Fairfax Financial Holdings Limited (TSX:FFH)(TSX:FFH.U) announces
net earnings of $161.6 million in the first quarter of 2013 ($7.12
per diluted share after payment of preferred share dividends)
compared to a net loss of $2.6 million in the first quarter of 2012
($0.76 net loss per diluted share after payment of preferred share
dividends), primarily reflecting strong underwriting results and
also an income tax recovery resulting from non-taxable investment
income, tax rate differences and the utilization of losses and
timing differences that were not previously recognized. Book value
per basic share decreased to $373.00 at March 31, 2013 from $378.10
at December 31, 2012 (an increase of 1.3% adjusted for the $10 per
common share dividend paid in the first quarter of 2013).
"We had a strong underwriting result in the first quarter of
2013 on increased premiums while maintaining disciplined
underwriting. We are maintaining our defensive equity hedges as we
remain concerned about the financial markets and the economic
outlook," said Prem Watsa, Chairman and Chief Executive Officer of
Fairfax. "We continue to be soundly financed, with quarter-end cash
and marketable securities at the holding company in excess of $1.2
billion."
Highlights in the first quarter of 2013 (with comparisons to the
first quarter of 2012 except as otherwise noted) included the
following:
-- The combined ratio of the insurance and reinsurance operations was 94.0%
on a consolidated basis, producing an underwriting profit of $86.0
million, compared to a combined ratio and an underwriting profit of
98.8% and $16.2 million respectively in 2012.
-- Net premiums written by the insurance and reinsurance operations
increased by 5.5% to $1,605.8 million compared to $1,521.6 million in
2012.
-- The insurance and reinsurance operations produced an operating income
(excluding net gains on investments) of $158.1 million in 2013, compared
to $102.1 million in 2012, primarily as a result of the improved
underwriting profit.
-- Interest and dividend income of $99.5 million decreased from $129.6
million in 2012, primarily because of increased holdings of low-yielding
cash and short term investments ($7,445.9 million at March 31, 2013,
compared to $6,102.5 million at March 31, 2012) resulting from sales of
higher-yielding securities, principally government bonds. As of March
31, 2013, subsidiary cash and short term investments accounted for 27.2%
of the company's portfolio investments. Interest income as reported is
unadjusted for the positive tax effect of the company's significant
holdings of tax-advantaged debt securities (holdings of $5,191.3 million
at March 31, 2013).
-- Net investment gains of $9.4 million (net investment losses of $40.9
million in 2012) consisted of the following:
First quarter of 2013
---------------------------------------
($ millions)
Realized Unrealized
gains gains Net gains
(losses) (losses) (losses)
---------------------------------------
Net gains (losses) on:
Equity and equity-related
investments 187.9 510.5 698.4
Equity hedges - (592.8) (592.8)
---------------------------------------
Equity and equity-related
investments after equity hedges 187.9 (82.3) 105.6
Bonds (2.4) (116.6) (119.0)
CPI-linked derivatives - (32.4) (32.4)
Other (20.2) 75.4 55.2
---------------------------------------
165.3 (155.9) 9.4
---------------------------------------
---------------------------------------
-- The company held $1,242.2 million of cash, short term investments and
marketable securities at the holding company level ($1,236.0 million net
of short sale and derivative obligations) at March 31, 2013, compared to
$1,169.2 million ($1,128.0 million net of short sale and derivative
obligations) at December 31, 2012.
-- The company's total debt to total capital ratio was 26.8% at March 31,
2013, compared to 25.5% at December 31, 2012.
-- On January 21, 2013, the company completed an additional Cdn$250.0
million offering of its 5.84% unsecured senior notes due 2022, for net
proceeds of Cdn$258.1 million. These notes were priced at 103.854% per
Cdn$100 principal amount, for an effective yield of 5.326%. The company
used the proceeds to repay $48.4 million principal amount of notes due
2017 and intends to use the proceeds to repay the $182.9 million
principal amount of OdysseyRe 7.65% senior notes maturing on November 1,
2013.
