Fairfax Financial Holdings Limited: First Quarter Financial Results
TORONTO, ONTARIO (Marketwire)
May 1, 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.)
“We had a much improved underwriting result on increased premiums, but our defensive investment position through our hedging strategy resulted in a small unrealized investment loss as the markets moved higher in the first quarter,” said
Highlights in the first quarter (with comparisons to the first quarter of 2011) included the following:
-- The combined ratio of the insurance and reinsurance operations was 98.7%
on a consolidated basis, producing an underwriting profit of $17.5
million, compared to a combined ratio and underwriting loss of 128.6%
and $350.2 million respectively in 2011. Underwriting results in 2011
were negatively affected by catastrophe losses, primarily related to
losses from the Japanese and New Zealand earthquakes and Australian
flood losses.
-- Net premiums written by the insurance and reinsurance operations
increased 8.7% (5.7% excluding acquisitions) to $1,521.6 million from
$1,399.7 million in 2011.
-- Operating income of the insurance and reinsurance operations (excluding
net losses on investments) increased to $103.4 million from an operating
loss of $240.2 million in 2011, primarily as a result of the improved
underwriting results.
-- Interest and dividend income of $129.6 million decreased 27.4% from
$178.5 million in 2011, primarily because of significantly increased
holdings of low-yielding cash and short term investments ($6,102.5
million at March 31, 2012 compared to $3,613.8 million at March 31,
2011) resulting from sales of higher-yielding securities, principally
government bonds. Interest income as reported is unadjusted for the
positive tax effect of the company's significant holdings of tax-
advantaged debt securities (holdings of $4,980.9 million at March 31,
2012 compared to $4,883.9 million at December 31, 2011).
-- Net investment losses of $40.9 million in 2012 ($101.5 million in 2011)
consisted of the following:
Realized Unrealized
gains gains Net gains
(losses) (losses) (losses)
------------ ------------- -------------
------------ ------------- -------------
Net gains (losses) on:
Equity and equity-related
investments 65.5 772.5 838.0
Equity hedges - (822.6) (822.6)
------------ ------------- -------------
Equity and equity-related
investments after equity
hedges 65.5 (50.1) 15.4
Bonds 9.7 22.9 32.6
CPI-linked derivatives - (68.0) (68.0)
Other 20.3 (41.2) (20.9)
------------ ------------- -------------
95.5 (136.4) (40.9)
------------ ------------- -------------
------------ ------------- -------------
-- On March 21, 2012, the company completed an offering of 9.5 million
Series K preferred shares yielding 5% per annum for the initial five
years for aggregate net proceeds after commissions and expenses of
approximately Cdn$230 million.
-- The company held $1,015.7 million of cash, short term investments and
marketable securities at the holding company level ($1,000.4 million net
of short sale and derivative obligations) at March 31, 2012, compared to
$1,026.7 million ($962.8 million net of short sale and derivative
obligations) at December 31, 2011.
-- The company's total debt to total capital ratio remained effectively the
same at 26.5% at March 31, 2012 (26.4% at December 31, 2011).
-- At March 31, 2012, common shareholders' equity was $7,215.2 million, or
$354.79 per basic share, compared to $7,427.9 million, or $364.55 per
basic share, at December 31, 2011.
-- Subsequent to quarter-end, the company repurchased its $86.3 million of
maturing debt at par.
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 million weighted average shares outstanding during the first quarters of 2012 and 2011. At
Summarized (without notes) condensed interim 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 first quarter report can be accessed at its website www.fairfax.ca.
As previously announced, Fairfax will hold a conference call to discuss its first 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 atMarch 31, 2012 and December 31, 2011 (unaudited - US$ millions) March 31, December 31, 2012 2011 ------------ ------------ Assets Holding company cash and investments (including assets pledged for short sale and derivative obligations - $127.0; December 31, 2011 - $249.0) 1,015.7 1,026.7 Insurance contract receivables 1,980.7 1,735.4 ------------ ------------ 2,996.4 2,762.1 ------------ ------------ Portfolio investments Subsidiary cash and short term investments 5,424.2 6,199.2 Bonds (cost $9,485.3; December 31, 2011 - $9,515.4) 10,725.4 10,835.2 Preferred stocks (cost $539.5; December 31, 2011 - $555.6) 568.5 563.3 Common stocks (cost $4,090.0; December 31, 2011 - $3,867.3) 4,311.2 3,663.1 Investments in associates (fair value $1,415.7; December 31, 2011 - $1,271.8) 989.1 924.3 Derivatives and other invested assets (cost $523.3; December 31, 2011 - $511.4) 316.3 394.6 Assets pledged for short sale and derivative obligations (cost $870.7; December 31, 2011 - $810.1) 925.7 886.3 ------------ ------------ 23,260.4 23,466.0 ------------ ------------ Deferred premium acquisition costs 440.7 415.9 Recoverable from reinsurers (including recoverables on paid losses - $381.0; December 31, 2011 - $313.2) 4,358.2 4,198.1 Deferred income taxes 666.3 628.2 Goodwill and intangible assets 1,176.1 1,115.2 Other assets 974.9 821.4 ------------ ------------ 33,873.0 33,406.9 ------------ ------------ ------------ ------------ Liabilities Subsidiary indebtedness 3.1 1.0 Accounts payable and accrued liabilities 1,736.2 1,656.2 Income taxes payable 59.0 21.4 Short sale and derivative obligations (including at the holding company - $15.3; December 31, 2011 - $63.9) 113.6 170.2 Funds withheld payable to reinsurers 430.8 412.6 ------------ ------------ 2,342.7 2,261.4 ------------ ------------ Insurance contract liabilities 20,053.3 19,719.5 Long term debt 3,040.2 3,017.5 ------------ ------------ 23,093.5 22,737.0 ------------ ------------ Equity Common shareholders' equity 7,215.2 7,427.9 Preferred stock 1,166.4 934.7 ------------ ------------ Shareholders' equity attributable to shareholders of Fairfax 8,381.6 8,362.6 Non-controlling interests 55.2 45.9 ------------ ------------ Total equity 8,436.8 8,408.5 ------------ ------------ 33,873.0 33,406.9 ------------ ------------ ------------ ------------ CONSOLIDATED STATEMENTS OF EARNINGS for the three months ended March 31, 2012 and 2011 (unaudited - US$ millions except per share amounts) 2012 2011 -------------- -------------- Revenue Gross premiums written 1,807.6 1,810.4 -------------- -------------- Net premiums written 1,521.6 1,519.2 -------------- -------------- Net premiums earned 1,339.5 1,348.7 Interest and dividends 129.6 178.5 Share of profit (loss) of associates (8.7) (6.6) Net gains (losses) on investments (40.9) (101.5) Other revenue 205.0 154.4 -------------- -------------- 1,624.5 1,573.5 -------------- -------------- Expenses Losses on claims, gross 1,102.0 1,599.5 Less ceded losses on claims (203.2) (298.4) -------------- -------------- Losses on claims, net 898.8 1,301.1 Operating expenses 269.8 279.9 Commissions, net 206.1 186.8 Interest expense 52.9 53.2 Other expenses 199.2 148.6 -------------- -------------- 1,626.8 1,969.6 -------------- -------------- Earnings (loss) before income taxes (2.3) (396.1) Income tax recovery (2.4) (156.6) -------------- -------------- Net earnings (loss) 0.1 (239.5) -------------- -------------- -------------- -------------- Attributable to: Shareholders of Fairfax (1.3) (240.6) Non-controlling interests 1.4 1.1 -------------- -------------- 0.1 (239.5) -------------- -------------- -------------- -------------- Net earnings (loss) per share $ (0.69) $ (12.42) Net earnings (loss) per diluted share $ (0.69) $ (12.42) Cash dividends paid per share $ 10.00 $ 10.00 Shares outstanding (000) (weighted average) 20,356 20,440 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for the three months ended March 31, 2012 and 2011 (unaudited - US$ millions) 2012 2011 ------------- ------------- Net earnings (loss) 0.1 (239.5) ------------- ------------- Other comprehensive income (loss), net of income taxes Change in unrealized foreign currency translation gains (losses) on foreign operations(1) 45.8 25.6 Change in gains and losses on hedge of net investment in foreign subsidiary(2) (19.9) (14.6) Share of other comprehensive income (loss) of associates(3) (4.8) 5.6 ------------- ------------- Other comprehensive income (loss), net of income taxes 21.1 16.6 ------------- ------------- Comprehensive income (loss) 21.2 (222.9) ------------- ------------- ------------- ------------- Attributable to: Shareholders of Fairfax 19.6 (223.9) Non-controlling interests 1.6 1.0 ------------- ------------- 21.2 (222.9) ------------- ------------- ------------- ------------- ---------------------- (1) Net of income tax recovery of $0.9 (2011 - $8.3). (2) Net of income tax recovery of nil (2011 - nil). (3) Net of income tax expense of $1.0 (2011 - $0.4). SEGMENTED INFORMATION (unaudited - US$millions)
Net premiums written and net premiums earned by the insurance and reinsurance operations in the first quarters of 2012 and 2011 were:
Net Premiums Written
First quarter
----------------------------
2012 2011
------------ ------------
Insurance
- Canada (Northbridge) 201.6 258.4
- U.S. (Crum & Forster and Zenith National) 564.0 450.7
- Asia (Fairfax Asia) 72.8 61.3
Reinsurance - OdysseyRe 525.9 509.9
Insurance and Reinsurance - Other 157.3 119.4
------------ ------------
Insurance and reinsurance operations 1,521.6 1,399.7
------------ ------------
------------ ------------
Net Premiums Earned
First quarter
----------------------------
2012 2011
------------ ------------
Insurance
- Canada (Northbridge) 252.0 268.0
- U.S. (Crum & Forster and Zenith National) 418.5 339.6
- Asia (Fairfax Asia) 53.4 41.2
Reinsurance - OdysseyRe 487.0 451.9
Insurance and Reinsurance - Other 127.3 126.1
------------ ------------
Insurance and reinsurance operations 1,338.2 1,226.8
------------ ------------
------------ ------------
Combined ratios of the insurance and reinsurance operations in the first
quarters of 2012 and 2011 were:
First quarter
----------------------------
2012 2011
------------ ------------
Insurance
- Canada (Northbridge) 103.8% 103.6%
- U.S. (Crum & Forster and Zenith National) 109.2% 110.5%
- Asia (Fairfax Asia) 92.2% 85.9%
Reinsurance - OdysseyRe 86.9% 150.3%
Insurance and Reinsurance - Other 101.7% 166.3%
------------ ------------
Insurance and reinsurance operations 98.7% 128.6%
------------ ------------
------------ ------------
FOR FURTHER INFORMATION PLEASE CONTACT:
Fairfax Financial Holdings Limited
John Varnell
Chief Financial Officer
(416) 367-4941
Media Contact
Fairfax Financial Holdings Limited
Paul Rivett
Vice President
(416) 367-4941
www.fairfax.ca
Source: Fairfax Financial Holdings Limited