Fairfax Financial Holdings Limited: First Quarter Financial Results

Fairfax Financial Holdings Limited: First Quarter Financial Results 
(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.) 
TORONTO, ONTARIO -- (Marketwired) -- 05/02/13 -- Fairfax Financial
Holdings Limited (TSX:FFH)(TSX:FFH.U) announces net earnings of
$161.6 million in the first quarter of 2013 ($7.12 per diluted share
after payment of preferred share dividends) compared to a net loss of
$2.6 million in the first quarter of 2012 ($0.76 net loss per diluted
share after payment of preferred share dividends), primarily
reflecting strong underwriting results and also an income tax
recovery resulting from non-taxable investment income, tax rate
differences and the utilization of losses and timing differences that
were not previously recognized. Book value per basic share decreased
to $373.00 at March 31, 2013 from $378.10 at December 31, 2012 (an
increase of 1.3% adjusted for the $10 per common share dividend paid
in the first quarter of 2013).  
"We had a strong underwriting result in the first quarter of 2013 on
increased premiums while maintaining disciplined underwriting. We are
maintaining our defensive equity hedges as we remain concerned about
the financial markets and the economic outlook," said Prem Watsa,
Chairman and Chief Executive Officer of Fairfax. "We continue to be
soundly financed, with quarter-end cash and marketable securities at
the holding company in excess of $1.2 billion." 
Highlights in the first quarter of 2013 (with comparisons to the
first quarter of 2012 except as otherwise noted) included the
following: 


 
--  The combined ratio of the insurance and reinsurance operations was 94.0%
    on a consolidated basis, producing an underwriting profit of $86.0
    million, compared to a combined ratio and an underwriting profit of
    98.8% and $16.2 million respectively in 2012. 
 
--  Net premiums written by the insurance and reinsurance operations
    increased by 5.5% to $1,605.8 million compared to $1,521.6 million in
    2012. 
 
--  The insurance and reinsurance operations produced an operating income
    (excluding net gains on investments) of $158.1 million in 20
13, compared
    to $102.1 million in 2012, primarily as a result of the improved
    underwriting profit.  
 
--  Interest and dividend income of $99.5 million decreased from $129.6
    million in 2012, primarily because of increased holdings of low-yielding
    cash and short term investments ($7,445.9 million at March 31, 2013,
    compared to $6,102.5 million at March 31, 2012) resulting from sales of
    higher-yielding securities, principally government bonds. As of March
    31, 2013, subsidiary cash and short term investments accounted for 27.2%
    of the company's portfolio investments. Interest income as reported is
    unadjusted for the positive tax effect of the company's significant
    holdings of tax-advantaged debt securities (holdings of $5,191.3 million
    at March 31, 2013). 
 
--  Net investment gains of $9.4 million (net investment losses of $40.9
    million in 2012) consisted of the following: 
 
                                              First quarter of 2013         
                                     ---------------------------------------
                                                  ($ millions)              
                                        Realized    Unrealized              
                                         gains        gains      Net gains  
                                        (losses)     (losses)     (losses)  
                                     ---------------------------------------
Net gains (losses) on:                                                      
  Equity and equity-related                                                 
   investments                              187.9        510.5        698.4 
  Equity hedges                                 -       (592.8)      (592.8)
                                     ---------------------------------------
  Equity and equity-related                                                 
   investments after equity hedges          187.9        (82.3)       105.6 
  Bonds                                      (2.4)      (116.6)      (119.0)
  CPI-linked derivatives                        -        (32.4)       (32.4)
  Other                                     (20.2)        75.4         55.2 
                                     ---------------------------------------
                                            165.3       (155.9)         9.4 
                                     ---------------------------------------
                                     ---------------------------------------
 
--  The company held $1,242.2 million of cash, short term investments and
    marketable securities at the holding company level ($1,236.0 million net
    of short sale and derivative obligations) at March 31, 2013, compared to
    $1,169.2 million ($1,128.0 million net of short sale and derivative
    obligations) at December 31, 2012. 
 
--  The company's total debt to total capital ratio was 26.8% at March 31,
    2013, compared to 25.5% at December 31, 2012. 
 
