Notes - The Fairfax Way

November 27, 2025

PART ONE: THE FORMATIVE YEARS: FROM INDIA TO CANADA

Chapter One: Watsa’s Road to Value Investing

Indian family values meet Canadian free enterprise

Prem Watsa's character and values were primarily shaped by his upbringing in Hyderabad, India. His family emphasized caring for family, treating people well, and looking after those less fortunate. His great-great-grandfather, Ramachari Watsa (later Suvartappa), was a Brahmin teacher who converted to Christianity, leading a lineage of passionate educators and Christian faith within the family. Watsa's father, Manohar, despite a difficult childhood as an orphan, instilled a disciplined and ambitious work ethic, pushing Prem to excel academically. This foundation, combined with the economic opportunity found in Canada, drove Watsa's entrepreneurialism and commitment to "doing the right thing". The company's motto, "fair and friendly," is a direct reflection of these values.

A little book from a stranger on a train

A pivotal moment occurred in India when Watsa was about twenty: a stranger on a crowded third-class train carriage told him to read Napoleon Hill’s book Think and Grow Rich. This self-help classic, which stresses the power of positive thinking and a "definitiveness of purpose," instantly converted the young Watsa into an ardent capitalist. Hill’s message, which posits that capitalism is the ideal system for societal betterment, inspired Watsa to believe that wealth and capitalism could be a vehicle for doing good.

The Road to Damascus

Watsa landed a job at Confederation Life after arriving in Canada. The major influence there was John Watson, Watsa's first professional mentor, who dropped Security Analysis by Benjamin Graham and David Dodd on his desk with the command: "Read this!". Watson advised him to "Forget what you learned at business school". Reading this book was Watsa's "road to Damascus" moment, where he discovered the rational principles of long-term value investing, downside protection, and margin of safety. Graham’s philosophy—buying stocks below their underlying business value (a dollar for fifty cents)—became Watsa's guiding "religion". Watsa, along with like-minded colleagues like Roger Lace and Brian Bradstreet, embraced this philosophy with such evangelical fervor that he had to learn to tone down his outspoken conviction over time. Watsa later named his son Ben after Benjamin Graham.

The Birth of Fairfax

Fairfax was born from the scramble to restructure Markel Financial in 1985. The key strategy of acquiring insurers to leverage their cash flow (or float) came from a suggestion by Francis Chou, who explained that this was how Warren Buffett truly made his money. Watsa secured C$2 million from investors and C$3.25 million from the bank. The venture was a tough bet; Watsa arrived at the deal closing with a statuette of a man aiming a handgun at the head of colleague Paul Fink, capturing the high-stakes moment. Watsa reflected that his early backers must have been "special to have financed an almost bankrupt insurance holding company led by a chairman with no corporate experience at all".

PART TWO: THE DEALMAKING MACHINE: PUTTING THE PIECES TOGETHER

Chapter Two: Let’s Buy Some Float (1985–1988)

The Shareholder Contract

Watsa introduced himself to shareholders in 1986, using his initial one-page annual letter as his primary communication tool. This first letter laid out a mission that remains remarkably unchanged. He set a clear performance target: to earn a long-term return averaging 20% on common shareholders’ equity. Watsa stressed that transparent, written targets were crucial for driving decisions and priorities. Crucially, the company established a dual-class share structure to ensure management control and vowed never to sell the company at any price. This was presented as a contract: management retained control in exchange for a promise of "excellent long-term gains" for patient shareholders.

Defining Fair & Friendly

The holding company was renamed Fairfax Financial in 1986. The name was based on its core values: "Fair," meaning the company would not take advantage of anyone; "Friendly," meaning it would go the extra step to treat everyone well and never engage in hostile acquisitions; and "Ax," symbolizing acquisitions, the building blocks of the firm.

Early Acquisitions and Risk Management

The company's inexperience in insurance was offset by adopting a disciplined, value-contrarian approach: during soft markets, they chose to drop unprofitable business rather than chase market share, ready to wait out competitors. Fairfax used contingent notes in the acquisition of Shand, Morahan, and Evanston Services as a way to protect the company from unexpected liabilities or negative reserve surprises. This tactic became a standard risk-mitigation tool for Fairfax.

