Fairfax Earnings Wiped Out by Hurricanes

The quartet of U.S. hurricanes this fall, as well as bad weather here in Canada, have produced a net loss in the third quarter for financial giant Fairfax Financial Holdings Ltd. (TSX, NYSE: FFH). The hurricanes, coupled with the Peterborough, Ontario floods and hailstorms in Western Canada, landed a US$127.7 million blow to third quarter results. The company also recorded a US$57.9 million hit from the commutation of reinsurance contracts by its TIG subsidiary.

Overall, the company produced a net loss of US$108.9 million (US$8.08 per share) in the third quarter ending September 30, 2004, compared to net loss of US$10.7 million (US$1.02 per share) during the same period in 2003. For the first nine months of 2004, the net loss stood at US$23.4 million, compared to net income of US$264.5 million the year prior.

The company’s underwriting loss was US$99.0 million for the third quarter, compared to an underwriting profit of $34.1 million last year. The combined ratio grew to 109.3% from 96.5% over the same comparative period. For the first nine months of 2004, the company managed a modest underwriting profit of US$300,000, compared to a profit of US$63.2 million for the same period a year ago. The combined ratio for the first nine months of 2004 was 100.0%, up from 97.7% a year earlier.

The company did post growth in gross premiums in the third quarter to US$1.44 billion this year from US$1.32 billion a year ago. During the same comparative period, net earned premiums grew to US$1.15 billion from US$973.5 million. For the first nine months of 2004, gross written premiums were up to US$4.18 billion from US$4.02 billion the year prior. And net earned premiums were up to US$3.55 billion from US$3.04 billion over the same comparative period.

During the third quarter of this year the company produced interest and dividends of US$98.7 million (Q3 2003: US$79.6 million), and realized gains of US$94.4 million (Q3 2003: US$37.1 million). For the first nine months of 2004, interest and dividends were US$268.6 million (Q3 2003: US$273.2 million), and realized gains were US$231.5 million (Q3 2003: US$585.0 million).

Fairfax’s Canadian operations, Northbridge Financial Corp. (TSX: NB), produced earnings of $38.5 million ($0.76 per share) in the third quarter, up from $22.8 million ($0.45 per share) a year ago. And for the first nine months of 2004, earnings were $114.1 million ($2.24 per share), up from $109.3 million ($2.21 per share). In the third quarter of 2004, Northbridge posted an underwriting profit of $33.0 million (Q3 2003: $18.9 million) on a combined ratio of 89.4% (Q3 2003: 92.7%). For the first nine months of 2004, the underwriting profit was $82.0 million (combined ratio: 90.9%), almost double the underwriting profit of $44.1 million (combined ratio: 93.9%) posted last year.

Fairfax’s adjusting arm, Lindsey Morden (TSX: LM), posted a net loss of $1.6 million ($0.11 per share) for the quarter ending September 30, 2004, an improvement over the loss of $4.2 million ($0.31 per share) posted the year prior. But for the first nine months of 2004, the company posted a net loss of $25.6 million ($1.85 per share), up from a loss of $8.8 million($0.64 per share) a year prior. The company was largely hampered by a $24.6 million net loss on disposal of operations – in March, 2004 the company completed the sale of its RSKCo and Cunningham Lindsey Claims Management operations.