Canadian Underwriter

Net earnings for Fairfax Financial Holdings Limited US$1.3 million in 2016 Q3 compared to US$424.8 million in 2015 Q3

November 7, 2016   by Canadian Underwriter

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Net losses on investment contributed to Fairfax Financial Holdings Limited seeing net earnings drop to US$1.3 million in 2016 Q3 compared to US$424.8 million in 2015 Q3.

The results reflect “strong operating income offset by net losses on investments,” notes a statement last week from the company.

Business graph with abstract numbers and figuresFairfax Financial Holdings is a holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management. These include Northbridge Insurance, Odyssey Reinsurance Company, Crum & Forster, Zenith National, Brit Insurance and Fairfax Asia.

“Net losses on investments of US$200 million were primarily as a result of price fluctuations in stocks and our CPI-linked derivative contracts,” Prem Watsa, chairman and CEO of Fairfax Financial Holdings, says in the statement.

For the first nine months of the year, the company reports, net earnings were US$189.0 million in 2016 compared to US$464.4 million in 2015.

Operating income for the insurance and reinsurance operations (excluding net gains or losses on investments) was up in 2016 Q3 compared to 2015 Q3, amounting to US$284.6 million compared to US$260.6 million. This reflects “an increase in interest and dividends and share of profit of associates,” the statement notes.

Year to date, however, Fairfax Financial Holdings’ operating income was US$740.6 million in 2016, down from US$821.2 million.

Overall, gross premiums written (GPW) in the third quarter of 2016 amounted to US$2,326.0 million, just slightly below the US$2,336.6 million in the prior-year quarter, while year to date, GPW was US$7,290.2 million in 2016 compared to US$6,453.4 million in 2015.

For net premiums written (NPW), these, again, were in line when comparing 2016 Q3 and 2015 Q3. NPW was US$1,965.3 million for the third quarter of 2016 compared to US$2,023.6 million for the prior-year quarter.

Figures were more positive year to date, with NPW increasing to US$6,133.8 million in 2016 compared to US$5,610.0 million in 2015.

That said, underwriting profit was down, both when comparing Q3 and for the first three quarters of the year. Underwriting profit in 2016 Q3 amounted to US$174.5 million compared to US$177.4 million 2015 Q3; year to date, it was US$378.5 million in 2016 compared to US$440.3 million in 2015.

Looking at the company’s insurance and reinsurance operations, NPW totalled US$1,965.4 million in 2016 Q3, up 4.4% from US$1,883.3 million in 2015 Q3 (this primarily reflected growth at Crum & Forster, Northbridge and Zenith National). Year to date, NPW was US$6,063.0 million in 2016 compared to US$5,323.2 million in 2015.

It was a mixed bag – in terms of increases and decreases – when looking at NPW and net premiums earned (NPE).

For example, in the third quarter of 2016, Northbridge saw NPW of US$228.2 million compared to US$201.4 million in the third quarter of 2015; OdysseyRe saw NPW of US$499.0 million compared to US$508.7 million; and Brit saw US$404.8 million compared to US$411.7 million.

For NPE, the total was US$2,000.8 million in the third quarter of 2016 compared to US1,907.2 million in the third quarter of 2015. Year to date, NPE was US$5,708.0 million in 2016 compared to US$5.048.8 million in 2015.

Specifically, Northbridge saw NPE of US$239.5 million compared to US$224.1 million; OdysseyRe saw US$557.0 million compared to US$560.3 million and Brit saw US$335.0 million compared to US$368.3 million.

With regard to investments, net losses amounted to US$199.5 million in 2016 Q3 compared to net gains of US$425.6 million in 2015 Q3, the statement notes.

For the first nine months of the year, Fairfax Financial Holdings saw net losses of US$129.9 million in 2016 compared to net losses of US$59.1 million in 2015.

In 2016, Fairfax Financial Holdings came to a number of agreements, including the announcement to acquire a 100% interest in Zurich Insurance Company South Africa Limited for US$129 million, completing a previously announced acquisition of an interest in Eurolife ERB Insurance Group Holdings S.A. for US$181 million, and agreeing to acquire from AIG insurance operations in Argentina, Chile, Columbia, Uruguay, Venezuela and Turkey and certain assets and renewal rights with respect to AGI business written in eastern Europe, with total consideration being US$240 million.

Related: Fairfax Financial agrees to buy Zurich’s South Africa and Botswana insurance operations

“The company has sold approximately 90% of the U.S. long term treasuries in its investment portfolios; as a result, its cash and short term investments will be in excess of US$10 billion,” the company reports.

“Our insurance companies continued to have excellent underwriting performance in the third quarter and the first nine months of 2016 with a consolidated combined ratio of 91.3% and 93.4%, respectively,” Watsa says in the statement.

“We are maintaining our defensive equity hedges and deflation protection as we remain concerned about the financial markets and the economic outlook in this global deflationary environment,” Watson reports.

That said, “we continue to be soundly financed, with quarter-end cash and marketable securities in the holding company over $1.1 billion,” he adds.