Fairfax 2004 performance undermined by hurricane losses

Fairfax Financial Holdings (TSX: FFH) produced a net loss of US$17.8 million, or US$2.16 a share for 2004. The company attributes the red ink to a total loss of US$252.7 million stemming from the four U.S. hurricanes that struck in the third quarter of last year.

Fairfax did, however, produce a profitable fourth quarter ending December 2004, with net earnings of US$5.6 million, or US16 a share, compared with a US$6.6 million, or US51 a share, shown for the same period the year before. The company’s total revenue for 2004 rose to US$5.7 billion (2003: US$5.7 billion), with net earned premiums rising to US$4.8 billion (2003: US$4.21 billion). Fairfax’s bottom-line was undermined by a rise in expenses, specifically claims costs which rose to US$3.61 billion in 2004 from US$3.24 billion the year prior.

Despite the overall yearend loss, the individual operating companies generally performed well, with insurance and reinsurance operations posting a combined ratio of 97.5% for 2004 versus a 97.6% ratio a year earlier. Overall, underwriting profit in 2004 stood at US$108.4 million, up from US$87.7 million in 2003. For the fourth quarter of 2004, the combined ratio stood at 90.6%, versus 97.4% in the fourth quarter of 2003.

Contributing to 2004 net earnings were increased underwriting gains in the Canadian and Asian insurance operations of US$115.5 million and US$4.7 million respectively, while Odyssey Re produce a lower underwriting gain of US$43.2 million. Offsetting this was a US$55.0 million underwriting loss from U.S. operations.

The company was hard hit by a drop in realized gain on investments to US$288.3 million for 2004 from US$845.9 million in 2003. In the fourth quarter, the Crum & Forster subsidiary increased its asbestos reserves by US$100 million, and the run-off group increased its construction defect reserves by US$50 million.