Fairfax Financial Holdings

Fairfax Financial Holdings has announced a net loss of $881.4m in Q2 2022 after net earnings of $1,201.4m in the same period the year before.

Fairfax is reporting increases of 27.5% and 40.5% year on year between Q2 2021 and Q2 2022 in gross written premiums for Odyssey Group and Brit, its main P&C/specialty-focused insurers.

Prem Watsa, chairman and CEO of Fairfax Financial Holdings, said in a statement that the company had continued its excellent underwriting performance in Q2 2022 with a consolidated combined ratio of 94.1%, with all of our major insurance companies having combined ratios below 95% in the quarter.

Net losses on investments of $1,547.9m during the quarter were principally comprised of mark-to-market losses on common stocks of $873.8m reflecting the 16% drop in the S&P 500 in the quarter and mark-to-market losses on bonds of $413.4m due to continued rising interest rates.

Prem Watsa, chairman and CEO of Fairfax Financial Holdings

The gain on the sale of our pet insurance business to JAB, the additional gain on consolidation of Digit Insurance and the gain on the sale of Resolute are not accounted for in the second quarter as those transactions have not closed.”

It was in February that Fairfax announced that Brit had returned to underwriting profitability in 2021, producing its strongest result for five years, with a gain of $90.6m compared with a loss of over $217m in 2020, as the combined ratio strengthened to 95.7%.

The end of last year saw the firm announce that it was selling 10% of its Odyssey business to CPPIB Credit Investments and the pension fund OMERS. Each was to acquire a 4.995% interest in Odyssey through a new class of securities, for an aggregate cash purchase price of $900m.

Our low duration of 1.2 years on our $36bn fixed income portfolio reduced the impact that rising interest rates had on the fair value of our bonds in the second quarter of 2022 to only a decrease of 1.1% of the fixed income portfolio, while enabling the company to benefit from increased interest income in the second quarter and in the remainder of 2022 and future periods as we deployed the portfolio into one to two year treasury bonds.

Prem Watsa, chairman and CEO of Fairfax Financial Holdings

Given the low duration of the bond portfolio if the investments are held to maturity a significant portion of the net unrealized losses recorded in the first six months of 2022 of $965m will be reversed in the next 12 to 18 months.

Interest and dividend income increased from a run rate of approximately $530m annually at the end of 2021 to a current normalized rate of approximately $950m annually.

by Nataly Kramer