-- At March 31, 2013, common shareholders' equity was $7,550.2 million, or
$373.00 per basic share, after the payment of a $10.00 per common share
dividend in the first quarter, compared to $7,654.7 million, or $378.10
per basic share, at December 31, 2012.
Fairfax holds significant investments in equity and
equity-related securities. In response to the significant
appreciation in equity market valuations and uncertainty in the
economy, the company has hedged its equity investment exposure. At
March 31, 2013, equity hedges represented approximately 104.5% of
the company's equity and equity-related holdings. The market value
and the liquidity of these hedges are volatile and may vary
dramatically either up or down in short periods, and their ultimate
value will therefore only be known over the long term.
There were 20.2 and 20.4 million weighted average shares
outstanding during the first quarters of 2013 and 2012
respectively. At March 31, 2013, there were 20,241,921 common
shares effectively outstanding.
Summarized (without notes) interim consolidated balance sheets
and statements of earnings and comprehensive income, along with
segmented premium and combined ratio information, follow and form
part of this news release. Fairfax's detailed first quarter report
can be accessed at its website www.fairfax.ca.
As previously announced, Fairfax will hold a conference call to
discuss its first quarter results at 8:30 a.m. Eastern time on
Friday, May 3, 2013. The call, consisting of a presentation by the
company followed by a question period, may be accessed at 1 (800)
857-9641 (Canada or U.S.) or 1 (517) 308-9408 (International) with
the passcode "Fairfax". A replay of the call will be available from
shortly after the termination of the call until 5:00 p.m. Eastern
time on Friday, May 17, 2013. The replay may be accessed at 1 (866)
403-7099 (Canada or U.S.) or 1 (203) 369-0571 (International).
Fairfax Financial Holdings Limited is a financial services
holding company which, through its subsidiaries, is engaged in
property and casualty insurance and reinsurance and investment
management.
Certain statements contained herein may constitute
forward-looking statements and are made pursuant to the "safe
harbour" provisions of the United States Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are
subject to known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of
Fairfax to be materially different from any future results,
performance or achievements expressed or implied by such
forward-looking statements. Such factors include, but are not
limited to: a reduction in net earnings if our loss reserves are
insufficient; underwriting losses on the risks we insure that are
higher or lower than expected; the occurrence of catastrophic
events with a frequency or severity exceeding our estimates;
changes in market variables, including interest rates, foreign
exchange rates, equity prices and credit spreads, which could
negatively affect our investment portfolio; the cycles of the
insurance market and general economic conditions, which can
substantially influence our and our competitors' premium rates and
capacity to write new business; insufficient reserves for asbestos,
environmental and other latent claims; exposure to credit risk in
the event our reinsurers fail to make payments to us under our
reinsurance arrangements; exposure to credit risk in the event our
insureds, insurance producers or reinsurance intermediaries fail to
remit premiums that are owed to us or failure by our insureds to
reimburse us for deductibles that are paid by us on their
behalf;
risks associated with implementing our business strategies; the
timing of claims payments being sooner or the receipt of
reinsurance recoverables being later than anticipated by us; the
inability of our subsidiaries to maintain financial or claims
paying ability ratings; risks associated with our use of derivative
instruments; the failure of our hedging methods to achieve their
desired risk management objective; a decrease in the level of
demand for insurance or reinsurance products, or increased
competition in the insurance industry; the failure of any of the
loss limitation methods we employ; the impact of emerging claim and
coverage issues; our inability to access cash of our subsidiaries;
our inability to obtain required levels of capital on favourable
terms, if at all; loss of key employees; our inability to obtain
reinsurance coverage in sufficient amounts, at reasonable prices or
on terms that adequately protect us; the passage of legislation
subjecting our businesses to additional supervision or regulation,
including additional tax regulation, in the United States, Canada
or other jurisdictions in which we operate; risks associated with
government investigations of, and litigation and negative publicity
related to, insurance industry practice or any other conduct; risks
associated with political and other developments in foreign
jurisdictions in which we operate; risks associated with legal or
regulatory proceedings; failures or security breaches of our
computer and data processing systems; the influence exercisable by
our significant shareholder; adverse fluctuations in foreign
currency exchange rates; our dependence on independent brokers over
whom we exercise little control; an impairment in the carrying
value of our goodwill and indefinite-lived intangible assets; our
failure to realize deferred income tax assets; and assessments and
shared market mechanisms which may adversely affect our U.S.
