Fairfax Earnings Drop Despite Better Combined Ratio

Insurance holding company Fairfax Financial Holdings (TSX: FFH) reported reduced net earnings of US$39.5 million for the first quarter of 2004, down from the US$169.0 million posted for the same period the year prior. This saw earnings drop to US$2.63 a share from US$6.97 a share shown for the comparative period a year ago.

Fairfax says it continues to experience problems with its adjusting arm, Lindsey Morden, where results were dampened by the sale of its U.S. third-party administration business. Lower realized gains, increased interest expense and runoff costs also contributed to the overall lower earnings, a company statement says.

Total revenue for all operations rose to US$1.5 billion in the first quarter of this year compared with the US$1.3 billion reported 12 months ago. Canadian insurance operations (known as “Northbridge Financial”), reduced its combined ratio to 92.8% from 95.4% for the latest reporting period, while U.S. insurance operations posted a 99.7% ratio, showing a slight increase on the 98.2% ratio achieved for the first quarter of 2003. The company’s Asian insurance operations managed a 95.0% combined ratio, reflecting solid improvement on the 99.2% ratio posted in early 2003. Fairfax’s reinsurance subsidiary, Odyssey Re, produced a combined ratio of 95.0% for the latest reporting period, down from the 99.0% ratio reported at the end of 2003’s first quarter. Overall, Fairfax’s combined ratio clocked in at 95.7% for the first quarter of this year versus the 98.2% ratio disclosed a year ago. The company also announced the closing of its previously announced offer to exchange TIG and Fairfax notes.