Fairfax, based in Toronto, sells insurance and invests the premiums it receives in out-of-favor securities, similar to Buffett's investment model. Equities are more at risk from deflation than fixed income securities such as the Treasury bonds Pimco holds in its funds, and which gain in value as interest rates decline.

Given the size of the inflation floors bought by Fairfax Financial, Pimco may have taken the other side on some of them, said Greenwood.

Paul Rivett, Fairfax Financial's chief legal officer, declined to comment on the counterparties to the contracts.

"We are very concerned about deflation and have put this trade on to hedge some of what we see as a not insignificant risk," Rivett said in an e-mail. "Unfortunately, we have not publicly disclosed the inner mechanics of the trade."

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