insurance subsidiaries. Additional risks and uncertainties are
described in our most recently issued Annual Report which is
available at www.fairfax.ca and in our Supplemental and Base Shelf
Prospectus (under "Risk Factors") filed with the securities
regulatory authorities in Canada, which is available on SEDAR at
www.sedar.com. Fairfax disclaims any intention or obligation to
update or revise any forward-looking statements.
CONSOLIDATED BALANCE SHEETS
as at March 31, 2013 and December 31, 2012
(unaudited - US$millions)
March 31, December 31,
2013 2012
--------------------------
Assets
Holding company cash and investments (including
assets pledged for short sale and derivative
obligations - $113.5; December 31, 2012 - $140.2) 1,242.2 1,169.2
Insurance contract receivables 2,264.5 1,945.4
--------------------------
3,506.7 3,114.6
--------------------------
Portfolio investments
Subsidiary cash and short term investments 6,307.1 6,960.1
Bonds (cost $9,097.1; December 31, 2012 -
$9,428.9) 10,394.1 10,803.6
Preferred stocks (cost $619.4; December 31, 2012 -
$618.7) 593.0 605.1
Common stocks (cost $4,132.4; December 31, 2012 -
$4,066.3) 4,797.0 4,399.1
Investments in associates (fair value $1,792.4;
December 31, 2012 - $1,782.4) 1,322.2 1,355.3
Derivatives and other invested assets (cost
$537.3; December 31, 2012 - $524.0) 228.2 181.0
Assets pledged for short sale and derivative
obligations (cost $830.9; December 31, 2012 -
$791.1) 881.3 859.0
--------------------------
24,522.9 25,163.2
--------------------------
Deferred premium acquisition costs 472.5 463.1
Recoverable from reinsurers (including
recoverables on paid losses - $428.5; December
31, 2012 - $311.0) 5,191.1 5,290.8
Deferred income taxes 690.9 623.5
Goodwill and intangible assets 1,292.5 1,301.1
Other assets 1,179.7 984.9
--------------------------
36,856.3 36,941.2
--------------------------
--------------------------
Liabilities
Subsidiary indebtedness 43.2 52.1
Accounts payable and accrued liabilities 2,078.1 1,877.7
Income taxes payable 74.4 70.5
Short sale and derivative obligations (including
at the holding company - $6.2; December 31, 2012
- $41.2) 130.7 238.2
Funds withheld payable to reinsurers 434.5 439.7
--------------------------
2,760.9 2,678.2
--------------------------
Insurance contract liabilities 22,130.8 22,376.2
Long term debt 3,177.7 2,996.5
--------------------------
25,308.5 25,372.7
--------------------------
Equity
Common shareholders' equity 7,550.2 7,654.7
Preferred stock 1,166.4 1,166.4
--------------------------
Shareholders' equity attributable to shareholders
of Fairfax 8,716.6 8,821.1
Non-controlling interests 70.3 69.2
--------------------------
Total equity 8,786.9 8,890.3
--------------------------
36,856.3 36,941.2
--------------------------
--------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
for the three months ended March 31, 2013 and 2012
(unaudited - US$millions except per share amounts)
First quarter
--------------------------
2013 2012
--------------------------
Revenue
Gross premiums written 1,891.8 1,807.6
--------------------------
Net premiums written 1,605.7 1,521.6
--------------------------
Net premiums earned 1,462.8 1,339.5
Interest and dividends 99.5 129.6
Share of profit (loss) of associates 18.7 (8.7)
Net gains (losses) on investments 9.4 (40.9)
Other revenue 194.2 205.0
--------------------------
1,784.6 1,624.5
--------------------------
Expenses
Losses on claims, gross 1,173.1 1,102.0
Less ceded losses on claims (269.6) (203.2)
--------------------------
Losses on claims, net 903.5 898.8
Operating expenses 284.4 271.3
Commissions, net 240.2 206.1
Interest expense 53.3 52.9
Other expenses 191.1 199.6
--------------------------
1,672.5 1,628.7
--------------------------
