(Note: All dollar amounts in this news release are expressed in
U.S. dollars, except as otherwise noted. The financial results are
reported under International Financial Reporting Standards, except
as otherwise noted.)
Fairfax Financial Holdings Limited (TSX:FFH)(TSX:FFH.U)
announces fiscal year 2012 net earnings of $532.4 million ($22.94
per diluted share after payment of preferred share dividends)
compared to $45.1 million ($0.31 net loss per diluted share after
payment of preferred share dividends) in 2011, reflecting a return
to profitable underwriting results after the large catastrophe
losses of 2011. Book value per basic share increased to $378.10 at
December 31, 2012 from $364.55 at December 31, 2011 (an increase of
6.5% adjusted for the $10 per common share dividend paid in the
first quarter of 2012).
"We returned to profitable underwriting results in 2012,
notwithstanding $261 million in losses resulting from Hurricane
Sandy," said Prem Watsa, Chairman and Chief Executive Officer of
Fairfax. "We are maintaining our defensive equity hedges as we
remain concerned about the economic outlook. We continue to be
soundly financed, with year-end cash and marketable securities at
the holding company in excess of $1 billion."
In the fourth quarter of 2012, Fairfax had net earnings of
$404.1 million ($18.90 per diluted share after payment of preferred
share dividends) compared to a net loss of $771.5 million in the
fourth quarter of 2011 ($38.47 per diluted share after payment of
preferred share dividends). The profit in the fourth quarter of
2012 arose principally from net mark-to-market investment gains
(net gains on investments of $635.6 million, compared to net losses
on investments of $914.9 million in the fourth quarter of 2011) and
from reduced underwriting losses ($113.1 million, including
Hurricane Sandy losses of $261.2 million, compared to $292.8
million in the fourth quarter of 2011).
Highlights in 2012 included the following:
-- The combined ratio of the insurance and reinsurance operations was 99.8%
on a consolidated basis, producing an underwriting profit of $11.6
million, compared to a combined ratio and underwriting losses of 114.2%
and $754.4 million respectively in 2011. Underwriting results in 2011
were negatively affected by over $1 billion of catastrophe losses.
-- Net premiums written by the insurance and reinsurance operations
increased by 9.2% to $5,995.0 million compared to $5,487.6 million in
2011.
-- The insurance and reinsurance operations produced an operating income
(excluding net gains on investments) of $304.0 million in 2012, compared
to an operating loss of $236.5 million in 2011, primarily as a result of
the lower underwriting losses.
-- Interest and dividend income of $409.3 million decreased from $705.3
million in 2011, primarily because of significantly increased holdings
of low-yielding cash and short term investments ($8,097.9 million at
December 31, 2012, compared to $6,874.4 million at December 31, 2011)
resulting from sales of higher-yielding securities, principally
government bonds. As of December 31, 2012, subsidiary cash and short
term investments accounted for 29.3% 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 $5,292.5 million at December 31, 2012 and
$4,883.9 million at December 31, 2011).
-- Net investment gains of $642.6 million in 2012 ($691.2 million in 2011)
consisted of the following:
Year ended December 31, 2012
----------------------------------
($ millions)
Unrealized
Realized gains Net gains
gains (losses) (losses)
---------- ----------- -----------
Net gains (losses) on:
Equity and equity-related investments 470.1 648.6 1,118.7
Equity hedges 6.3 (1,011.8) (1,005.5)
---------- ----------- -----------
Equity and equity-related investments
after equity hedges 476.4 (363.2) 113.2
Bonds 566.3 161.8 728.1
CPI-linked derivatives - (129.2) (129.2)
Other 22.3 (91.8) (69.5)
---------- ----------- -----------
1,065.0 (422.4) 642.6
---------- ----------- -----------
---------- ----------- -----------
Fourth quarter of 2012
----------------------------------
($ millions)
Realized Unrealized
gains gains Net gains
(losses) (losses) (losses)
---------- ----------- -----------
Net gains (losses) on:
Equity and equity-related investments 153.0 442.0 595.0
Equity hedges 13.5 (154.2) (140.7)
---------- ----------- -----------
Equity and equity-related investments
after equity hedges 166.5 287.8 454.3
Bonds 176.1 8.6 184.7
CPI-linked derivatives - (29.9) (29.9)
Other (7.8) 34.3 26.5
---------- ----------- -----------
334.8 300.8 635.6
---------- ----------- -----------
---------- ----------- -----------
-- The company held $1,169.2 million of cash, short term investments and
marketable securities at the holding company level ($1,128.0 million net
of short sale and derivative obligations) at December 31, 2012, compared
to $1,026.7 million ($962.8 million net of short sale and derivative
obligations) at December 31, 2011.
