earnings call on February 16th.

As we mentioned in the podcast. We're not buying what MW's is selling. It seems a bit unsupported. But we're reporting the news and this was news.

Secondly -

The Minnesota insurance brokerage place has had a variety of sea changes over the years likely (arguably) one of the most disrupted markets from that perspective. Back in the mid-2000's MMA bought local powerhouse RJF. This created a lot of disruption and a lot of consolidation in the Minnesota market. Then, in 2018, Brown and Brown bought Hays Companies (my prior employer). This created a lot of changes as well. One of which is happening now with a team of former Hays people being assembled right next door (to Hays) in the RSM building (from what is being reported). We count about six-seven thus far heading to work for newco. A big payroll to kick it off.

Nick and I have a discussion around the Minnesota market in detail and whether we think there is room for another player. Over the years, and since both of these initial disruptions have happened a lot has changed. Including a very hard insurance market. The reality is, starting a brokerage today is not for the faint of heart. So we applaud these folks for giving it a go. But do generalist still have a spot in the market? A sincere question that we ask ourselves on the pod. I think the answer is: "yes" with a "but".

The sales cycle of a generalist is long and without bifurcation and segmentation of specialties, it leans heavily on relationships. Relationships can be called heavily into question when these decisions work their way up to c-suite and board levels. Why should we hire this group? What can they bring to the table? This is something that every firm grapples with in terms of strategy. We happen to think that it's super important.

We hope you enjoy the article - please listen to it here!

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