--  On January 21, 2013, the company completed an additional Cdn$250.0
    million offering of its 5.84% unsecured senior notes due 2022, for net
    proceeds of Cdn$258.1 million. These notes were priced at 103.854% per
    Cdn$100 principal amount, for an effective yield of 5.326%. The company
    used the proceeds to repay $48.4 million principal amount of notes due
    2017 and intends to use the proceeds to repay the $182.9 million
    principal amount of OdysseyRe 7.65% senior notes maturing on November 1,
    2013. 
 
--  At March 31, 2013, common shareholders' equity was $7,550.2 million, or
    $373.00 per basic share, after the payment of a $10.00 per common share
    dividend in the first quarter, compared to $7,654.7 million, or $378.10
    per basic share, at December 31, 2012. 

 
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. At March 31, 2013, equity
hedges represented approximately 104.5% of the company's equity and
equity-related holdings. The market value and the liquidity of these
hedges are volatile and may vary dramatically either up or down in
short periods, and their ultimate value will therefore only be known
over the long term. 
There were 20.2 and 20.4 million weighted average shares outstanding
during the first quarters of 2013 and 2012 respectively. At March 31,
2013, there were 20,241,921 common shares effectively outstanding. 
Summarized (without notes) 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 8:30 a.m. Eastern time on
Friday, May 3, 2013. The call, consisting of a presentation by the
company followed by a question period, may be accessed at 1 (800)
857-9641 (Canada or U.S.) or 1 (517) 308-9408 (International) with
the passcode "Fairfax". A replay of the call will be
 available from
shortly after the termination of the call until 5:00 p.m. Eastern
time on Friday, May 17, 2013. The replay may be accessed at 1 (866)
403-7099 (Canada or U.S.) or 1 (203) 369-0571 (International). 
Fairfax Financial Holdings Limited is a financial services holding
company which, through its subsidiaries, is engaged in property and
casualty insurance and reinsurance and investment management.  
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 earnings if our
loss reserves 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; changes in market variables, including interest rates,
foreign exchange rates, equity prices and credit spreads, which could
negatively affect our investment portfolio; 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; insufficient reserves for asbestos,
environmental and other latent claims; 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;
risks associated with our use of derivative instruments; the failure
of our hedging methods to achieve their desired risk management
objective; 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 access cash of our subsidiaries; our inability to obtain
required levels of capital on favourable terms, if at all; loss of
key employees; our inability to obtain reinsurance coverage in
sufficient amounts, at reasonable prices or on terms that adequately
protect us; the passage of legislation subjecting our businesses to
additional supervision or regulation, including additional tax
regulation, in the United States, Canada or other jurisdictions in
which we operate; risks associated with government investigations of,
and litigation and negative publicity related to, insurance industry
practice or any other conduct; risks associated with political and
other developments in foreign jurisdictions in which we operate;
risks associated with legal or regulatory proceedings; failures or
security breaches of our computer and data processing systems; the
influence exercisable by our significant shareholder; adverse
fluctuations in foreign currency exchange rates; our dependence on
independent brokers over whom we exercise little control; an
impairment in the carrying value of our goodwill and indefinite-lived
intangible assets; our failure to realize deferred income tax assets;
and assessments and shared market mechanisms which may adversely
affect our U.S. insurance subsidiaries. Additional risks and
uncertainties are described in our most recently issued Annual Report
which is available at www.fairfax.ca and in our Supplemental and Base
Shelf Prospectus (under "Risk Factors") filed with the securities
regulatory authorities in Canada, which is available on SEDAR at
www.sedar.com. Fairfax disclaims any intention or obligation to
update or revise any forward-looking statements. 


 
CONSOLIDATED BALANCE SHEETS                                                 
as at March 31, 2013 and December 31, 2012                                  
(unaudited - US$millions)                                                   
                                                                            
                                                    March 31,   December 31,
                                                       2013         2012    
                                                  --------------------------
Assets                                                                      
Holding company cash and investments (including                             
 assets pledged for short sale and derivative                               
 obligations - $113.5; December 31, 2012 - $140.2)      1,242.2      1,169.2
Insurance contract receivables                          2,264.5      1,945.4
                                                  --------------------------
                                                        3,506.7      3,114.6
                                                  --------------------------
Portfolio investments                                                       
Subsidiary cash and short term investments              6,307.1      6,960.1
Bonds (cost $9,097.1; December 31, 2012 -                                   
 $9,428.9)                                             10,394.1     10,803.6
Preferred stocks (cost $619.4; December 31, 2012 -                          
 $618.7)                                                  593.0        605.1
Common stocks (cost $4,132.4; December 31, 2012 -                           
 $4,066.3)                                              4,797.0      4,399.1
Investments in associates (fair value $1,792.4;                             
 December 31, 2012 - $1,782.4)                          1,322.2      1,355.3
Derivatives and other invested assets (cost                                 
 $537.3; December 31, 2012 - $524.0)                      228.2        181.0
Assets pledged for short sale and derivative                                
 obligations (cost $830.9; December 31, 2012 -                              
 $791.1)                                                  881.3        859.0
                                                  --------------------------
                                                       24,522.9     25,163.2
                                                  --------------------------
                                                                            