Prescience and Portfolio Management

Watsa demonstrated his contrarian discipline by selling down half of the company’s stock portfolio just before the Black Monday crash in 1987. He also sounded an early and persistent alarm about the swelling speculative bubble in Japanese stocks in the mid-1980s, which eventually crashed in the early 1990s. By 1988, Fairfax's average return on equity was 26.1%.

Chapter Three: Growing Pains and Mea Culpas (1989–1992)

The Surety Crisis

The period 1989–1992 was defined by operational problems and financial losses, which Watsa openly described as "disappointing". The core problem was a failed diversification attempt, particularly a foray into construction surety, which ballooned losses to C$14 million and resulted in a combined ratio of 133.6%. Fairfax, having initially adopted a loose hands-off approach, realized its decentralization strategy was flawed in execution.

Ownership and Correction

Watsa assigned Rick Salsberg to fix the problem, demonstrating a willingness to step in when management failed. Fairfax eventually purchased reinsurance for the surety operations (driving the combined ratio to 343%) and successfully averted bankruptcy, though it took years to resolve the losses. Watsa publicly apologized, telling shareholders, "We failed miserably," but affirming the belief in decentralization. New reporting lines were established to prevent a recurrence. Fairfax also cut losses quickly in non-core areas, such as the brokerage business Midland Walwyn, due to the industry’s short-term focus and a cultural fit mismatch. Watsa quipped about his poor investment choices, blaming his own "bright ideas" for investment banking losses.

Strategic Buys and Financial Strength

Fairfax successfully acquired key Canadian assets, including Federated Insurance (1989) and Commonwealth Insurance (1990). During the Federated negotiation, Watsa offered C$28 million despite only having C$8 million on hand, showing his trademark confidence and speed. The partners at Markel Group opted to split with Fairfax because they did not want to pursue Commonwealth. Following a stock plunge in 1990, Fairfax bought back 25% of its outstanding shares, which Watsa deemed an "excellent investment" at the time. In 1991, Fairfax formalized its charitable commitment, pledging 1% of annual pre-tax operating income to charity.

Chapter Four: The Go-Go Years (1993–1998)

Acquisition Binge: The Roller Coaster

Fairfax embarked on a six-year acquisition spree, rolling out three major waves of deals. The first U.S. acquisition, Ranger Insurance Company (1993), was a major misstep, quickly becoming a "disaster" due to under-reserving, forcing Watsa to issue multiple apologies for his judgment. Conversely, the acquisition of Continental Canada, renamed Lombard Insurance (1994), was a clean success, proving the efficacy of the fair and friendly approach by retaining strong management (Byron Messier) and quickly becoming a prized asset. Lombard was financed by issuing shares at a premium to book value to acquire assets at a discount, an ideal value tactic.

Building the Reinsurance Crown Jewel

The second wave included the pivotal acquisition of Skandia America, which became the core of OdysseyRe (later Odyssey Group). Odyssey was a "Frankenstein’s monster," stitched together from broken parts, but it allowed Fairfax to launch a global reinsurance business. Watsa successfully courted Andy Barnard to run Odyssey. Barnard was swayed by Watsa's decentralized management philosophy and commitment to big challenges.

Massive U.S. Expansion and Warnings

The third wave saw the acquisitions of Crum & Forster ($680 million) and TIG Holding ($847 million). These deals transformed Fairfax into a major U.S. insurance company. To manage the resulting liabilities, Fairfax acquired Resolution Group (RiverStone), providing in-house runoff capability to manage written-off assets and "black hole of liabilities". Despite explosive stock growth (up 48% annually since inception), Watsa used his letter to caution new shareholders about market volatility and the overvaluation of Fairfax shares. He emphasized that the lean head office of thirteen people would not be answering persistent calls about short-term fluctuations, and shareholders should "take the long view".

Chapter Five: The Long Attack of the Shorts (1999–2005)

The Seven Lean Years and Market Pain

The failure to quickly fix the acquired assets led to the "seven lean years," a period of consistent underwriting losses (totaling $4.5 billion) and stock decline. After Watsa warned of impending "quarterly surprises" in 1998, the stock experienced its worst one-day drop in August 1999. Watsa apologized to shareholders for the disaster, candidly admitting, "I am embarrassed by these results" and "It is quite astounding how wrong one can be in this industry".

