Fairfax Financial Holdings announces net earnings of $1,068.9 million ($42.26 net earnings per diluted share after payment of preferred share dividends) in the third quarter of 2023 compared to net earnings of $499.4 million ($19.31 net earnings per diluted share after payment of preferred share dividends) in the third quarter of 2022.
Book value per basic share at September 30, 2023 was $876.55 compared to $762.28 at December 31, 2022 (an increase of 16.4% adjusted for the $10 per common share dividend paid in the first quarter of 2023).
We continued to build on our outstanding first half of 2023, with the third quarter producing adjusted operating income of $967.2 million from our property and casualty insurance and reinsurance operations, reflecting strong core underwriting performance, increased interest and dividends and favourable results from profit of associates.
Prem Watsa, Chairman and Chief Executive Officer
“We remain focused on being soundly financed and ended the quarter with approximately $1.2 billion in cash and investments in the holding company,” said Prem Watsa, Chairman and Chief Executive Officer.
Fairfax achieved an underwriting profit of $291.6 million on an undiscounted basis and a consolidated combined ratio of 95% for the quarter, reflecting significantly lower catastrophe losses and excellent current accident year underwriting margins.
Gross premiums written grew by 5% and net premiums written grew by 4.8%, primarily reflecting new business and continued incremental rate increases in certain lines of business.
Net gains on investments of $56.0 million in the quarter was principally comprised of mark to market gains on common stocks of $273.3 million, which was largely offset by mark to market losses on bonds of $196.7 million due to continued rising interest rates.
Highlights for Q3 2023
- Net premiums written by the property and casualty insurance and reinsurance operations increased 4.8% to $5,837.9 million from $5,573.1 million, while gross premiums written increased by 5.0%, primarily reflecting new business and continued incremental rate increases in certain lines of business.
- The consolidated combined ratio of the property and casualty insurance and reinsurance operations was 95.0%, producing an underwriting profit of $291.6 million, compared to a combined ratio of 100.3% and an underwriting loss of $16.9 million in 2022, driven by decreased catastrophe losses of $388.7 million or 6.7 combined ratio points in the quarter, continued improvement in current accident year underwriting margins from prudent underwriting and continued growth in business volumes (net insurance revenue increased by 11.3%).
- Adjusted operating income of the property and casualty insurance and reinsurance operations increased by 127.5% to $967.2 million from $425.1 million, principally due to strong underwriting profit and increased interest and dividends.
- Net finance expense from insurance contracts and reinsurance contract assets held of $7.9 million in 2023 reflected interest accretion resulting from the unwinding of the effects of discounting associated with net claim payments made, partially offset by the benefit of increases in discount rates during the period due to continued rising interest rates, compared to net finance income from insurance contracts and reinsurance contract assets held of $422.9 million in 2022 which reflected the benefit of increases in discount rates that was only partially offset by the interest accretion.
- Consolidated interest and dividends increased significantly from $256.5 million to $512.7 million. At September 30, 2023 the company’s insurance and reinsurance companies held portfolio investments of $56.8 billion (excluding Fairfax India’s portfolio of $2.0 billion), of which $6.4 billion was in cash and short term investments representing 11.2% of those portfolio investments. During the first nine months of 2023 the company used cash and net proceeds from sales and maturities of U.S. treasury and other government short term investments and short-dated U.S. treasuries to purchase $5.8 billion of U.S. treasuries with maturities between 3 to 5 years and $2.4 billion of U.S. treasuries with maturities between 5 to 7 years, and to make net purchases of $2.1 billion of short-dated first mortgage loans and $1.6 billion of corporate and other bonds with maturities primarily between 2 to 5 years. These actions should result in continued higher levels of interest income for approximately the next 4 years.
- Consolidated share of profit of associates of $291.5 million principally reflected share of profit of $118.9 million from Eurobank, $45.5 million from Poseidon (formerly Atlas) and $20.5 million from Stelco.
- Net gains on investments of $56 million
- Net losses on bonds of $196.7 million was principally comprised of net losses of $169 million on U.S. treasuries.
- The company’s fixed income portfolio is conservatively positioned with effectively 70% of the fixed income portfolio invested in government bonds and 19% in high quality corporate bonds, primarily short-dated.
- Excluding the impact of Fairfax India’s performance fees to Fairfax (accruals of $20.4 million in the third quarter of 2023 and $4.8 million in the third quarter of 2022), which are offset upon consolidation, operating income of the non-insurance companies increased to $146.3 million from $130.4 million, principally reflecting higher business volumes, and continued stable results at Restaurants and retail.
- Interest expense of $124.8 million (inclusive of $12.1 million on leases) was comprised (other than on leases) of $80.7 million incurred on borrowings by the holding company and the insurance and reinsurance companies and $32.0 million incurred on borrowings by the non-insurance companies (which are non-recourse to the holding company).
- At September 30, 2023 the excess of fair value over carrying value of investments in non-insurance associates and consolidated non-insurance subsidiaries was $600.9 million.
- The company’s total debt to total capital ratio, excluding non-insurance companies, decreased to 21.6% at September 30, 2023 compared to 23.7% at December 31, 2022, principally reflecting increased common shareholders’ equity as a result of the strong net earnings reported in the first nine months of 2023.
- During the first nine months of 2023 the company purchased 257,589 of its subordinate voting shares for cancellation at an aggregate cost of $179.8 million.
There were 23.2 million and 23.6 million weighted average common shares effectively outstanding during the third quarters of 2023 and 2022 respectively. At September 30, 2023 there were 23,115,838 common shares effectively outstanding.
by Yana Keller
