Press Release Details
Fairfax Financial Holdings Limited: Financial Results for the Year Ended December 31, 2010
“After an outstanding three years during which our book value per share went up by more than 146%, our book value per share increased by only 5% in 2010 to
“
Highlights in 2010 included the following:
-- The combined ratio of the insurance and reinsurance operations was
105.2% on a consolidated basis, producing an underwriting loss of $236.6
million , compared to a combined ratio and underwriting profit of 99.8%
and $7.3 million , respectively in 2009.
-- Interest and dividend income of $762.4 million in 2010 increased 7.0%
from $712.7 million in 2009. The year-over-year increase was primarily
attributable to the larger average investment portfolio. Interest income
as reported is unadjusted for the positive tax effect of the company's
significant holdings of tax-advantaged debt securities (holdings of
$4,358.9 million at December 31, 2010 compared to $4,550.2 million at
December 31, 2009 ).
-- Operating income of the insurance and reinsurance operations (excluding
net gains on investments) in 2010 declined to $366.8 million from $564.3
million in 2009, principally as a result of the underwriting loss in
2010.
-- Net premiums written in 2010 increased 3.8% to $4,449.0 million compared
to $4,286.1 million in 2009, primarily reflecting the acquisition of
Zenith National.
-- The company held $1,540.7 million of cash, short term investments and
marketable securities at the holding company level ($1,474.2 million net
of short sale and derivative obligations) at December 31, 2010 , compared
to $1,251.6 million ($1,242.7 million net of short sale and derivative
obligations) at December 31, 2009 .
-- At December 31, 2010 , common shareholders' equity was $7,761.9 million ,
or $379.46 per basic share, compared to $7,391.8 million , or $369.80 per
basic share, at December 31, 2009 , an increase of 5.3% adjusted for the
$10 per share common dividend paid in the first quarter of 2010.
-- On February 26, 2010 , the company completed an equity offering of
563,381 subordinate voting shares for aggregate proceeds of
approximately $200 million .
-- On June 22, 2010 , the company completed a public offering in Canada of
Cdn$275.0 principal amount of 7.25% unsecured senior notes due June 22,
2020 for net proceeds of approximately Cdn$273 million .
-- On February 1, 2010 , the company issued 8 million Series E preferred
shares in Canada yielding 4.75% per annum for the initial five years for
aggregate net proceeds after commission and expenses of approximately
Cdn$194 million . On July 28, 2010 , the company issued 10 million Series
G preferred shares in Canada yielding 5% per annum for the initial five
years for aggregate net proceeds after commissions and expenses of
approximately Cdn$242 million . On October 5, 2010 , the company issued 12
million Series I preferred shares in Canada yielding 5% per annum for
the initial five years for aggregate net proceeds after commissions and
expenses of approximately Cdn$291 million .
-- On October 20, 2010 , Odyssey Re redeemed its publicly held preferred
shares for an aggregate cost of $70.6 million .
-- The company's total debt to total capital ratio was 23.8% at December
31, 2010 compared to 23.0% at December 31, 2009 .
-- A gain of $83.1 million on the excess of the fair value of net assets
acquired over the purchase price of General Fidelity Insurance Company .
During the year, the company announced the following acquisitions:
-- OnMay 20, 2010 , we purchased 100% ofZenith National Insurance Corp. for approximately$1.3 billion . -- OnAugust 17, 2010 , we purchased 100% ofGeneral Fidelity Insurance Company for approximately$241 million . -- OnSeptember 28, 2010 , we purchased 41.3% ofGulf Insurance Co. for approximately$217 million . -- OnDecember 3, 2010 , we announced the 100% purchase ofPacific Insurance Berhad ofMalaysia for approximately$64 million . -- OnFebruary 9, 2011 , we purchased 100% ofFirst Mercury Financial Corporation for approximately$294 million .
