Fairfax Financial Holdings Limited: Financial Results for the Year Ended December 31, 2011
TORONTO, ONTARIO (Marketwire)
February 16, 2012
(Note: All dollar amounts in this news release are expressed in U.S. dollars, except as otherwise noted. The financial results are reported under International Financial Reporting Standards, except as otherwise noted.)
“Notwithstanding catastrophe losses of
In the fourth quarter of 2011, Fairfax had a net loss of
Highlights in 2011 included the following:
-- The combined ratio of the insurance and reinsurance operations was
114.2% on a consolidated basis, producing an underwriting loss of $754.4
million , compared to a combined ratio and underwriting loss of 103.5%
and $160.5 million respectively in 2010. Underwriting results in 2011
were negatively affected by $1,021 million of pre-tax catastrophe losses
(net of reinsurance and reinstatement premiums), primarily related to
losses from the Japanese earthquake, Thailand flooding, U.S. tornadoes,
the New Zealand earthquakes and Hurricane Irene which increased the
combined ratio by 19.3 points.
-- Net premiums written by the insurance and reinsurance operations
increased by 23.4% to $5,487.6 million compared to $4,446.0 million in
2010 (10.9% excluding the acquisitions of Zenith National, First Mercury
and Pacific Insurance ).
-- Operating income of the insurance and reinsurance operations (excluding
net gains on investments) declined from $398.9 million in 2010 to an
operating loss of $236.5 million in 2011, primarily as a result of the
higher underwriting losses.
-- Interest and dividend income of $705.3 million decreased 0.9% from
$711.5 million in 2010. The year-over-year decrease was attributable to
lower yields due to increased investment expenses incurred in connection
with the company's equity hedges, partially offset by a larger average
investment portfolio resulting from the above-mentioned acquisitions.
Interest income as reported is unadjusted for the positive tax effect of
the company's significant holdings of tax-advantaged debt securities
(holdings of $4,883.9 million at December 31, 2011 compared to $4,358.9
million at December 31, 2010 ).
-- Net investment gains of $691.2 million (net investment losses of $914.9
million in the fourth quarter) consisted of the following:
Year ended December 31, 2011
-----------------------------------------
Realized Unrealized Net
gains gains gains
(losses) (losses) (losses)
------------- ------------- -------------
Net gains (losses) on:
Equity and equity-related
investments 703.6 (1,496.4) (792.8)
Equity hedges - 413.9 413.9
------------- ------------- -------------
Equity and equity-related
investments after equity hedges 703.6 (1,082.5) (378.9)
Bonds 424.6 854.1 1,278.7
CPI-linked derivatives - (233.9) (233.9)
Other (39.8) 65.1 25.3
------------- ------------- -------------
1,088.4 (397.2) 691.2
------------- ------------- -------------
------------- ------------- -------------
Fourth quarter ended December 31, 2011
-----------------------------------------
Realized Unrealized Net
gains gains gains
(losses) (losses) (losses)
------------- ------------- -------------
Net gains (losses) on:
Equity and equity-related
investments 12.8 33.2 46.0
Equity hedges - (779.3) (779.3)
------------- ------------- -------------
Equity and equity-related
investments after equity hedges 12.8 (746.1) (733.3)
Bonds 331.7 (430.6) (98.9)
CPI-linked derivatives - 0.1 0.1
Other 12.3 (95.1) (82.8)
------------- ------------- -------------
356.8 (1,271.7) (914.9)
------------- ------------- -------------
------------- ------------- -------------
-- On May 9, 2011 , the company completed a private offering of $500 million
of 5.80% unsecured senior notes due 2021 for net proceeds after
discount, commissions and expenses of $493.9 million .
-- On May 25, 2011 , the company completed an offering of Cdn$400 million of
6.40% unsecured senior notes due 2021 for net proceeds after discount,
commissions and expenses of $405.6 million (Cdn$396.0 million ).
-- On June 6, 2011 , the company completed a tender offer for $694.4 million
($657.9 million net of Zenith National's ownership) of Fairfax, Crum &
Forster and OdysseyRe unsecured senior notes. The company recorded a
charge of $104.2 million in connection with the debt repurchases.