Earnings (loss) before income taxes 112.1 (4.2)
Recovery of income taxes (51.2) (2.9)
--------------------------
Net earnings (loss) 163.3 (1.3)
--------------------------
--------------------------
Attributable to:
Shareholders of Fairfax 161.6 (2.6)
Non-controlling interests 1.7 1.3
--------------------------
163.3 (1.3)
--------------------------
--------------------------
Net earnings (loss) per share $ 7.22 $ (0.76)
Net earnings (loss) per diluted share $ 7.12 $ (0.76)
Cash dividends paid per share $ 10.00 $ 10.00
Shares outstanding (000) (weighted average) 20,244 20,356
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the three months ended March 31, 2013 and 2012
(unaudited - US$millions)
First quarter
--------------------------
2013 2012
--------------------------
Net earnings (loss) 163.3 (1.3)
--------------------------
Other comprehensive income (loss), net of income
taxes
Items that may be subsequently reclassified to net
earnings
Change in unrealized foreign currency
translation gains (losses) on foreign
operations (70.5) 45.8
Change in gains (losses) on hedge of net
investment in Canadian subsidiaries 31.1 (19.9)
Share of other comprehensive income (loss) of
associates, excluding gains (losses) on defined
benefit plans (8.6) 6.2
--------------------------
(48.0) 32.1
--------------------------
Items that will not be subsequently reclassified
to net earnings
Share of gains (losses) on defined benefit plans
of associates 2.2 (11.0)
--------------------------
Other comprehensive income (loss), net of income
taxes (45.8) 21.1
--------------------------
Comprehensive income 117.5 19.8
--------------------------
--------------------------
Attributable to:
Shareholders of Fairfax 116.3 18.3
Non-controlling interests 1.2 1.5
--------------------------
117.5 19.8
--------------------------
--------------------------
SEGMENTED INFORMATION
(unaudited - US$millions)
Net premiums written and net premiums earned by the insurance
and reinsurance operations in the quarters ended March 31, 2013 and
2012 were:
Net Premiums Written
First quarter
--------------------------
2013 2012
--------------------------
Insurance - Canada (Northbridge) 247.6 201.6
- U.S. (Crum & Forster and Zenith National) 577.2 564.0
- Asia (Fairfax Asia) 76.1 72.8
Reinsurance - OdysseyRe 604.0 525.9
Insurance and Reinsurance - Other 100.9 157.3
--------------------------
Insurance and reinsurance operations 1,605.8 1,521.6
--------------------------
--------------------------
Net Premiums Earned
First quarter
--------------------------
2013 2012
--------------------------
Insurance - Canada (Northbridge) 245.7 252.0
- U.S. (Crum & Forster and Zenith National) 468.8 418.5
- Asia (Fairfax Asia) 54.9 53.4
Reinsurance - OdysseyRe 556.5 487.0
Insurance and Reinsurance - Other 106.3 127.3
--------------------------
Insurance and reinsurance operations 1,432.2 1,338.2
--------------------------
--------------------------
Combined ratios of the insurance and reinsurance operations in
the quarters ended March 31, 2013 and 2012 were:
First quarter
--------------------------
2013 2012
--------------------------
Insurance - Canada (Northbridge) 100.5% 104.3%
- U.S. (Crum & Forster and Zenith National) 103.1% 109.2%
- Asia (Fairfax Asia) 91.0% 92.2%
Reinsurance - OdysseyRe 82.9% 87.0%
Insurance and Reinsurance - Other 98.4% 101.7%
--------------------------
Insurance and reinsurance operations 94.0% 98.8%
--------------------------
--------------------------
Contacts: Fairfax Financial Holdings Limited John Varnell Vice
President, Corporate Development (416) 367-4941 Fairfax Financial
Holdings Limited Media Contact Paul Rivett Vice President,
Operations (416) 367-4941
Fairfax Financial (TSX:FFH.U)
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