Deferred premium acquisition costs                        472.5        463.1
Recoverable from reinsurers (including                                      
 recoverables on paid losses - $428.5; December                             
 31, 2012 - $311.0)                                     5,191.1      5,290.8
Deferred income taxes                                     690.9        623.5
Goodwill and intangible assets    
                      1,292.5      1,301.1
Other assets                                            1,179.7        984.9
                                                  --------------------------
                                                       36,856.3     36,941.2
                                                  --------------------------
                                                  --------------------------
                                                                            
Liabilities                                                                 
Subsidiary indebtedness                                    43.2         52.1
Accounts payable and accrued liabilities                2,078.1      1,877.7
Income taxes payable                                       74.4         70.5
Short sale and derivative obligations (including                            
 at the holding company - $6.2; December 31, 2012                           
 - $41.2)                                                 130.7        238.2
Funds withheld payable to reinsurers                      434.5        439.7
                                                  --------------------------
                                                        2,760.9      2,678.2
                                                  --------------------------
Insurance contract liabilities                         22,130.8     22,376.2
Long term debt                                          3,177.7      2,996.5
                                                  --------------------------
                                                       25,308.5     25,372.7
                                                  --------------------------
                                                                            
Equity                                                                      
Common shareholders' equity                             7,550.2      7,654.7
Preferred stock                                         1,166.4      1,166.4
                                                  --------------------------
Shareholders' equity attributable to shareholders                           
 of Fairfax                                             8,716.6      8,821.1
Non-controlling interests                                  70.3         69.2
                                                  --------------------------
Total equity                                            8,786.9      8,890.3
                                                  --------------------------
                                                       36,856.3     36,941.2
                                                  --------------------------
                                                  --------------------------
                                                                            
                                                                            
                                                                            
                                                                            
CONSOLIDATED STATEMENTS OF EARNINGS                                         
for the three months ended March 31, 2013 and 2012                          
(unaudited - US$millions except per share amounts)                          
                                                                            
                                                         First quarter      
                                                  --------------------------
                                                       2013         2012    
                                                  --------------------------
Revenue                                                                     
  Gross premiums written                               1,891.8      1,807.6 
                                                  --------------------------
  Net premiums written                                 1,605.7      1,521.6 
                                                  --------------------------
  Net premiums earned                                  1,462.8      1,339.5 
  Interest and dividends                                  99.5        129.6 
  Share of profit (loss) of associates                    18.7         (8.7)
  Net gains (losses) on investments                        9.4        (40.9)
  Other revenue                                          194.2        205.0 
                                                  --------------------------
                                                       1,784.6      1,624.5 
                                                  --------------------------
Expenses                                                                    
  Losses on claims, gross                              1,173.1      1,102.0 
  Less ceded losses on claims                           (269.6)      (203.2)
                                                  --------------------------
  Losses on claims, net                                  903.5        898.8 
  Operating expenses                                     284.4        271.3 
  Commissions, net                                       240.2        206.1 
  Interest expense                                        53.3         52.9 
  Other expenses                                         191.1        199.6 
                                                  --------------------------
                                                       1,672.5      1,628.7 
                                                  --------------------------
Earnings (loss) before income taxes                      112.1         (4.2)
Recovery of income taxes                                 (51.2)        (2.9)
                                                  --------------------------
Net earnings (loss)                                      163.3         (1.3)
                                                  --------------------------
                                                  --------------------------
                                                                            
Attributable to:                                                            
Shareholders of Fairfax                                  161.6         (2.6)
Non-controlling interests                                  1.7          1.3 
                                                  --------------------------
                                                         163.3         (1.3)
                                                  --------------------------
                                                  --------------------------
                                                                            