-- The company held $1,026.7 million of cash, short term investments and
marketable securities at the holding company level ($962.8 million net
of short sale and derivative obligations) at December 31, 2011 , compared
to $1,540.7 million ($1,474.2 million net of short sale and derivative
obligations) at December 31, 2010 .
-- The company's total debt to total capital ratio increased to 26.4% at
December 31, 2011 from 23.9% at December 31, 2010 .
-- At December 31, 2011 , common shareholders' equity was $7,427.9 million ,
or $364.55 per basic share, compared to $7,697.9 million , or $376.33 per
basic share, at December 31, 2010 .
Fairfax holds significant investments in equity and equity-related securities. In response to the significant appreciation in equity market valuations and uncertainty in the economy, the company has hedged its equity investment exposure by entering into total return swaps referenced to the Russell 2000 index (at an average Russell 2000 index value of 662.22) and swap contracts referenced to the
There were 20.4 and 20.5 million weighted average shares outstanding during the fourth quarters of 2011 and 2010, respectively. At
Summarized (without notes) condensed 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 annual and 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, 2011 ,December 31, 2010 andJanuary 1, 2010 (unaudited - US$ millions) December December January 31, 2011 31, 2010 1, 2010 ---------- ---------- ---------- Assets Holding company cash and investments (including assets pledged for short sale and derivative obligations -$249.0 ;December 31, 2010 -$137.4 ; January 1, 2010 - $78.9) 1,026.7 1,540.7 1,251.6 Insurance contract receivables 1,735.4 1,476.6 1,376.8 ---------- ---------- ---------- 2,762.1 3,017.3 2,628.4 ---------- ---------- ---------- Portfolio investments Subsidiary cash and short term investments 6,199.2 3,513.9 3,244.8 Bonds (cost$9,515.4 ;December 31, 2010 - $11,456.9; January 1, 2010 - $10,516.2) 10,835.2 11,748.2 10,918.3 Preferred stocks (cost$555.6 ; December 31, 2010 - $567.6; January 1, 2010 - $273.0) 563.3 583.9 292.8 Common stocks (cost$3,867.3 ;December 31, 2010 -$3,198.0 ;January 1, 2010 - $4,081.1) 3,663.1 4,133.3 4,893.2 Investments in associates (fair value$1,271.8 ;December 31, 2010 -$976.9 ; January 1, 2010 - $604.3) 924.3 707.9 423.7 Derivatives and other invested assets (cost$511.4 ;December 31, 2010 -$403.9 ; January 1, 2010 - $122.5) 394.6 579.4 142.7 Assets pledged for short sale and derivative obligations (cost$810.1 ;December 31, 2010 -$698.3 ; January 1, 2010 - $138.3) 886.3 709.6 151.5 ---------- ---------- ---------- 23,466.0 21,976.2 20,067.0 ---------- ---------- ---------- Deferred premium acquisition costs 415.9 357.0 372.0 Recoverable from reinsurers (including recoverables on paid losses -$313.2 ;December 31, 2010 -$247.2 ; January 1, 2010 - $262.8) 4,198.1 3,757.0 3,571.1 Deferred income taxes 628.2 490.5 299.5 Goodwill and intangible assets 1,115.2 949.1 438.8 Other assets 821.4 901.0 771.6 ---------- ---------- ---------- 33,406.9 31,448.1 28,148.4 ---------- ---------- ---------- ---------- ---------- ---------- Liabilities Subsidiary indebtedness 1.0 2.2 12.1 Accounts payable and accrued liabilities 1,656.2 1,263.1 1,290.8 Income taxes payable 21.4 31.7 77.6 Short sale and derivative obligations (including at the holding company -$63.9 ;December 31, 2010 -$66.5 ;January 1, 2010 - $8.9) 170.2 216.9 57.2 Funds withheld payable to reinsurers 412.6 363.2 354.9 ---------- ---------- ---------- 2,261.4 1,877.1 1,792.6 ---------- ---------- ---------- Insurance contract liabilities 19,719.5 18,170.2 