Fairfax Financial Holdings announces fiscal year 2022 net earnings of $1,147.2 million ($43.49 net earnings per diluted share after payment of preferred share dividends) compared to fiscal year 2021 net earnings of $3,401.1 million ($122.25 net earnings per diluted share after payment of preferred share dividends).
Book value per basic share at December 31, 2022 was $657.68 compared to $630.60 at December 31, 2021 (an increase of 6% adjusted for the $10 per common share dividend paid in the first quarter of 2022).
We ended 2022 in a strong financial position with $1.3 billion in cash and investments in the holding company, our debt to capital ratio at 26.2%, and no significant holding company debt maturities until 2024Prem Watsa, Chairman and Chief Executive Officer
Core underwriting performance continued to be very strong, with record underwriting profit of $1.1 billion and a combined ratio of 94.7% in 2022, reflecting growth in gross premiums written of 15.8% or $3.8 billion to $27.6 billion – essentially all organic.
Net losses on investments of $1.7 billion were principally comprised of mark-to-market losses on bonds of $1 billion due to the rising interest rate environment, the majority of which are expected to reverse over the short term, unrealized foreign exchange losses of $304.3 million and losses on equity exposures of $243.8 million.
All of major insurance and reinsurance companies had a combined ratio below 100%, despite significant catastrophe losses of $1.3 billion or 6.1 combined ratio points. strong underwriting income.
With the short duration of 1.6 years on our $38 billion fixed income portfolio (comprised of cash, short term investments and short-dated bonds), that portfolio decreased only 2.9% in 2022, while interest and dividend income increased significantly due to rising interest rates, from a run rate of approximately $530 million annually at the end of 2021 to a current run rate of approximately $1.5 billion annually.
Highlights for fiscal year 2022
- Net premiums written by the property and casualty insurance and reinsurance operations increased by 23.1% to a record $21.9 billion from $17.8 billion, while gross premiums written increased by 15.8%.
- The consolidated combined ratio of the property and casualty insurance and reinsurance operations was 94.7%, producing an underwriting profit of $1,105.3 million, despite significant catastrophe losses of $1,255.7 million (representing 6.1 combined ratio points), compared to a combined ratio of 95.0% and an underwriting profit of $801.2 million in 2021. The property and casualty insurance and reinsurance operations continued to experience net favourable prior year reserve development, with a benefit of $196.2 million or 0.9 of a combined ratio point.
- Operating income of the property and casualty insurance and reinsurance operations increased to $2,572.9 million from $1,567.0 million, reflecting increased share of profit of associates, interest and dividends and underwriting profit.
- Float of the property and casualty insurance and reinsurance operations increased by 14.2% to $29.6 billion at December 31, 2022 from $25.9 billion at December 31, 2021.
- Operating loss of the Life insurance and Run-off operations improved to $55.3 million from $272.9 million, principally reflecting the consolidation of a full year of Eurolife’s operating income, increased share of profit of associates and interest and dividends, and lower net adverse prior year reserve development at Run-off.
- Excluding the impact of Fairfax India’s performance fees to Fairfax (a reversal of $36.4 million in 2022 and an accrual of $85.2 million in 2021), which are offset upon consolidation, and the impact of non-cash impairment charges recorded during 2022 of $133.4 million related to the company’s investment in Farmers Edge, operating income of the non-insurance companies increased by $240.1 million to $318.3 million, primarily reflecting higher share of profit of associates at Fairfax India, higher business volumes at Thomas Cook India and improved gross margins at Restaurants and retail.
- Consolidated interest and dividends increased to $961.8 million from $640.8 million, primarily reflecting higher interest income earned, principally due to a general increase in sovereign bond yields and net purchases of short-dated U.S. treasury and Canadian government bonds, first mortgage loans and other government bonds during 2021 and 2022.
- Consolidated share of profit of associates of $1,014.7 million principally reflected share of profit of $263.0 million from Eurobank, $258.2 million from Atlas Corp., $159.0 million from Resolute and $81.9 million from EXCO Resources.
