Topic: How To Invest

Now that your Northbridge Financial recommendation has been bought out by Fairfax, what insurance company would you recommend as a replacement?

Article Excerpt

A: Fairfax Financial Holdings, $398, symbol FFH on Toronto, (Shares outstanding: 16.9 million; Market cap: $6.7 billion), is a good replacement for Northbridge. Fairfax is a financial services holding company with assets of $27.9 billion. Fairfax engages in insurance, reinsurance and investment management. Fairfax provides reinsurance through Odyssey Re and Group Re. Reinsurers provide insurance to insurers. Crum & Forster is Fairfax’s main U.S. insurance subsidiary, and Northbridge Financial is its principal subsidiary in Canada. Fairfax also sells insurance in Asia. Fairfax recently acquired the 36.9% of Northbridge Financial that it didn’t already own. Northbridge was a recommendation of our Stock Pickers Digest newsletter. Fairfax’s insurance operations have remained profitable, excluding hurricane losses. Insurance businesses hold a lot of cash for investment. Since 2003, Fairfax has invested conservatively, offsetting stock and bond holdings with investments that rose when stock markets fell. These included short sales and credit default swaps (insurance against defaults on bonds). Its biggest gains came last year. Fairfax’s shares…

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