The Hedge Fund Assault

Fairfax's struggles, coupled with its corporate complexity, attracted a powerful coalition of Wall Street short sellers (including Jim Chanos and funds linked to Steve Cohen and Dan Loeb) who were determined to drive the stock to zero by alleging it was the "next Enron-style fraud". The campaign involved psychological warfare, false research reports, and harassment.

Fortress Building and Counterattack

To survive, Fairfax took drastic steps: it conducted three equity issues to friendly investors (Southeastern and Cundill) and IPO'd Odyssey and Northbridge to shore up liquidity, securing enough financial flexibility to avoid a "deadly ratings downgrade". The public listings revealed that Fairfax was understating the value of these subsidiaries on its books. Paul Rivett convinced Watsa to fight back against the misinformation campaign. In July 2006, Fairfax launched a $6 billion lawsuit detailing the harassment and fraud allegations. Watsa insisted on filing the suit even when the FBI and SEC advised him not to, proving his commitment to principle. The suit successfully exposed the short campaign, causing the "noise level immediately died".

The Tech Wreck Win

While under siege, Fairfax successfully executed defensive macro bets, profiting from the tech bubble burst. They lowered equity exposure and bought puts on the S&P 500. The resulting "boomsday" gains pushed investment returns at Fairfax to a 100% gain over the three worst years of the downturn, proving Watsa’s "Noah rule": predicting rain doesn’t count, building an ark does.

Chapter Six: Betting on Disaster (2006–2009)

The Big Short Strategy

Fairfax saw systemic risk in the securitized credit market leading up to the 2008 Global Financial Crisis. Watsa and Brian Bradstreet, HWIC’s bond expert, devised a strategy focused first on self-protection by hedging the company's exposure to reinsurers (like AIG, Munich Re, and Swiss Re) through credit default swaps (CDS). Fairfax invested heavily in CDS, despite years of paper losses that led internal staff to question the "exotic investment". Watsa publicly warned of an "explosion coming" in his letters.

Massive Windfall

The crisis validated the macro call. Fairfax made nearly $4.2 billion on the CDS trade (and over $4.6 billion combined with equity hedges), making it one of the largest windfalls from the crisis. The success restored Fairfax's reputation, confirming its status as a stock where investors could "flee to for safety and gains" during a market downturn. Watsa subsequently closed the chapter on the CDS adventure.

Underwriting Success and Global Acorns

The "seven lean years" ended, and the insurance subsidiaries finally became consistent profit centers. Fairfax began planting "acorns" globally, believing the best growth opportunities were outside North America and Europe due to growing middle classes. By 2009, 25% of premiums were sold outside North America, with new ventures in Eastern Europe, the Middle East, and Asia.

Chapter Seven: Driving with the Brake On (2010–2016)

Deflation and Costly Hedges

In this period, Watsa focused on the threat of deflation following the financial crisis, fearing a repeat of the Great Depression or Japan’s post-1989 crash. The HWIC team continued to hold macro hedges, designed to profit if inflation fell, but the predicted crash never materialized. The decision proved costly, resulting in accumulated losses of approximately $2 billion. Watsa later characterized this shorting as "dangerous" and "anathema to long-term investing," vowing never to repeat it. The failure highlighted the downside of patience in shorting, versus the patience rewarded in value investing.

New Acquisition Philosophy and Insurance Focus

Learning from past mistakes, Fairfax kicked the bargain-bin habit and shifted to acquiring only high-quality assets. The acquisition of Zenith National Insurance in 2010 was a prime example, despite its ensuing three years of underwriting losses due to market retrenchment. Watsa remained patient, trusting management continuity to eventually turn it into one of the most profitable units. Andy Barnard, now the global insurance lead, set the goal of making Fairfax "as well-known for its underwriting results as its investment returns," reflecting the insurers' new role as a major, consistent profit engine.

