Fairfax Financial Holdings announced Q1 2023 financial results, reporting net earnings of $1,250 mn in Q1 2023 compared to net earnings of $588.7 mn in Q1 2022.
On January 1, 2023 we were required to adopt the IFRS 17 – with the most significant changes being the discounting of our insurance liabilities and a specific risk margin for uncertaintyPrem Watsa, the Chairman and Chief Executive Officer Fairfax Financial Holdings
“As we have stated before, this new reporting requirement will not change the way management evaluates the business and we will continue to be focused on underwriting profit on an undiscounted basis with strong reserving.
The effects of discounting and risk adjustment in the quarter resulted in an increase to pre-tax earnings of $309.6 mn.
Net premiums written by the property and casualty insurance and reinsurance operations increased for Fairfax, 6.1% to $5,619.4 mn in Q1 2022 from $5,297.3 mn in Q1 2022. Gross premiums written also increased by 7.2%.
The consolidated combined ratio of the property and casualty insurance and reinsurance operations was 94% compared to the combined ratio of 93.1% in Q1 2022
The company produced an underwriting profit of $313.8 mn in Q1 2023, compared to $324.4 mn in 2022.
Adjusted operating income of the property and casualty insurance and reinsurance operations increased by 49.9% to $843 mn from $562.4 mn, principally due to increased interest and dividend income and share of profit of associates.
The company’s net finance expense from insurance contracts and reinsurance contract assets held at $163.4 mn reflected interest accretion as a result of the unwinding of the effects of discounting recognized at higher interest rates.
This compared to net finance income from insurance contracts and reinsurance contract assets held of $419 mn in 2022 that benefited from the significant increase in discount rates during the quarter, the effects of which exceeded the interest accretion.
Net gains on investments of $771.2 mn in the quarter were principally comprised of mark to market gains on common stocks of $410.4 mn and bonds of $319 mn.
Consolidated interest and dividends increased significantly from $168.9 mn in Q1 2022 to $382.3 mn in Q1 2023.
At March 31, 2023 the company’s insurance and reinsurance companies held portfolio investments of $54.5 billion (excluding Fairfax India’s portfolio of $2 billion), of which approximately $7.5 billion was in cash and short term investments representing approximately 13.7% of those portfolio investments.
During the first quarter of 2023 the company used net proceeds from sales and maturities of short dated U.S. treasuries to purchase $5.9 billion of U.S. treasuries with maturities between 3 to 5 years, which will benefit interest and dividend income in the remainder of 2023.
Fixed income portfolio is conservatively positioned with effectively 80% of fixed income portfolio in government bonds and only 14% in primarily short-dated corporate bonds.
by Yana Keller