Fairfax incurrs significant Q4 losses

Fairfax Financial Holdings Ltd. has reported a net loss of $318.1 million in the fourth quarter of 2005 and $497.9 million for 2005.
The Toronto-based company says the losses were incurred as a result of the harsh Hurricanes Katrina, Rita and Wilma that resulted in a loss of $249.5 during the Q4 and $715.5 million for the 2005 year. The losses also represent figures taken after recording pre-tax charges resulting from actions taken in runoff during the fourth quarter and 2005. These figures aggregated to $249.9 million in Q4 and $465.5 millionin 2005.
Regardless of the losses, Fairfax reports strong underwriting results for its
insurance and reinsurance operations prior to the hurricane-related losses. The combined ratios of
Fairfax’s combined ratios in their insurance and reinsurance operations were 112.7% and 107.6% for the fourth quarter and for 2005. Before, considering the hurricane losses the combined ratios were 92% and 93.7%.
Compared to 2004’s combined ratios excluding hurricane losses, the combined ratios excluding hurricane losses for 2005 only deteriorated slightly.
All of Fairfax’s operating companies produced a combined ratio excluding hurricane losses below 100%.
Fairfax’s insurance and reinsurance operations together incurred an underwriting loss of $330.6 million in 2005. Before hurricane losses, Fairfax’s operations would have generated an underwriting profit of $279.3 million.
Fairfax’s strong underlying underwriting results, increased investment income and its $300 million equity issue completed in October 2005 have led to the Company’s ability to retain a strong financial position, despite the hurricane losses.
In addition, Fairfax’s holding company liquidity remained strong and it saw results of $559 million in cash and marketable securities for 2005, as compared to $566.8 million for 2004.
The holding company debt reduced and its debt maturity profile remained unchanged, with no significant debts maturing until 2012.
The Company’s CEO Prem Watsa says that Fairfax’s 2005 results were significantly affected by what has been deemed the largest catastrophe losses ever experienced in the history of the insurance market. However, Prema adds that their insurance and reinsurance companies financial strength and capital base have permitted Fairfax to absorb the losses.
“It is very encouraging to note that if the effect of the hurricane losses were removed, we would have produced excellent combined ratios in 2005,” Watsa says. “We enter 2006 with very sound operations at our ongoing insurance and reinsurance companies and with a good prospect of approaching breakeven at our runoff operation.”