Strategic Growth

Fairfax acquired London-based Brit PLC (Lloyd’s specialist) in 2015, adding diversification to its global footprint. Following the 2014 election of Narendra Modi, Watsa significantly ramped up investments in India, including the launch of Fairfax India for infrastructure and industry deals.

Chapter Eight: Coming into View (2017–2024)

Allied World and Organic Growth

The $5 billion acquisition of Allied World in 2017 was Fairfax's largest deal, a clean acquisition of a high-quality global insurer. Although Allied had a disastrous debut year due to catastrophe timing, it quickly rebounded and, through decentralization and organic growth, more than doubled its premiums in the following years. Allied confirmed that Watsa was dedicated to buying quality assets.

The Big Turn in Bonds

Watsa and Bradstreet pivoted from deflation fears to anticipating rising interest rates (the Big Turn). They liquidated long-term bond holdings, moving 50% of the portfolio into safe, short-term cash and T-bills to protect against long-term capital loss. When rates spiked in 2022, Fairfax avoided industry-wide losses, becoming one of the few insurers globally to report an increase in book value per share (up 6%) that year. This strategy allowed Fairfax to reinvest accumulated cash into higher-yielding bonds.

The Big Long: Investing in Fairfax

With the stock trading at a discount to intrinsic value, Fairfax pivoted from shorting to the Big Long—investing heavily in itself. This involved aggressive share buybacks, personal stock purchases by Watsa ($150 million), and creative capital allocation strategies. The most notable move was the use of Total Return Swaps (TRS) on Fairfax shares in 2020, which allowed the company to profit from the subsequent rally without having to buy the stock outright. The TRS deal generated a gain of $2 billion and is considered one of Fairfax's smartest investments.

The Final Transformation

By 2024, the strategy had fully crystallized: the insurers delivered reliable profits, the investment arm secured strong gains, and a third earnings stream from non-insurance holdings (like Eurobank and Atlas/Seaspan) provided consistent growth. Watsa began offering forward guidance on operating earnings (targeting $4 billion to $5 billion), signaling a new era of stable, accelerating performance. The culture was tested by the Covid-19 pandemic, but the company avoided layoffs and emerged stronger, reinforcing its commitment to its employees and community. This sustained success confirmed the transformation of Fairfax into a diversified, global holding company built to last.

PART THREE: THE VALUE MASTERS: INVESTING STRATEGY

Chapter Nine: Value Thinking in Watsaville

Running against the herd, the value crowd runs in a herd of their own

Prem Watsa and his firm, Hamblin Watsa Investment Counsel (HWIC), are residents of "Graham-and-Doddsville", an intellectual village named after value investing patriarch Benjamin Graham. These individuals are "intellectual mavericks" who use discipline and rationality to profit from the mistakes and misperceptions of others. Watsa is also a resident of "Singletonville," named after Henry Singleton, whom Watsa considers "our hero" and the master of allocation.

The Margin of Safety

The foundational principle taught by Graham is the margin of safety. This means attempting to "buy a dollar for fifty cents". The margin of safety acts as a cushion to protect investors against capital loss, aligning with Graham's rule number one: do not lose money. Watsa adopted this approach from the beginning, stating in his first letter that Fairfax focuses on protecting capital from long-term losses before attempting to make money.

Intrinsic Value and Compounding

Intrinsic value is crucial; it represents a current view of a company's future earnings power. Watsa contends that because Fairfax consistently earns a high return on shareholders’ equity (ROE), its intrinsic value is significantly higher than its book value (BV), and the stock price will eventually track this higher intrinsic value over time. Buffett noted that intrinsic value is a present-value estimate of the cash that can be taken out of a business, making it often unrelated to the BV reported by accounting rules.

Graham’s approach was reformed over time by Watsa and others (like Buffett). They learned that simply buying cheap was not enough, and quickly selling once the price recovered was a mistake. Instead, compounding is where the magic happens, making the preferred holding period "forever".

Valuing Management

Watsa made a significant break from Graham’s mechanical, formula-based approach by heavily overweighting the intrinsic value of people and management. He considers quality management to be "undoubtedly the single most important factor in security analysis," quoting Philip Carret. This qualitative approach, influenced by Philip Fisher's "scuttlebutt" analysis, means valuing integrity, culture, and long-term commitment. Watsa’s focus on management guides both acquisitions (aiming for management continuity) and investment decisions.