-- The company's total debt to total capital ratio improved to 25.5% at
December 31, 2012 from 26.4% at December 31, 2011.
-- At December 31, 2012, common shareholders' equity was $7,654.7 million,
or $378.10 per basic share, compared to $7,427.9 million, or $364.55 per
basic share, at December 31, 2011.
Highlights subsequent to the third quarter of 2012 included the following:
-- On October 12, 2012, the company completed the purchase of the runoff
business of Brit Insurance Limited for $335.1 million, which was paid by
the company's runoff subsidiaries. At December 31, 2012, Brit Insurance
had an investment portfolio of $1.2 billion.
-- In October 2012, the purported class action commenced in July 2011
against the company and others was dismissed, with no payment and
without the possibility of further appeal or amendment.
-- On October 15, 2012, the company completed an offering at par of
Cdn$200.0 million of 5.84% unsecured senior notes due 2022, for net
proceeds of Cdn$198.6 million.
-- In October 2012, the company's TIG runoff subsidiary paid $200.0 million
in full satisfaction of the loan note issued by TIG in connection with
its acquisition of General Fidelity in August 2010.
-- On December 10, 2012, the company completed the sale of its interest in
Cunningham Lindsey for cash proceeds of $270.6 million. Fairfax invested
$34.4 million of the proceeds in shares of Cunningham Lindsey on closing
to continue to be a 9.1% minority shareholder.
-- On December 10, 2012, the company filed a final short form prospectus
with Canadian securities regulatory authorities to offer up to Cdn$2.0
billion of debt, equity or other securities over a 25 month period.
-- 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
$100 principal amount, for an effective yield of 5.326%.
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
December 31, 2012, equity hedges represented approximately 100.6%
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 20.3 and 20.4 million weighted average shares
outstanding during the fourth quarters of 2012 and 2011
respectively. At December 31, 2012, there were 20,245,411 common
shares effectively outstanding.
Summarized (without notes) condensed 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 fourth quarter report
can be accessed at its website www.fairfax.ca.
As previously announced, Fairfax will hold a conference call to
discuss its annual and fourth quarter results at 8:30 a.m. Eastern
time on Friday, February 15, 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, March 1, 2013. The replay
may be accessed at 1 (866) 505-6450 (Canada or U.S.) or 1 (203)
369-1871 (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 December 31, 2012 and December 31, 2011
(unaudited - US$millions)
December December
31, 2012 31, 2011
Assets
Holding company cash and investments (including assets
pledged for short sale and derivative obligations -
$140.2; December 31, 2011 - $249.0) 1,169.2 1,026.7
Insurance contract receivables 1,945.4 1,735.4
-------- --------
3,114.6 2,762.1
-------- --------
Portfolio investments
Subsidiary cash and short term investments 6,960.1 6,199.2
Bonds (cost $9,428.9; December 31, 2011 - $9,515.4) 10,803.6 10,835.2
Preferred stocks (cost $618.7; December 31, 2011 -
$555.6) 605.1 563.3
Common stocks (cost $4,066.3; December 31, 2011 -
$3,867.3) 4,399.1 3,663.1
Investments in associates (fair value $1,782.4; December
31, 2011 - $1,271.8) 1,355.3 924.3
Derivatives and other invested assets (cost $524.0;
December 31, 2011 - $511.4) 181.0 394.6
Assets pledged for short sale and derivative obligations
(cost $791.1; December 31, 2011 - $810.1) 859.0 886.3
-------- --------
25,163.2 23,466.0
-------- --------
Deferred premium acquisition costs 463.1 415.9
Recoverable from reinsurers (including recoverables on
paid losses - $311.0; December 31, 2011 - $313.2) 5,290.8 4,198.1
Deferred income taxes 623.5 628.2
Goodwill and intangible assets 1,301.1 1,115.2
Other assets 984.9 821.4
-------- --------
36,941.2 33,406.9
-------- --------
-------- --------
Liabilities
Subsidiary indebtedness 52.1 1.0
Accounts payable and accrued liabilities 1,877.7 1,656.2
Income taxes payable 70.5 21.4
Short sale and derivative obligations (including at the
