Fairfax Financial reports increase Q2 net earnings of $95 million
Fairfax Financial Holdings Limited has reported net earnings of $95.0 million in the second quarter of 2012 ($3.85 per diluted share) compared to net earnings of $83.3 million in the second quarter of 2011 ($3.40 per diluted share), reflecting improved underwriting results (with a consolidated combined ratio of 97.5%) and lower losses on repurchase of long term debt, partially offset by lower interest and dividend income, lower net investment gains and higher income tax expense.
“Our underwriting results continued to improve on increased premiums and we produced a small investment gain notwithstanding unrealized investment losses related to our defensive hedging strategy,” said Prem Watsa, Chairman and Chief Executive Officer of Fairfax, in a statement. “We again finished the quarter with cash and marketable securities at the holding company in excess of $1 billion. We continue to maintain our equity hedges as we remain very concerned about the economic outlook over the next few years.”
Highlights in the second quarter (with comparisons to the second quarter of 2011 except as otherwise noted) included the following:
- The combined ratio of the insurance and reinsurance operations was 97.5% on a consolidated basis, producing an underwriting profit of $34.8 million, compared to a combined ratio and underwriting loss of 100.5% and $6.1 million respectively in 2011. Underwriting results in 2011 were negatively affected by catastrophe losses related to U.S. tornadoes.
- Net premiums written by the insurance and reinsurance operations increased 14% to $1,566.9 million from $1,370.8 million in 2011.
- Operating income of the insurance and reinsurance operations (excluding net gains on investments) declined to $117.3 million from $146.2 million in 2011, primarily as a result of the decrease in interest and dividend income, partially offset by the improved underwriting results.
- Interest and dividend income of $104.9 million decreased from $195.1 million in 2011, primarily because of significantly increased holdings of low-yielding cash and short term investments ($7,917.8 million at June 30, 2012, compared to $3,893.9 million at June 30, 2011) resulting from sales of higher-yielding securities, principally government bonds. Interest income as reported is unadjusted for the positive tax effect of the company’s significant holdings of tax-advantaged debt securities (holdings of $5,101.3 million at June 30, 2012, compared to $4,883.9 million at December 31, 2011).
- Net investment gains of $71.5 million in 2012 ($119.6 million in 2011) consisted of the following:
|
Second quarter |
|||||||||
|
Realized gains (losses) |
Unrealized gains (losses) |
Net gains (losses) |
|||||||
| Net gains (losses) on: | |||||||||
| Equity and equity-related investments |
40.9 |
(624.8 |
) |
(583.9 |
) | ||||
| Equity hedges |
(7.2 |
) |
396.6 |
389.4 |
|||||
| Equity and equity-related investments after equity hedges |
33.7 |
(228.2 |
) |
(194.5 |
) | ||||
| Bonds |
235.7 |
46.5 |
282.2 |
||||||
| CPI-linked derivatives |
- |
7.0 |
7.0 |
||||||
| Other |
25.1 |
(48.3 |
) |
(23.2 |
) | ||||
|
294.5 |
(223.0 |
) |
71.5 |
||||||
|
First six months |
|||||||||
|
Realized gains (losses) |
Unrealized |
Net gains (losses) |
|||||||
| Net gains (losses) on: | |||||||||
| Equity and equity-related investments |
106.4 |
147.7 |
254.1 |
||||||
| Equity hedges |
(7.2 |
) |
(426.0 |
) |
(433.2 |
) | |||
| Equity and equity-related investments after equity hedges |
99.2 |
(278.3 |
) |
(179.1 |
) | ||||
| Bonds |
245.4 |
69.4 |
314.8 |
||||||
| CPI-linked derivatives |
- |
(61.0 |
) |
(61.0 |
) | ||||
| Other |
45.4 |
(89.5 |
) |
(44.1 |
) | ||||
|
390.0 |
(359.4 |
) |
30.6 |
||||||