16,418.6 Long term debt 3,017.5 2,726.9 2,301.2 ---------- ---------- ---------- 22,737.0 20,897.1 18,719.8 ---------- ---------- ---------- Equity Common shareholders' equity 7,427.9 7,697.9 7,295.2 Preferred stock 934.7 934.7 227.2 ---------- ---------- ---------- Shareholders' equity attributable to shareholders of Fairfax 8,362.6 8,632.6 7,522.4 Non-controlling interests 45.9 41.3 113.6 ---------- ---------- ---------- Total equity 8,408.5 8,673.9 7,636.0 ---------- ---------- ---------- 33,406.9 31,448.1 28,148.4 ---------- ---------- ---------- ---------- ---------- ---------- CONSOLIDATED STATEMENTS OF EARNINGS for the three and twelve months endedDecember 31, 2011 and 2010 (unaudited - US$ millions except per share amounts) Year ended Fourth quarter December 31, --------------------- --------------------- 2011 2010 2011 2010 ---------- ---------- ---------- ---------- Revenue Gross premiums written 1,533.5 1,259.9 6,743.5 5,362.9 ---------- ---------- ---------- ---------- Net premiums written 1,287.4 1,073.3 5,607.9 4,449.0 ---------- ---------- ---------- ---------- Net premiums earned 1,395.5 1,210.9 5,426.9 4,580.6 Interest and dividends 162.1 161.5 705.3 711.5 Share of profit (loss) of associates (9.9) 18.1 1.8 46.0 Net gains (losses) on investments (914.9) (887.9) 691.2 (3.0) Excess of fair value of net assets acquired over purchase price - (0.4) - 83.1 Other revenue 190.8 159.3 649.8 549.1 ---------- ---------- ---------- ---------- 823.6 661.5 7,475.0 5,967.3 ---------- ---------- ---------- ---------- Expenses Losses on claims, gross 1,515.0 1,055.4 5,541.4 4,238.0 Less ceded losses on claims (237.8) (168.7) (956.1) (839.3) ---------- ---------- ---------- ---------- Losses on claims, net 1,277.2 886.7 4,585.3 3,398.7 Operating expenses 260.2 278.8 1,148.3 973.5 Commissions, net 217.4 178.5 795.4 707.5 Interest expense 52.2 52.9 214.0 195.5 Other expenses 186.1 151.4 740.7 541.0 ---------- ---------- ---------- ---------- 1,993.1 1,548.3 7,483.7 5,816.2 ---------- ---------- ---------- ---------- Earnings (loss) before income taxes (1,169.5) (886.8) (8.7) 151.1 Income taxes (398.7) (393.7) (56.5) (186.9) ---------- ---------- ---------- ---------- Net earnings (loss) (770.8) (493.1) 47.8 338.0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Attributable to: Shareholders of Fairfax (771.5) (494.4) 45.1 335.8 Non-controlling interests 0.7 1.3 2.7 2.2 ---------- ---------- ---------- ---------- (770.8) (493.1) 47.8 338.0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net earnings (loss) per share $ (38.47) $ (24.77) $ (0.31) $ 14.90 Net earnings (loss) per diluted share $ (38.47) $ (24.77) $ (0.31) $ 14.82 Cash dividends paid per share $ - $ - $ 10.00 $ 10.00 Shares outstanding (000) (weighted average) 20,381 20,474 20,405 20,436 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for the three and twelve months endedDecember 31, 2011 and 2010 (unaudited - US$ millions) Year ended Fourth quarter December 31, ------------------- ------------------- 2011 2010 2011 2010 --------- --------- --------- --------- Net earnings (loss) (770.8) (493.1) 47.8 338.0 --------- --------- --------- --------- Other comprehensive income (loss), net of income taxes Change in unrealized foreign currency translation gains (losses) on foreign operations(1) 61.7 66.3 (40.8) 121.0 Change in gains and losses on hedge of net investment in foreign subsidiary(2) (24.1) (21.3) 33.2 (28.2) Share of other comprehensive income (loss) of associates(3) (10.6) 11.9 (7.5) 12.8 Change in actuarial gains and losses on defined benefit plans(4) (22.0) 37.6 (22.6) 30.6 --------- --------- --------- --------- Other