Fairfax holds significant investments in equities and equity-related securities. In response to the significant appreciation in equity market valuations during 2009 and 2010 and uncertainty in the economy, the company continued hedging its equity investment exposure by entering into total return swaps referenced to the Russell 2000 index (at an average Russell 2000 index value of 646.5) in addition to its existing swap contracts referenced to the
There were 20.4 and 18.3 million weighted average shares outstanding during 2010 and 2009, respectively. At
Summarized (without notes) consolidated balance sheets and statements of earnings and comprehensive income, along with segmented premium and combined ratio information, follow and form part of this news release. Fairfax’s detailed fourth quarter report can be accessed at its website www.fairfax.ca.
As previously announced, Fairfax will hold a conference call to discuss its fourth quarter results at
Certain statements contained herein may constitute forward-looking statements and are made pursuant to the “safe harbour” provisions of the United States Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Fairfax to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to: a reduction in net income if our loss reserves (including reserves for asbestos, environmental and other latent claims) are insufficient; underwriting losses on the risks we insure that are higher or lower than expected; the occurrence of catastrophic events with a frequency or severity exceeding our estimates; the cycles of the insurance market and general economic conditions, which can substantially influence our and our competitors’ premium rates and capacity to write new business; changes in market variables, including interest rates, foreign exchange rates, equity prices and credit spreads, which could negatively affect our investment portfolio; risks associated with our use of derivative instruments; the failure of our hedging methods to achieve their desired risk management objective; exposure to credit risk in the event our reinsurers fail to make payments to us under our reinsurance arrangements; exposure to credit risk in the event our insureds, insurance producers or reinsurance intermediaries fail to remit premiums that are owed to us or failure by our insureds to reimburse us for deductibles that are paid by us on their behalf; risks associated with implementing our business strategies; the timing of claims payments being sooner or the receipt of reinsurance recoverables being later than anticipated by us; the inability of our subsidiaries to maintain financial or claims paying ability ratings;
a decrease in the level of demand for insurance or reinsurance products, or increased competition in the insurance industry; the failure of any of the loss limitation methods we employ; the impact of emerging claim and coverage issues; our inability to obtain reinsurance coverage in sufficient amounts, at reasonable prices or on terms that adequately protect us; our inability to access cash of our subsidiaries; our inability to obtain required levels of capital on favorable terms, if at all; loss of key employees; the passage of legislation subjecting our businesses to additional supervision or regulation, including additional tax regulation, in
CONSOLIDATED BALANCE SHEETS as atDecember 31, 2010 and 2009 (unaudited - US$ millions) 2010 2009 ------------------------ Assets Holding company cash, short term investments and marketable securities (including assets pledged for short sale and derivative obligations -$137.4 ; 2009 - $78.9) 1,540.7 1,251.6 Accounts receivable and other 1,802.3 1,805.0 Income taxes receivable 216.8 50.4 Recoverable from reinsurers (including recoverables on paid losses - $238.1; 2009 - $255.1) 3,993.8 3,818.6 ------------------------ 7,553.6 6,925.6 ------------------------ Portfolio investments Subsidiary cash and short term investments (cost $3,513.9; 2009 - $3,230.6) 3,513.9 3,244.8 Bonds (cost $11,865.8; 2009 - $10,742.0) 11,748.2 10,918.3 Preferred stocks (cost $581.3; 2009 - $292.4) 583.9 292.8 Common stocks (cost $3,202.8; 2009 - $4,082.4) 4,131.3 4,895.0 Investments, at equity (fair value$976.9 ; 2009 - $604.3) 715.5 433.5 Derivatives