- Interest expense of $452.8 million (inclusive of $46.9 million on leases) was primarily comprised of $316.1 million incurred on borrowings by the holding company and the insurance and reinsurance companies and $89.8 million incurred on borrowings by the non-insurance companies (which are non-recourse to the holding company).
- At December 31, 2022 the company’s insurance and reinsurance companies held portfolio investments of $52.2 billion (excluding Fairfax India’s portfolio of $1.9 billion), of which $9.4 billion was in cash and short term investments and $28.6 billion in short-dated fixed income securities. During 2022 the company used existing cash and the proceeds from sales and maturities of short dated investments to principally purchase U.S. treasury and Canadian government bonds with 1 to 3 year terms, Canadian provincial bonds, short-dated high quality corporate bonds and first mortgage loans, increasing interest and dividend income in 2022, and producing the company’s current run rate of approximately $1.5 billion annually.
- Net losses on investments of $1,733.9 million (net gains on investments of $547.5 million in the fourth quarter)
- Net losses on equity exposures of $243.8 million was primarily comprised of unrealized losses on common stocks, convertible bonds and equity warrants, partially offset by net gains on long equity total return swaps on Fairfax subordinate voting shares. Net losses on bonds of $1,086.1 million primarily reflected net losses on U.S. treasuries and corporate and other bonds (principally U.S. and other corporate bonds), the majority of which are expected to reverse over the short term, partially offset by net gains on U.S. treasury bond forward contracts. Net losses on other of $404.0 million primarily reflected unrealized foreign exchange losses, principally related to the strengthening of the U.S. dollar against the company’s investments denominated in the Indian rupee, Canadian dollar and Egyptian pound.
- At December 31, 2022 the company continued to hold equity total return swaps on 1,964,155 Fairfax subordinate voting shares with an original notional amount of $732.5 million (Cdn$935.0 million) or $372.96 (Cdn$476.03) per share, and recorded gains of $154.8 million (fourth quarter of 2022 – $115.8 million), representing the cash-settlement on the market value movement since the previous reset date, and unrealized gains of $100.6 million (fourth quarter of 2022 – $132.5 million).
- On October 31, 2022 the company sold its interests in the Crum & Forster Pet Insurance Group and Pethealth, including all of their worldwide operations, to Independence Pet Group and certain of its affiliates, which are majority owned by JAB Holding Company, for $1.4 billion, paid as $1.15 billion in cash and $250.0 in debentures, as a result of which the company recorded a pre-tax gain of $1.2 billion and an after-tax gain of $933.9 million.
- At December 31, 2022 the excess of fair value over carrying value of investments in non-insurance associates and market traded consolidated non-insurance subsidiaries that is not reflected in the company’s book value per basic share was approximately $310 million. Recipe is no longer included in this measure as Recipe was delisted from the Toronto Stock Exchange following its privatization by the company on October 28, 2022.
- The company held $1,345.8 million of cash and investments at the holding company level at December 31, 2022, compared to $1,478.3 million at December 31, 2021.
- The company’s total debt to total capital ratio, excluding non-insurance companies, increased to 26.2% at December 31, 2022 from 24.1% at December 31, 2021, primarily reflecting the issuance on August 16, 2022 of $750.0 million principal amount of 5.625% unsecured senior notes due 2032 and a decline in non-controlling interests reflecting the company’s acquisition of additional shares of Allied World from non-controlling interests.
- During 2022 the company purchased 295,474 of its subordinate voting shares for treasury and 387,790 for cancellation at an aggregate cost of $347.8 million.
There were 23.6 million and 26.0 million weighted average common shares effectively outstanding during 2022 and 2021 respectively. At December 31, 2022 there were 23,325,305 common shares effectively outstanding.
Consolidated balance sheet, earnings and comprehensive income information, together with segmented premium and combined ratio, prior year reserve development and catastrophe loss information.