holding company - $41.2; December 31, 2011 - $63.9) 238.2 170.2
Funds withheld payable to reinsurers 439.7 412.6
-------- --------
2,678.2 2,261.4
-------- --------
Insurance contract liabilities 22,376.2 19,719.5
Long term debt 2,996.5 3,017.5
-------- --------
25,372.7 22,737.0
-------- --------
Equity
Common shareholders' equity 7,654.7 7,427.9
Preferred stock 1,166.4 934.7
-------- --------
Shareholders' equity attributable to shareholders of
Fairfax 8,821.1 8,362.6
Non-controlling interests 69.2 45.9
-------- --------
Total equity 8,890.3 8,408.5
-------- --------
36,941.2 33,406.9
-------- --------
-------- --------
CONSOLIDATED STATEMENTS OF EARNINGS
for the three and twelve months ended December 31, 2012 and 2011
(unaudited - US$millions except per share amounts)
Year ended December
Fourth quarter 31,
2012 2011 2012 2011
----------- ----------- ----------- -----------
Revenue
Gross premiums written 1,899.9 1,533.5 7,398.3 6,743.5
----------- ----------- ----------- -----------
Net premiums written 1,597.8 1,287.4 6,194.1 5,607.9
----------- ----------- ----------- -----------
Net premiums earned 1,765.5 1,395.5 6,084.9 5,426.9
Interest and dividends 73.3 162.1 409.3 705.3
Share of profit (loss) of
associates 20.0 (9.9) 15.0 1.8
Net gains (losses) on
investments 635.6 (914.9) 642.6 691.2
Other revenue 269.8 190.8 871.0 649.8
----------- ----------- ----------- -----------
2,764.2 823.6 8,022.8 7,475.0
----------- ----------- ----------- -----------
Expenses
Losses on claims, gross 1,806.5 1,515.0 5,265.5 5,541.4
Less ceded losses on
claims (443.5) (237.8) (1,022.9) (956.1)
----------- ----------- ----------- -----------
Losses on claims, net 1,363.0 1,277.2 4,242.6 4,585.3
Operating expenses 305.3 260.2 1,120.3 1,148.3
Commissions, net 255.3 217.4 925.4 795.4
Interest expense 52.2 52.2 208.2 214.0
Other expenses 283.2 186.1 869.5 740.7
----------- ----------- ----------- -----------
2,259.0 1,993.1 7,366.0 7,483.7
----------- ----------- ----------- -----------
Earnings (loss) before
income taxes 505.2 (1,169.5) 656.8 (8.7)
Provision for (recovery of)
income taxes 97.1 (398.7) 116.1 (56.5)
----------- ----------- ----------- -----------
Net earnings (loss) 408.1 (770.8) 540.7 47.8
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Attributable to:
Shareholders of Fairfax 404.1 (771.5) 532.4 45.1
Non-controlling interests 4.0 0.7 8.3 2.7
----------- ----------- ----------- -----------
408.1 (770.8) 540.7 47.8
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net earnings (loss) per
share $ 19.14 $ (38.47) $ 23.22 $ (0.31)
Net earnings (loss) per
diluted share $ 18.90 $ (38.47) $ 22.94 $ (0.31)
Cash dividends paid per
share $ - $ - $ 10.00 $ 10.00
Shares outstanding (000)
(weighted average) 20,287 20,381 20,327 20,405
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the three and twelve months ended December 31, 2012 and 2011
(unaudited - US$millions)
Year ended
Fourth quarter December 31,
2012 2011 2012 2011
-------- -------- -------- --------
Net earnings (loss) 408.1 (770.8) 540.7 47.8
-------- -------- -------- --------
Other comprehensive income (loss), net
of income taxes
Change in unrealized foreign currency
translation gains (losses) on foreign
operations (1) (25.0) 61.7 59.2 (40.8)
Change in gains and losses on hedge of
net investment in foreign subsidiary
(2) 16.4 (24.1) (20.4) 33.2
Share of other comprehensive income
(loss) of associates (3) (7.4) (10.6) (21.0) (7.5)
Change in gains and losses on defined
benefit plans (4) (19.4) (22.0) (22.9) (22.6)
-------- -------- -------- --------
Other comprehensive income (loss), net
of income taxes (35.4) 5.0 (5.1) (37.7)
-------- -------- -------- --------
Comprehensive income (loss) 372.7 (765.8) 535.6 10.1
-------- -------- -------- --------
-------- -------- -------- --------
Attributable to:
Shareholders of Fairfax 368.2 (766.6) 527.6 8.0
Non-controlling interests 4.5 0.8 8.0 2.1
-------- -------- -------- --------
372.7 (765.8) 535.6 10.1
-------- -------- -------- --------
-------- -------- -------- --------
(1) Net of income tax recovery of $3.7 (2011 - income tax expense of $11.7)
and $3.4 (2011 - income tax expense of $9.0) for the fourth quarter and
year ended December 31, 2012, respectively.
(2) Net of income tax recovery of nil (2011 - nil) and nil (2011 - nil) for
the fourth quarter and year ended December 31, 2012, respectively.
(3) Net of income tax expense of $0.9 (2011 - $0.8) and $1.7 (2011 - income
tax recovery of $0.8) for the fourth quarter and year ended December 31,
2012, respectively.
(4) Net of income tax recovery of $4.6 (2011 - $9.0) and $6.9 (2011 - $9.0)
for the fourth quarter and year ended December 31, 2012, respectively.
SEGMENTED INFORMATION
(unaudited - US$ millions)
Net premiums written and net premiums earned by the insurance
and reinsurance operations in the fourth quarters and years ended
December 31, 2012 and 2011 were:
Net Premiums Written
Year ended
Fourth quarter December 31,
----------------- -----------------
2012 2011 2012 2011
-------- -------- -------- --------
Insurance - Canada (Northbridge) 243.0 257.7 948.7 1,098.5
- U.S. (Crum & Forster and Zenith
National) 408.1 408.0 1,872.8 1,601.1
- Asia (Fairfax Asia) 59.2 50.5 240.6 213.7
Reinsurance - OdysseyRe 573.8 477.2 2,402.3 2,089.7
Insurance and Reinsurance - Other 114.6 93.4 530.6 484.6
-------- -------- -------- --------
Insurance and reinsurance operations 1,398.7 1,286.8 5,995.0 5,487.6
-------- -------- -------- --------
-------- -------- -------- --------
Net Premiums Earned
Year ended
Fourth quarter December 31,
----------------- -----------------
2012 2011 2012 2011
-------- -------- -------- --------
Insurance - Canada (Northbridge) 240.3 258.4 992.2 1,072.2
- U.S. (Crum & Forster and Zenith
National) 484.1 414.9 1,811.6 1,504.6
- Asia (Fairfax Asia) 62.2 55.0 231.4 204.1
Reinsurance - OdysseyRe 613.6 537.0 2,315.3 2,014.7
Insurance and Reinsurance - Other 151.0 129.2 514.3 504.9
-------- -------- -------- --------
Insurance and reinsurance operations 1,551.2 1,394.5 5,864.8 5,300.5
-------- -------- -------- --------
-------- -------- -------- --------
Combined ratios of the insurance and reinsurance operations in
the fourth quarters and years ended December 31, 2012 and 2011
were:
Year ended
Fourth quarter December 31,
----------------- -----------------
2012 2011 2012 2011
-------- -------- -------- --------
Insurance - Canada (Northbridge) 113.7% 101.9% 105.7% 102.8%
- U.S. (Crum & Forster and Zenith
National) 122.6% 124.2% 111.4% 114.3%
- Asia (Fairfax Asia) 84.4% 89.2% 87.0% 83.2%
Reinsurance - OdysseyRe 94.4% 122.7% 88.5% 116.7%
Insurance and Reinsurance - Other 109.8% 155.1% 104.3% 140.9%
-------- -------- -------- --------
Insurance and reinsurance operations 107.3% 121.0% 99.8% 114.2%
-------- -------- -------- --------
-------- -------- -------- --------
Contacts: Fairfax Financial Holdings Limited John Varnell Vice
President, Corporate Development (416) 367-4941 Media Contact
Fairfax Financial Holdings Limited Paul Rivett Vice President,
Operations (416) 367-4941 www.fairfax.ca
Fairfax Financial (TSX:FFH.U)
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