and other invested assets (cost$403.9 ; 2009 - $122.5) 579.4 142.7 Assets pledged for short sale and derivative obligations (cost $725.1; 2009 - $149.2) 709.6 151.5 ------------------------ 21,981.8 20,078.6 ------------------------ Deferred premium acquisition costs 357.0 372.0 Future income taxes 514.4 318.7 Premises and equipment 197.6 168.6 Goodwill and intangible assets 949.1 438.8 Other assets 184.7 149.7 ------------------------ 31,738.2 28,452.0 ------------------------ ------------------------ Liabilities Subsidiary indebtedness 2.2 12.1 Accounts payable and accrued liabilities 1,269.6 1,238.1 Income taxes payable 25.4 70.9 Short sale and derivative obligations (including at the holding company - $66.5; 2009 - $8.9) 216.9 57.2 Funds withheld payable to reinsurers 363.2 354.9 ------------------------ 1,877.3 1,733.2 ------------------------ Provision for claims 16,270.3 14,766.7 Unearned premiums 2,120.9 1,913.8 Long term debt - holding company borrowings 1,498.1 1,236.9 Long term debt - subsidiary company borrowings 917.7 891.3 Other long term obligations - holding company 311.5 173.5 ------------------------ 21,118.5 18,982.2 ------------------------ Equity Common shareholders' equity 7,761.9 7,391.8 Preferred stock 934.7 227.2 ------------------------ Shareholders' equity attributable to shareholders of Fairfax 8,696.6 7,619.0 Non-controlling interests 45.8 117.6 ------------------------ Total equity 8,742.4 7,736.6 ------------------------ 31,738.2 28,452.0 ------------------------ ------------------------ CONSOLIDATED STATEMENTS OF EARNINGS for the three and twelve months endedDecember 31, 2010 and 2009 (unaudited - US$ millions except per share amounts) Fourth quarter Year ended December 31, ------------------------------------------------------ 2010 2009 2010 2009 ------------------------------------------------------ Revenue Gross premiums written 1,260.0 1,165.7 5,362.9 5,094.0 ------------------------------------------------------ Net premiums written 1,073.3 990.5 4,449.0 4,286.1 ------------------------------------------------------ Net premiums earned 1,210.9 1,115.1 4,580.6 4,422.0 Interest and dividends 180.7 172.4 762.4 712.7 Net gains (losses) on investments (683.9) (30.3) 188.5 944.5 Excess of fair value of net assets acquired over purchase price (0.4) - 83.1 - Other revenue 159.3 150.1 549.1 556.4 ------------------------------------------------------ 866.6 1,407.3 6,163.7 6,635.6 ------------------------------------------------------ Expenses Losses on claims 891.8 839.2 3,409.0 3,186.9 Operating expenses 271.4 210.9 961.3 831.7 Commissions, net 178.5 182.7 707.5 701.1 Interest expense 52.9 49.3 195.4 166.3 Other expenses 151.5 142.0 538.8 544.0 ------------------------------------------------------ 1,546.1 1,424.1 5,812.0 5,430.0 ------------------------------------------------------ Earnings (loss) from operations before income taxes (679.5) (16.8) 351.7 1,205.6 Income taxes (316.2) (100.0) (119.5) 214.9 ------------------------------------------------------ Net earnings (loss) (363.3) 83.2 471.2 990.7 ------------------------------------------------------ ------------------------------------------------------ Attributable to: Shareholders of Fairfax (364.6) 79.4 469.0 856.8 Non-controlling interests 1.3 3.8 2.2 133.9 ------------------------------------------------------ (363.3) 83.2 471.2 990.7 ------------------------------------------------------ ------------------------------------------------------ Net earnings (loss) per share $ (18.43) $ 1.66 $ 21.41 $ 43.99 Net earnings (loss) per diluted share $ (18.43) $ 1.65 $ 21.31 $ 43.75 Cash dividends paid per share $ - $ - $ 10.00 $ 8.00 Shares outstanding (000) (weighted average) 20,474 20,177 20,436 18,301 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for the three and twelve months endedDecember 31, 2010 and 2009 (unaudited - US$ millions) Year ended Fourth quarter December 31, ----------------------------------------------- 2010 2009 2010 2009 ----------------------------------------------- Net earnings (loss) (363.3) 83.2 471.2 990.7 ----------------------------------------------- Other comprehensive income (loss), net of income taxes Change in net unrealized gains (losses) on available for sale securities(1) (68.8) (22.2) 363.1 925.9 Reclassification of net realized (gains) losses to net earnings(2) (60.2) (81.2) (492.9) (47.6) Share of other comprehensive income (loss) of investments, at equity(3) 11.1 - 14.5 8.2 Change in unrealized foreign currency translation gains (losses)(4) 66.3 39.2 122.3 213.3 Change in gains and losses on hedges of net investment in foreign subsidiary(5) (21.3) (11.9) (28.2) (25.5) ----------------------------------------------- Other comprehensive income (loss), net of income taxes (72.9) (76.1) (21.2) 1,074.3 ----------------------------------------------- Comprehensive income (loss) (436.2) 7.1 450.0 2,065.0 ----------------------------------------------- ----------------------------------------------- Attributable to: Shareholders of Fairfax (437.6) 5.2 447.7 1,824.9 Non-controlling interests 1.4 1.9 2.3 240.1 ----------------------------------------------- (436.2) 7.1 450.0 2,065.0 ----------------------------------------------- ----------------------------------------------- ------ (1) Net of income tax recovery of $51.4 (2009 - $20.3) and income tax expense of$144.2 (2009 -$417.3 ) for the fourth quarter and year endedDecember 31, 2010 , respectively. (2) Net of income tax recovery of $25.6 (2009 - $39.5) and $207.6 (2009 -$47.2 ) for the fourth quarter and year endedDecember 31, 2010 , respectively. (3) Net of income tax expense of $2.5 (2009 - income tax recovery of $0.4) and$3.2 (2009 - nil) for the fourth quarter and year endedDecember 31, 2010 . (4) Net of income tax expense of $6.3 (2009 - $6.3) and $11.2 (2009 - income tax recovery of$22.0 ) for the fourth quarter and year endedDecember 31, 2010 , respectively. (5) Net of income tax recovery of nil (2009 - $1.2) and nil (2009 - $2.8) for the fourth quarter and year endedDecember 31, 2010 , respectively. SEGMENTED INFORMATION (unaudited - US$ millions)
Net premiums written and net premiums earned by the insurance and reinsurance operations in the fourth quarter and twelve months of 2010 and 2009 were:
Net Premiums Written
Year ended
Fourth quarter December 31,
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2010 2009 2010 2009
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Insurance - Canada
(Northbridge) 248.6 245.8 985.0 928.7
- U.S. (Crum &
Forster and
Zenith
National) 260.2 172.6 919.5 716.4
- Asia (Fairfax
Asia) 33.0 28.5 157.4 127.9
Reinsurance - OdysseyRe 434.7 431.0 1,853.8 1,893.8
Reinsurance and
Insurance - Other 95.7 112.8 530.5 619.8
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Insurance and Reinsurance
Operating Companies 1,072.2 990.7 4,446.2 4,286.6
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Net Premiums Earned
Year ended
Fourth quarter December 31,
--------------------------------------------
2010 2009 2010 2009
--------------------------------------------
Insurance - Canada
(Northbridge) 253.6 256.4 996.6 969.2
- U.S. (Crum &
Forster and
Zenith
National) 303.5 191.6 1,000.1 781.3
- Asia (Fairfax
Asia) 42.7 32.9 155.0 116.0
Reinsurance - OdysseyRe 479.4 483.0 1,885.7 1,927.4
Reinsurance and
Insurance - Other 128.3 151.2 536.0 628.1
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Insurance and Reinsurance
Operating Companies 1,207.5 1,115.1 4,573.4 4,422.0
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Combined ratios of the insurance and reinsurance operations in the fourth quarter and twelve months of 2010 and 2009 were:
Year ended
Fourth quarter December 31,
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2010 2009 2010 2009
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Insurance - Canada
(Northbridge) 111.1% 112.6% 107.3% 105.9%
- U.S. (Crum &
Forster and
Zenith
National) 130.6% 106.9% 116.8% 104.1%
- Asia (Fairfax
Asia) 90.8% 85.3% 89.3% 82.6%
Reinsurance - OdysseyRe 92.9% 96.6% 98.6% 96.7%
Reinsurance and
Insurance - Other 90.0% 101.5% 107.2% 98.1%
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Insurance and Reinsurance
Operating Companies 105.8% 102.4% 105.2% 99.8%
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Contacts:Fairfax Financial Holdings Limited John Varnell Chief Financial Officer (416) 367-4941 Media ContactPaul Rivett Chief Legal Officer (416) 367-4941
Source: