Press Release Details
First Quarter Financial Results
“During the first quarter, the company suffered losses from the
Highlights in the first quarter included the following:
-- The combined ratio of the company's insurance and reinsurance operations
was 128.7% on a consolidated basis, producing an underwriting loss of
$352.0 million , compared to a combined ratio and underwriting loss of
111.3% and $120.6 million , respectively, in the first quarter of 2010.
Underwriting results in the first quarter of 2011 were negatively
affected by $401.4 million of pre-tax catastrophe losses (net of
reinsurance and reinstatement premiums), including the earthquake losses
in Japan . Prior to giving effect to the impact of the Japanese, New
Zealand and Australian catastrophe losses, the company generated a
combined ratio of 97.5%.
-- The company's estimation of its losses from the Tohoku Japan earthquake
event assumes an approximate $30 billion industry loss and is based on a
combination of modeled information, underwriter analysis, client
discussions, and a profile of exposed limits within the affected region.
The nature and scale of the loss and its recent occurrence introduces
significant uncertainty to the loss estimation process. The company
therefore advises that ultimate losses could differ, perhaps materially,
as further information becomes available. The $217.7 million of after
tax losses from the Japanese earthquake was under 3% of shareholders'
equity, well within our risk tolerance limits.
-- Net premiums written by the company's insurance and reinsurance
operations in the first quarter of 2011 increased 28.0% to $1,399.7
million from $1,093.3 million in the first quarter of 2010 due primarily
to the acquisition of Zenith National and First Mercury.
-- Operating loss of the company's insurance and reinsurance operations
(excluding net losses on investments) in the first quarter of 2011 was
$242.0 million compared to a $19.1 million operating profit in the first
quarter of 2010, primarily as a result of the above-described
catastrophe losses.
-- Interest and dividend income of $178.5 million in the first quarter of
2011 increased 2.8% from $173.6 million in the first quarter of 2010.
The year-over-year increase was attributable to the larger average
investment portfolio which resulted from the acquisition of Zenith
National and First Mercury partially offset by increased investment
expenses incurred in connection with the company's equity hedges.
Interest income as reported is unadjusted for the positive tax effect of
the company's significant holdings of tax-advantaged debt securities
(holdings of $4,377.8 million at March 31, 2011 compared to $4,625.0
million at March 31, 2010 ).
-- Net investment losses of $101.5 million in the first quarter of 2011
consisted of the following:
March 31, 2011
-----------------------------------
-----------------------------------
Unrealized
Realized gains Net gains
gains (losses) (losses)
----------- ----------- -----------
----------- ----------- -----------
Net gains (losses) on:
Equities and equity-related investments 34.0 588.4 622.4
Economic equity hedges - (428.4) (428.4)
----------- ----------- -----------
Equities and equity-related investments
after equity hedges 34.0 160.0 194.0
Bonds (7.3) (133.0) (140.3)
CPI-linked derivatives - (167.2) (167.2)
Other 6.7 5.3 12.0
----------- ----------- -----------
33.4 (134.9) (101.5)
----------- ----------- -----------
----------- ----------- -----------
-- The company held $1,061.0 million of cash, short term investments and
marketable securities at the holding company level ($989.3 million net
of short sale and derivative obligations) at March 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 25.5% at
March 31, 2011 from 23.9% at December 31, 2010 , primarily as a result of
the net loss, dividends paid and debt of companies acquired in the first
quarter of 2011.
-- At March 31, 2011 , common shareholders' equity was $7,245.2 million , or
$354.72 per basic share, compared to $7,697.9 million , or $376.33 per
basic share, at December 31, 2010 .
-- On February 9, 2011 , the company completed the purchase of First Mercury
Financial Corporation at a cost of $294.3 million .
-- On March 24, 2011 , the company completed the purchase of Pacific
Insurance Berhad of Malaysia for $71.5 million .
Fairfax holds significant investments in equities and equity-related securities. In response to the significant appreciation in equity market valuations during 2010 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 659.00) in addition to its existing swap contracts referenced to the
There were 20.4 and 20.2 million weighted average shares outstanding during the first quarters of 2011 and 2010, 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 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, 2011 ,December 31, 2010 andJanuary 1, 2010 (unaudited - US$ millions) March 31, December 31, January 1, 2011 2010 2010 ------------ ------------ ------------ Assets Holding company cash and investments (including assets pledged for short sale and derivative obligations -$145.3 ;December 31, 2010 -$137.4 ;January 1, 2010 - $78.9) 1,061.0 1,540.7 1,251.6 Insurance contract receivables 1,748.0 1,476.6 1,376.8 ------------ ------------ ------------ 2,809.0 3,017.3 2,628.4 ------------ ------------ ------------ Portfolio investments Subsidiary cash and short term investments 3,260.7 3,513.9 3,244.8 Bonds (cost$12,073.4 ;December 31, 2010 -$11,456.9 ;January 1, 2010 - $10,516.2) 12,285.3 11,748.2 10,918.3 Preferred stocks (cost$571.8 ;December 31, 2010 -$567.6 ; January 1, 2010 - $273.0) 730.2 583.9 292.8 Common stocks (cost$3,330.0 ;December 31, 2010 -$3,198.0 ;January 1, 2010 - $4,081.1) 4,590.2 4,133.3 4,893.2 Investments in associates (fair value$1,045.3 ;December 31, 2010 -$976.9 ; January 1, 2010 - $604.3) 759.9 707.9 423.7 Derivatives and other invested assets (cost$536.2 ;December 31, 2010 - $403.9; January 1, 2010 - $122.5) 556.6 579.4 142.7 Assets pledged for short sale and derivative obligations (cost$689.7 ;December 31, 2010 -$698.3 ; January 1, 2010 - $138.3) 686.4 709.6 151.5 ------------ ------------ ------------ 22,869.3 21,976.2 20,067.0 ------------ ------------ ------------ Deferred premium acquisition costs 400.0 357.0 372.0 Recoverable from reinsurers (including recoverables on paid losses -$271.4 ;December 31, 2010 -$247.3 ; January 1, 2010 - $262.8) 4,356.2 3,757.0 3,571.1 Deferred income taxes 666.8 490.5 299.5 Goodwill and intangible assets 1,107.9 949.1 438.8 Other assets 992.8 901.0 771.6 ------------ ------------ ------------ 33,202.0 31,448.1 28,148.4 ------------ ------------ ------------ ------------ ------------ ------------ Liabilities Subsidiary indebtedness 2.2 2.2 12.1 Accounts payable and accrued liabilities 1,425.0 1,263.1 1,290.8 Income taxes payable 22.5 31.7 77.6 Short sale and derivative obligations (including at the holding company -$71.7 ;December 31, 2010 -$66.5 ; January 1, 2010 - $8.9) 280.2 216.9 57.2 Funds withheld payable to reinsurers 452.0 363.2 354.9 ------------ ------------ ------------ 2,181.9 1,877.1 1,792.6 ------------ ------------ ------------ Insurance contract liabilities 19,986.2 18,170.2 16,418.6 Long term debt 2,811.7 2,726.9 2,301.2 ------------ ------------ ------------ 22,797.9 20,897.1 18,719.8 ------------ ------------ ------------ Equity Common shareholders' equity 7,245.2 7,697.9 7,295.2 Preferred stock 934.7 934.7 227.2 ------------ ------------ ------------ Shareholders' equity attributable to shareholders of Fairfax 8,179.9 8,632.6 7,522.4 Non-controlling interests 42.3 41.3 113.6 ------------ ------------ ------------ Total equity 8,222.2 8,673.9 7,636.0 ------------ ------------ ------------ 33,202.0 31,448.1 28,148.4 ------------ ------------ ------------ ------------ ------------ ------------ CONSOLIDATED STATEMENTS OF EARNINGS for the three months endedMarch 31, 2011 and 2010 (unaudited - US$ millions except per share amounts) First quarter --------------------------------- 2011 2010 ---------------- ---------------- Revenue Gross premiums written 1,801.1 1,332.1 ---------------- ---------------- Net premiums written 1,509.9 1,094.7 ---------------- ---------------- Net premiums earned 1,339.4 1,064.3 Interest and dividends 178.5 173.6 Share of profit (loss) of associates (6.6) 7.6 Net gains (losses) on investments (101.5) 597.8 Other revenue 154.4 141.8 ---------------- ---------------- 1,564.2 1,985.1 ---------------- ---------------- Expenses Losses on claims, gross 1,608.9 1,094.2 Less ceded losses on claims (317.1) (222.2) ---------------- ---------------- Losses on claims, net 1,291.8 872.0 Operating expenses 279.9 219.9 Commissions, net 186.8 165.8 Interest expense 53.2 45.5 Other expenses 148.6 137.0 ---------------- ---------------- 1,960.3 1,440.2 ---------------- ---------------- Earnings (loss) before income taxes (396.1) 544.9 Provision for (recovery of) income taxes (156.6) 125.6 ---------------- ---------------- Net earnings (loss) (239.5) 419.3 ---------------- ---------------- ---------------- ---------------- Attributable to: Shareholders of Fairfax (240.6) 418.4 Non-controlling interests 1.1 0.9 ---------------- ---------------- (239.5) 419.3 ---------------- ---------------- ---------------- ---------------- Net earnings (loss) per share $ (12.42) $ 20.47 Net earnings (loss) per diluted share $ (12.42) $ 20.38 Cash dividends paid per share $ 10.00 $ 10.00 Shares outstanding (000) (weighted average) 20,440 20,200 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for the three months endedMarch 31, 2011 and 2010 (unaudited - US$ millions) First quarter ----------------------------- 2011 2010 -------------- -------------- Net earnings (loss) (239.5) 419.3 -------------- -------------- Other comprehensive income (loss), net of income taxes Change in unrealized foreign currency translation gains (losses) on foreign operations(1) 25.6 85.7 Change in gains and losses on hedge of net investment in foreign subsidiary(2) (14.6) (12.7) Share of other comprehensive income (loss) of associates(3) 5.6 11.1 Actuarial gains (losses) on defined benefit plans(4) - (1.7) -------------- -------------- Other comprehensive income (loss), net of income taxes 16.6 82.4 -------------- -------------- Comprehensive income (loss) (222.9) 501.7 -------------- -------------- -------------- -------------- Attributable to: Shareholders of Fairfax (223.9) 500.8 Non-controlling interests 1.0 0.9 -------------- -------------- (222.9) 501.7 -------------- -------------- -------------- --------------
(1) Net of income tax recovery of$8.3 (2010 - income tax expense of$18.0 ). (2) Net of income tax recovery of nil (2010 -nil). (3) Net of income tax expense of$0.4 (2010 - nil). (4) Net of income tax recovery of nil (2010 -$0.6 ).
SEGMENTED INFORMATION
(unaudited – US$ millions)
Net premiums written and net premiums earned by the insurance and reinsurance operations in the first quarter of 2011 and 2010 were:
Net Premiums Written
First quarter
---------------------------
2011 2010
------------- -------------
Insurance
- Canada (Northbridge) 258.4 197.8
- U.S. (Crum & Forster and Zenith National) 450.7 186.8
- Asia (Fairfax Asia) 61.3 50.6
Reinsurance - OdysseyRe 509.9 473.2
Reinsurance and Insurance - Other 119.4 184.9
------------- -------------
Insurance and Reinsurance Operating Companies 1,399.7 1,093.3
------------- -------------
------------- -------------
Net Premiums Earned
First quarter
---------------------------
2011 2010
------------- -------------
Insurance
- Canada (Northbridge) 268.0 245.9
- U.S. (Crum & Forster and Zenith National) 339.6 182.6
- Asia (Fairfax Asia) 41.2 35.0
Reinsurance - OdysseyRe 451.9 457.1
Reinsurance and Insurance - Other 126.1 142.3
------------- -------------
Insurance and Reinsurance Operating Companies 1,226.8 1,062.9
------------- -------------
------------- -------------
Combined ratios of the insurance and reinsurance operations in the first
quarter of 2011 and 2010 were:
First quarter
---------------------------
2011 2010
------------- -------------
Insurance
- Canada (Northbridge) 103.6% 104.6%
- U.S. (Crum & Forster and Zenith National) 111.0% 107.4%
- Asia (Fairfax Asia) 85.9% 96.4%
Reinsurance - OdysseyRe 150.3% 112.8%
Reinsurance and Insurance - Other 166.3% 127.2%
------------- -------------
Insurance and Reinsurance Operating Companies 128.7% 111.3%
------------- -------------
------------- -------------
Contacts:Fairfax Financial Holdings Limited John Varnell Chief Financial Officer (416) 367-4941 Media ContactPaul Rivett Chief Legal Officer (416) 367-4941
Source: