Canadian Underwriter

Fairfax 2004 earnings hit by hurricanes

February 13, 2005   by Canadian Underwriter

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Fairfax Financial Holdings (TSX, NYSE: FFH) is reporting a net loss of US$17.8 million, or US$2.16 per share, for 2004, heavily impacted by US$252.7 million in losses stemming from the four U.S. hurricanes in the third quarter of the year. The company had reported earnings of US$271.1 million, or US$18.23 per share, in 2003.
Fairfax did produce a profitable fourth quarter ending December 31, 2004, with net earnings of US$5.6 million, or US$0.16 per share, compared to US$6.6 million, or US$0.51 per share, in earnings for fourth-quarter 2003.
Total revenue was up for 2004 to US$5.79 billion (2003: US$5.71 billion), with gross written premiums up to US$5.61 billion (2003: US$5.52 billion), and net earned premiums up to US$4.80 billion (2003: US$4.21 billion).
But expenses were also up, 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 consolidate insurance and reinsurance operations posting a combined ratio of 97.5% in 2004 versus 97.6% 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 in 2004 from US$845.9 million in 2003. The 2004 figure includes US$104.1 million of non-trading losses, made up of US$77.1 of mark to market changes in fair value and US$27.0 million in costs related to the company’s repurchase of outstanding debt.
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.