Fairfax reports nearly $1 billion in Q3 profit, despite underwriting losses

Fairfax Financial Holdings Limited (TSX:FFH and FFH.U) reported a net income of $973.9 million in 2011 Q3, marking a drastic improvement from the 2010 Q3 income of $388.1 million.
The company cites net gains on investment of $1.6 billion in 2011 Q3 (compared to net gains on investment of $316.4 million in 2010 Q3) for the improvement.
On a consolidated basis, the combined ratio of Fairfax’s insurance and reinsurance operations was 107.5% in 2011 Q3, producing an underwriting loss of $105.3 million. This marks a deterioration from last year’s Q3 combined ratio and underwriting loss, which were 101.1% and $13.3 million, respectively.
“Underwriting results in the third quarter of 2011 were negatively affected by $171.7 million of pre-tax catastrophe losses (net of reinsurance and reinstatement premiums), primarily related to Hurricane Irene, the Denmark floods and development on Japanese earthquake losses, which increased the combined ratio by 12.3 points,” a Fairfax release says.
Northbridge, Fairfax’s Canadian commercial insurer, reported an improved combined ratio in 2011 Q3 of 101.4%, from the 104.8% in the same period of 2010.
OdysseyRe, Fairfax’s reinsurer with Canadian operations, on the other hand, reported a deterioration in combined ratio, Q3-over-Q3, from 89.2% in 2010 Q3 to 103.4% in 2011 Q3.
“Our results have always been lumpy and our third quarter earnings are a case in point,” said Prem Watsa, chairman and CEO of Fairfax. “We earned almost a billion dollars in spite of significant catastrophe activity in the quarter because of almost $1.6 billion in net gains on our investment portfolio.
“We continue to be very concerned about the economic outlook for the next few years and have maintained our equity hedges. The company continues to be soundly financed with cash and marketable securities at the holding company level in excess of $1 billion.”