Fairfax reports record profits for 2003

Toronto-based insurance giant Fairfax Financial Holdings Ltd. (TSX, NYSE: FFH) says it posted its largest ever annual profit in 2003, earning US$271.1 million, compared to US$263.0 million in 2002. This translates to earnings per share of $18.55 for 2003, up from US$18.20 in 2002.
Some of this growth came on the back of increased revenues, up to US$5.71 billion last year from US$5.07 billion the year prior. Gross written premiums were US$5.52 billion in 2003, versus US$5.17 billion in 2002. And net earned premiums were $4.21 billion last year, against US$3.89 billion the year prior.
Another big boost came from realized gains on investments, up to US$840.2 million in 2003, almost double the US$469.5 million the year before. The IPO of Northbridge, Fairfax’s Canadian operations, saw realized gains of US$5.7 million.
The results are also a study in accounting differences, with the company reporting 2003 earnings of US$271.1 million according to Canadian GAAP standards, but just US$104.3 million according to US GAAP, down from US$387.0 million (US GAAP) in 2002. This is largely resultant of US GAAP taking into account more than US$200 million in recoveries, or deferred gains, on retroactive reinsurance.
While U.S. insurance operations posted higher pre-tax income in 2003 at US$363.8 million (2002: 122.3 million) than the Canadian operations at US$170.3 million (2002: US$57.0 million), this was largely the result of almost US$300 million in realized gains from Fairfax’s U.S.-based Crum & Forster subsidiary reported in 2003.
In 2003, Canadian insurance operations posted an underwriting profit of US$52.3 million (2002 US$12.4 million) on a combined ratio of 92.6% (2002: 97.4%). However, U.S. insurance operations produced an underwriting loss last year of US$25.6 million (2002: US$68.1 million) on a combined ratio of 102.5% (2002: 107.1%). Overall, the company’s combined ratio including Canadian and U.S. insurance, as well as Odyssey Re – improved to 97.6% in 2003 from 101.5% in 2002.
In the fourth quarter ending December 31, 2003, the company posted revenues of US$1.56 billion (2002 Q4: US$1.36 billion). However, net earnings for the last quarter were down to US$6.6 million, or $0.51 per share, from US$48.3 million, or $3.84 per share in the last quarter of 2002. The cause, the company notes, was US$224 million in reserve charges at Crum & Forster and the company’s runoff operations.