Chapter Ten: The Shareholder Contract

Contrarian firms promise higher returns but require patient shareholders

Fairfax’s relationship with its investors is built on an unwritten "contract" that emphasizes transparency and patience. Fairfax asks shareholders to adhere to the company's Guiding Principles and accept that earnings are often lumpy due to investment gains or losses. Watsa frequently cautioned investors about short-term market fluctuations and asked them to refrain from persistent phone calls to the small head office staff.

Setting Goals and Targets

In 1985, Fairfax established a clear financial target: to achieve an average long-term return of 20% on common shareholders' equity. Watsa credits this transparency with driving performance. This target was later revised to 15% annual growth in mark-to-market book value per share over the long term, due partly to changes in accounting rules. Fairfax remains committed to full disclosure, mainly through its detailed annual letter.

Control is Essential

Fairfax maintains absolute control via a dual-class share structure (the initial management shares held ten times the votes of ordinary shares). This control is considered permanent, guaranteeing management the freedom to allocate capital for the long term and preventing the company from being sold. Watsa staunchly defends this structure against critics, arguing it protects the company from hostile takeovers and the short-term pressures of corporate activists.

Chapter Eleven: Where Fairfax Puts All Its Money

Invest the Fairfax Way with big trades, smart allocation, and the magic of float

The investments are managed by Hamblin Watsa Investment Counsel (HWIC), a centralized team of only about forty people. They manage a combined portfolio of $67.4 billion.

The Magic of Float

The core advantage of the insurance business is float, the premiums collected before claims are paid. This capital is available for investment, essentially acting as free leverage. The float accounted for $36.9 billion of the total investment portfolio in 2024. Due to strong underwriting profits and high interest rates following the "Big Turn," the interest and dividend income derived from the float surged to $2.5 billion in 2024.

The Big Turn in Fixed Income

Unlike many insurers, Fairfax avoided asset/liability matching, especially when interest rates were low. Watsa and Brian Bradstreet began anticipating rising interest rates ("The Big Turn") around 2016, prioritizing the safety of capital. They liquidated long-term bonds and held about 50% of the portfolio in cash and short-term T-bills. This defensive move allowed Fairfax to avoid industry-wide losses when rates spiked in 2022, enabling it to be one of the few insurers globally to report an increase in book value per share (up 6%) and reinvest its massive cash pile at higher yields.

Henry Singleton: The Michael Jordan of Buybacks

Watsa is deeply influenced by Henry Singleton, the legendary CEO of Teledyne, whom he calls the "Michael Jordan of buybacks". Buybacks are strategic only if shares are cheap (below intrinsic or book value). Since 2017, Fairfax has executed its "Big Long" strategy of aggressively repurchasing shares to capitalize on the undervalued stock, leading to a 23% reduction in outstanding shares since the 2017 peak. Watsa insists that even after a large run-up, the shares remain inexpensive compared to competitors.

An About-Face on Dividends

Watsa historically avoided dividends, arguing that buybacks were a more tax-effective way to distribute capital, and that money retained could be compounded at a higher rate. However, Fairfax instituted a modest dividend in 2000 after Watsa restructured his own compensation (eliminating bonuses and moving to a fixed salary), stating it was necessary to align his interests with shareholders'. Fairfax also avoids stock splits, believing they do not increase the intrinsic value of the company.

Chapter Twelve: A Fair & Friendly Guide to M & A

Say no to corporate raids, bidding wars, revised deal terms, and synergies

Fairfax has an unwavering set of rules for mergers and acquisitions (M & A) that define its "fair and friendly" approach. Watsa promises never to engage in a bidding war or a hostile takeover, and Fairfax will never walk away from an agreed deal or attempt to renegotiate terms. This strategy is designed to attract sellers who prioritize management continuity and cultural fit over achieving the absolute highest price. Watsa views corporate raiding and short-term activism as harmful activities that "give business a bad name".