Net earnings (loss) per share                        $    7.22    $   (0.76)
Net earnings (loss) per diluted share                $    7.12    $   (0.76)
Cash dividends paid per share                        $   10.00    $   10.00 
Shares outstanding (000) (
weighted average)             20,244       20,356 
                                                                            
                                                                            
                                                                            
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                             
for the three months ended March 31, 2013 and 2012                          
(unaudited - US$millions)                                                   
                                                                            
                                                        First quarter       
                                                  --------------------------
                                                       2013         2012    
                                                  --------------------------
Net earnings (loss)                                      163.3         (1.3)
                                                  --------------------------
                                                                            
Other comprehensive income (loss), net of income                            
 taxes                                                                      
                                                                            
Items that may be subsequently reclassified to net                          
 earnings                                                                   
  Change in unrealized foreign currency                                     
   translation gains (losses) on foreign                                    
   operations                                            (70.5)        45.8 
  Change in gains (losses) on hedge of net                                  
   investment in Canadian subsidiaries                    31.1        (19.9)
  Share of other comprehensive income (loss) of                             
   associates, excluding gains (losses) on defined                          
   benefit plans                                          (8.6)         6.2 
                                                  --------------------------
                                                         (48.0)        32.1 
                                                  --------------------------
  Items that will not be subsequently reclassified                          
   to net earnings                                                          
  Share of gains (losses) on defined benefit plans                          
   of associates                                           2.2        (11.0)
                                                  --------------------------
Other comprehensive income (loss), net of income                            
 taxes                                                   (45.8)        21.1 
                                                  --------------------------
Comprehensive income                                     117.5         19.8 
                                                  --------------------------
                                                  --------------------------
                                                                            
Attributable to:                                                            
Shareholders of Fairfax                                  116.3         18.3 
Non-controlling interests                                  1.2          1.5 
                                                  --------------------------
                                                         117.5         19.8 
                                                  --------------------------
                                                  --------------------------
                                                                            
                                                                            
                                                                            
SEGMENTED INFORMATION                                                       
(unaudited - US$millions)                                                   

 
Net premiums written and net premiums earned by the insurance and
reinsurance operations in the quarters ended March 31, 2013 and 2012
were: 
Net Premiums Written 


 
                                                         First quarter      
                                                  --------------------------
                                                       2013         2012    
                                                  --------------------------
Insurance - Canada (Northbridge)                          247.6        201.6
  - U.S. (Crum & Forster and Zenith National)             577.2        564.0
  - Asia (Fairfax Asia)                                    76.1         72.8
Reinsurance - OdysseyRe                                   604.0        525.9
Insurance and Reinsurance - Other                         100.9        157.3
                                                  --------------------------
Insurance and reinsurance operations                    1,605.8      1,521.6
                                                  --------------------------
                                                  --------------------------

 
Net Premiums Earned 


 
                                                         First quarter      
                                                  --------------------------
                                                       2013         2012    
                                                  --------------------------
Insurance - Canada (Northbridge)                          245.7        252.0
  - U.S. (Crum & Forster and Zenith National)             468.8        418.5
  - Asia (Fairfax Asia)                                    54.9         53.4
Reinsurance - OdysseyRe                                   556.5        487.0
Insurance and Reinsurance - Other                         106.3        127.3
                                                  --------------------------
Insurance and reinsurance operations                    1,432.2      1,338.2
                                                  --------------------------
                                                  --------------------------

 
Combined ratios of the insurance and reinsurance operations in the
quarters ended March 31, 2013 and 2012 were: 


 
                                                        First quarter       
                                                  --------------------------
                                                      2013         2012     
                                                  --------------------------
Insurance - Canada (Northbridge)                         100.5%       104.3%
  - U.S. (Crum & Forster and Zenith National)            103.1%       109.2%
  - Asia (Fairfax Asia)                                   91.0%        92.2%
Reinsurance - OdysseyRe                                   82.9%        87.0%
Insurance and Reinsurance - Other                         98.4%       101.7%
                                                  --------------------------
Insurance and reinsurance operations                      94.0%        98.8%
                                                  --------------------------
                                                  --------------------------

Contacts:
Fairfax Financial Holdings Limited
John Varnell
Vice President, Corporate Development
(416) 367-4941 
Fairfax Financial Holdings Limited
Media Contact
Paul Rivett
Vice President, Operations
(416) 367-4941
 
 
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