comprehensive income (loss), net of income taxes 5.0 94.5 (37.7) 136.2 --------- --------- --------- --------- Comprehensive income (loss) (765.8) (398.6) 10.1 474.2 --------- --------- --------- --------- --------- --------- --------- --------- Attributable to: Shareholders of Fairfax (766.6) (400.0) 8.0 472.4 Non-controlling interests 0.8 1.4 2.1 1.8 --------- --------- --------- --------- (765.8) (398.6) 10.1 474.2 --------- --------- --------- --------- --------- --------- --------- --------- (1) Net of income tax expense of$11.7 (2010 -$6.5 ) and$9.0 (2010 -$11.5 ) for the fourth quarter and year endedDecember 31, 2011 , respectively. (2) Net of income tax recovery of nil (2010 - nil) and nil (2010 - nil) for the fourth quarter and year endedDecember 31, 2011 , respectively. (3) Net of income tax expense of$0.8 (2010 -$2.4 ) and income tax recovery of$0.8 (2010 - income tax expense of$2.7 ) for the fourth quarter and year endedDecember 31, 2011 , respectively. (4) Net of income tax recovery of$9.0 (2010 - income tax expense of$8.0 ) and$9.0 (2010 - income tax expense of$5.0 ) for the fourth quarter and year endedDecember 31, 2011 , respectively. SEGMENTED INFORMATION (unaudited - US$ millions) Net premiums written and net premiums earned by the insurance and reinsurance operations in the fourth quarters and years endedDecember 31, 2011 and 2010 were: Net Premiums Written Year ended Fourth quarter December 31, ------------------- ------------------- 2011 2010 2011 2010 --------- --------- --------- --------- Insurance - Canada (Northbridge) 257.7 248.6 1,098.5 985.0 - U.S. (Crum & Forster and Zenith National) 408.0 260.2 1,601.1 919.5 - Asia (Fairfax Asia) 50.5 33.0 213.7 157.4 Reinsurance - OdysseyRe 477.2 434.9 2,089.7 1,853.6 Reinsurance and Insurance - Other 93.4 95.7 484.6 530.5 --------- --------- --------- --------- Insurance and reinsurance operations 1,286.8 1,072.4 5,487.6 4,446.0 --------- --------- --------- --------- --------- --------- --------- --------- Net Premiums Earned Year ended Fourth quarter December 31, ------------------- ------------------- 2011 2010 2011 2010 --------- --------- --------- --------- Insurance - Canada (Northbridge) 258.4 253.6 1,072.2 996.6 - U.S. (Crum & Forster and Zenith National) 414.9 303.5 1,504.6 1,000.1 - Asia (Fairfax Asia) 55.0 42.7 204.1 155.0 Reinsurance - OdysseyRe 537.0 479.6 2,014.7 1,885.5 Reinsurance and Insurance - Other 129.2 128.3 504.9 536.0 --------- --------- --------- --------- Insurance and reinsurance operations 1,394.5 1,207.7 5,300.5 4,573.2 --------- --------- --------- --------- --------- --------- --------- --------- Combined ratios of the insurance and reinsurance operations in the fourth quarters and years endedDecember 31, 2011 and 2010 were: Year ended Fourth quarter December 31, ------------------- ------------------- 2011 2010 2011 2010 --------- --------- --------- --------- Insurance - Canada (Northbridge) 101.9% 111.2% 102.8% 106.9% - U.S. (Crum & Forster and Zenith National) 124.2% 130.1% 114.3% 116.5% - Asia (Fairfax Asia) 89.2% 90.8% 83.2% 89.3% Reinsurance - OdysseyRe 122.7% 85.8% 116.7% 95.0% Reinsurance and Insurance - Other 155.1% 90.1% 140.9% 107.2% --------- --------- --------- --------- Insurance and reinsurance operations 121.0% 102.9% 114.2% 103.5% --------- --------- --------- --------- --------- --------- --------- ---------
FOR FURTHER INFORMATION PLEASE CONTACT:
Fairfax Financial Holdings Limited
John Varnell
Chief Financial Officer
(416) 367-4941
www.fairfax.ca
Media Contact:
Paul Rivett
Chief Legal Officer
(416) 367-4941
Source: Fairfax Financial Holdings Limited