Acquisition Strategy and Bolt-ons

The acquisition credo is to buy companies with good management in place and run them independently. Fairfax relies on various strategies, including successful start-ups (like Digit in India and Ki in the U.K.) and turnarounds (like Eurobank in Greece). A key modern strategy is the cannibal "buy-up" or "bolt-on," where Fairfax increases its controlling stake in existing subsidiaries (like Allied World, Gulf Insurance, Atlas/Seaspan). This allows the company to buy more of what it knows, avoid integration costs, and boost earnings and float. Crucially, Watsa insists Fairfax companies avoid seeking synergies because cost-cutting would erode the successful decentralized model and drive away key people.

Chapter Thirteen: Value Investors Versus the Rating Agencies

Even the regulatory experts have trouble understanding Fairfax

Fairfax’s value and contrarian strategies often put it at odds with credit rating agencies.

Clash on Risk Management

The agencies prefer companies to match assets and liabilities (investing the float for the same duration as policy payouts), which Fairfax often rejects. Fairfax argues that strict matching is a passive and potentially riskier strategy, especially when it encourages a risky "reach for yield" by buying high-risk products (like the asset-backed bonds that led to the Global Financial Crisis) simply because the agencies rated them highly. Fairfax avoided these products but was penalized by agencies for its contrarian stance. Credit downgrades and criticism from agencies (such as Fitch Ratings, whom Fairfax publicly stated lacked access to their financials) contributed to the vulnerability that attracted short sellers in the early 2000s.

Chapter Fourteen: The Renaissance of Value Investing

Is Value Investing Dead?

Watsa and other value masters have long maintained that value investing never truly dies, but occasionally experiences an "eclipse" or goes to sleep. Watsa uses historical analogies, such as the bursting of the Nifty 50 bubble in the 1970s, to reassure shareholders that rational valuation will always reassert itself. Graham urged analysts to "Stick to it" (the value approach) and not be swayed by market fashions.

Current Trends

Watsa believes the recent cycle of rising inflation and interest rates (The Big Turn) has created the ideal environment for value stocks to thrive. He stated that his best investing days are ahead. He candidly admitted that Fairfax itself "got away from our value roots in the 2010s" by holding expensive equity hedges, confirming his conviction that shorting is dangerous and "anathema to long-term investing". Academics like George Athanassakos argue that value must ultimately outperform growth over the long term, because irrationality in the market will always exist, creating opportunities.

PART FOUR: CULTURE AS COMPETITIVE MOAT: MANAGEMENT STRATEGY

Chapter Fifteen: Fairfax Defines Itself

Fairfax Defines Itself

Watsa views the corporate culture as a competitive moat that gives Fairfax an edge. The motto "fair and friendly" reflects his core values, ensuring that people are treated well and that the business acts as a force for good.

The Guiding Principles

Watsa and Rick Salsberg formalized the culture by drafting the Guiding Principles. These seventeen points, divided into Objectives, Structure, and Values, are the guide for corporate behavior. Core values include:

Honesty and integrity will never be compromised.
No "egos" and no confrontational style.
Working hard, but "not at the expense of our families".
The Golden Rule (treating others as you wish to be treated) was formally added in 2024.
It is acceptable to fail, but the company must learn from its mistakes.

Walking the Talk on Trust

Fairfax is built on trust and delegation. Micromanagement is avoided as it implies a lack of trust and respect. Watsa consistently reinforces that living by these principles—such as never altering a deal's terms—is not only the right thing to do but is also "good for business" in the long run, winning future partners and favorable deals.

Chapter Sixteen: Fairfax Learns to Put Insurance First

It started as an investment firm with insurer assets. Then it flipped the script

Watsa acknowledges that although Fairfax started as an investment firm, everything it does today "rests on the strength of our insurance assets".

The Premium Mind

Andy Barnard, the head of insurance, was instrumental in shifting focus to underwriting profitability. Barnard realized that the insurance business is abstract and competitive, driven by cycles of fear and greed, requiring a contrarian mindset to manage risk. He steered Fairfax toward reinsurance and commercial lines (which are harder, but more lucrative). Barnard emphasizes that in this complex business, good leaders must have the humility to admit, "I don’t know". Watsa noted that reinsurance, in particular, magnifies the abilities of management.

Chapter Seventeen: Managing the Moat

The Magic of Decentralization

Decentralization is the best way to get the most out of people and widen the competitive moat. Fairfax maintains a "very small holding company" (fewer than 50 staff) and pushes decision-making responsibility and accountability down to the local level. Head office retains only five core functions: performance evaluation, succession, acquisitions, financing, and investments. This autonomy encourages entrepreneurialism and retains talent, as leaders love running their "own baby".

Avoiding Institutional Imperative

Fairfax strictly avoids forced synergies between subsidiaries, believing they would erode the model by imposing "supply push" from the top. The firm also discourages egos, with Watsa often citing the importance of humility. The culture is built on a two-way trust between the decentralized operating companies and the holding company. Watsa, who is in his mid-seventies, eventually plans to adopt a "chief grandparent officer" (CGO) role, offering advice without intruding on day-to-day management.

Leadership and the Role of the CEO

Watsa acts as a relentless cheerleader for his teams. He models humility by publicly owning his blunders and ensuring staff are not punished for mistakes, as long as trust is maintained. Peter Clarke, the current president, is viewed as the internal successor to Watsa. Clarke's primary role involves coordinating operations, risk management, and allocation strategy between the insurers and the HWIC investment team, embodying the decentralized, non-ego-driven culture.

Chapter Eighteen: The Company Case Studies

Coming together as one. Learnings from the major acquisitions

Fairfax’s history is defined by how it integrated its acquisitions, providing real-world tests of its cultural moat.

Case One (Markel Financial): Early failure of decentralization led to financial problems (due to construction surety losses), which were fixed by implementing tighter reporting lines without sacrificing the long-term decentralized vision.
Case Two (Midland Walwyn): Cultural incompatibility (Bay Street "gunslinger egos") led to a quick, expensive exit, teaching Fairfax to avoid bad cultural fits.
Case Three (Northbridge): CEO Sylvy Wright successfully centralized four small Canadian insurers despite Watsa's decentralization bias, proving that consolidation was necessary for scale in the local market. Watsa supported her decision, showing trust in local leadership.
Case Four (Odyssey Group): Formed from broken parts (Skandia, CTR, TIG), this "Frankenstein’s monster" required Fairfax to improvise and hire top talent (Andy Barnard and Brian Young) to build a major global reinsurance business. Odyssey became a crown jewel and a model for management continuity.
Case Five (Crum & Forster): This was the toughest deal, taking over fifteen years to fix due to deep reserving shortfalls and high CEO turnover. Success was finally achieved under Marc Adee, who provided continuity and transformed the company into a specialty insurer, confirming that continuity and patience win in the long term.
Case Eight (Allied World): A clean, $5 billion acquisition in 2017, which serves as the definitive case for decentralization. Fairfax resisted seeking synergies, allowing Allied to double premiums organically under existing CEO Lou Iglesias.

Chapter Nineteen: Doing Good by Doing Well

Business as a calling. First you make money, then you can afford to give back

Fairfax views business as a "calling" and a force for good. The motto "Doing good by doing well" summarizes its philosophy: making money through valuable service and then sharing the wealth. Fairfax’s charitable plan is enshrined in the Guiding Principles. It started in 1991 with a 1% target of pre-tax income, which Watsa later doubled to 2%. In 2024, donations totaled $95 million. Giving is decentralized, encouraging subsidiaries to support the communities in which they operate.

Chapter Twenty: Succession and Long-Term Control

How long can a company culture last? Prem Watsa is betting long on the family

Watsa's focus is on building Fairfax for the "next 100 years", drawing lessons from long-lived companies that prioritized strong culture, decentralization, and conservative financing. To ensure the culture endures, Watsa's holding will be maintained by his family trust.

The Succession Plan

The succession plan involves promoting internal talent. Peter Clarke is the internal CEO-in-waiting, serving as president and managing operations, investments, and risk. Ben Watsa, Prem’s son, was appointed chairman of Fairfax India in 2024 and is slated to replace his father as chairman of the parent holding company. Watsa is confident that even when he steps away, the consistent strategy and ingrained culture will ensure that Fairfax and its core companies "will never be sold". He also intends to adopt a "chief grandparent officer" (CGO) role to provide guidance without intruding on management.