Fairfax Reports Recent Developments
April 14 2020 - 6:39PM
Fairfax Financial Holdings Limited (TSX: FFH and FFH.U) announces
preliminary unaudited financial information which will be finalized
for the Company’s first quarter of 2020 unaudited financial
results, including information reflecting key developments as a
result of the COVID-19 pandemic and its impact on global financial
markets. We are currently estimating a net loss in the first
quarter of 2020 of approximately $1.4 billion and an approximate
12% decrease in book value adjusted for the $10 per common share
dividend paid in the first quarter of 2020.
- “These are unprecedented turbulent
times and we wanted to provide our shareholders with preliminary
indications of some key developments for Fairfax’s first quarter of
2020 financial results. Our insurance companies continued to have
strong underwriting performance in the first quarter of 2020 with a
consolidated combined ratio below 100%, favourable reserve
development and strong growth in gross premiums written of
approximately 12%. Net losses on investments currently
estimated at approximately $1.5 billion primarily reflects
unrealized losses in the fair value of our common stock and bond
portfolio from the sudden shock of COVID -19 and reverses a
significant amount of the $1.7 billion net gains on investments we
reported in 2019. We remain focused on continuing to be soundly
financed and have drawn on our credit facility solely to ensure
that we maintain high levels of liquid assets during these
uncertain times. Fairfax had approximately $2.5 billion in cash and
marketable securities in its holding company at March 31, 2020,”
said Prem Watsa, Chair and Chief Executive Officer.
Key financial information for the first quarter
of 2020, based on preliminary indications and current estimates but
recognizing that the preparation of the Company’s first quarter
financial statements is not finalized, includes the following:
- Fairfax’s insurance companies
continued to have strong underwriting performance in the first
quarter of 2020, with the consolidated combined ratio of its
insurance and reinsurance operations below 100% and continued
strong reserving, which will result in solid operating income
during the quarter. Fairfax is fortunate to have our insurance
businesses remain open given our ability, utilizing past technology
investments, to work from home during the pandemic.
- Since mid-March 2020, Fairfax has
been reinvesting its cash and short term investments into higher
yielding investment grade U.S. corporate bonds with an average
maturity date of 4 years and average interest rates of 4.25%, that
will benefit interest income in the future. To date, taking
advantage of the increase in corporate spreads, Fairfax has
purchased about $2.9 billion of such bonds.
- Share of losses of associates of
approximately $250 million will reflect impairment losses related
to Fairfax’s investments in Quess, Resolute and Astarta of
approximately $200 million, as well as the Company’s share of
losses of associates.
- Net losses on investments of
approximately $1.5 billion will reflect unrealized losses on the
Company’s equity and equity-related holdings and bonds.
- Fairfax has drawn, solely as extra
security, approximately $1.8 billion from its credit facility for
liquidity purposes to support its insurance and reinsurance
operations if these unprecedented turbulent times continue for an
extended period. Fairfax was able to borrow these funds at no net
cost to the Company as we were able to reinvest the proceeds into
short term investments at a favourable spread while maintaining
access to the funds if needed. Including the approximately $600
million proceeds from the sale of its 40% interest in Fairfax’s UK
run-off group, RiverStone UK, which closed on March 31, 2020,
Fairfax had approximately $2.5 billion cash and marketable
securities in its holding company at March 31, 2020. During the
first quarter of 2020, Fairfax utilized approximately $400 million
and $300 million of its cash and marketable securities to provide
capital support to its insurance and reinsurance operations and to
pay common and preferred share dividends, respectively.
- During the first quarter of 2020,
the Company revised its accounting for its investment in Eurobank
to apply the equity method of accounting on December 19, 2019, when
regulatory restrictions on the Company’s voting rights in Eurobank
were removed, which increased Fairfax’s voting rights in Eurobank
from 19.9% to 32.4%. Accordingly, the Company will reclassify
Eurobank within portfolio investments on its consolidated balance
sheet at December 31, 2019 from a common stock measured at fair
value to an investment in associate.
- During the first quarter of 2020,
the Company purchased approximately 140,000 of its subordinate
voting shares on the open market for use in its share-based payment
awards and approximately 51,000 of its subordinate voting shares
for cancellation.
- At March 31, 2020, the
decrease in common shareholders’ equity will primarily be as a
result of a net loss currently estimated at approximately $1.4
billion, principally from net losses on investments, unrealized
foreign currency translation losses of approximately $200 million
on foreign subsidiaries and foreign operations which will be
recorded in accumulated other comprehensive income as a component
of common shareholders’ equity on the consolidated balance sheet
(principally as a result of the strengthening of the U.S. dollar),
and the payment in the first quarter of the annual common share
dividend of approximately $276 million.
Fairfax is a holding company which, through its
subsidiaries, is engaged in property and casualty insurance and
reinsurance and the associated investment management.
For further information contact: |
John Varnell |
|
Vice President, Corporate Development |
|
(416) 367-4941 |
Certain statements contained herein may
constitute forward-looking statements and are made pursuant to
the “safe harbour” provisions of the United States
Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to known and unknown
risks, uncertainties and other factors which may cause
the actual results, performance or achievements of Fairfax to
be materially different from any future results, performance
or achievements expressed or implied by such forward-looking
statements. Such factors include, but are not limited to: a
reduction in net earnings if our loss reserves are insufficient;
underwriting losses on the risks we insure that are higher or lower
than expected; the occurrence of catastrophic events with a
frequency or severity exceeding our estimates; changes in market
variables, including interest rates, foreign exchange rates, equity
prices and credit spreads, which could negatively affect our
investment portfolio; risks associated with the global pandemic
caused by COVID-19, and the related global reduction in commerce
and substantial downturns in stock markets worldwide; the cycles of
the insurance market and general economic conditions, which can
substantially influence our and our competitors’ premium rates and
capacity to write new business; insufficient reserves for asbestos,
environmental and other latent claims; exposure to credit risk in
the event our reinsurers fail to make payments to us under our
reinsurance arrangements; exposure to credit risk in the event our
insureds, insurance producers or reinsurance intermediaries fail to
remit premiums that are owed to us or failure by our insureds to
reimburse us for deductibles that are paid by us on their behalf;
our inability to maintain our long term debt ratings, the inability
of our subsidiaries to maintain financial or claims paying ability
ratings and the impact of a downgrade of such ratings on derivative
transactions that we or our subsidiaries have entered into; risks
associated with implementing our business strategies; the timing of
claims payments being sooner or the receipt of reinsurance
recoverables being later than anticipated by us; risks associated
with any use we may make of derivative instruments; the failure of
any hedging methods we may employ to achieve their desired risk
management objective; a decrease in the level of demand for
insurance or reinsurance products, or increased competition in the
insurance industry; the impact of emerging claim and coverage
issues or the failure of any of the loss limitation methods we
employ; our inability to access cash of our subsidiaries; our
inability to obtain required levels of capital on favourable terms,
if at all; the loss of key employees; our inability to obtain
reinsurance coverage in sufficient amounts, at reasonable prices or
on terms that adequately protect us; the passage of legislation
subjecting our businesses to additional adverse requirements,
supervision or regulation, including additional tax regulation, in
the United States, Canada or other jurisdictions in which we
operate; risks associated with government investigations of, and
litigation and negative publicity related to, insurance industry
practice or any other conduct; risks associated with political and
other developments in foreign jurisdictions in which we operate;
risks associated with legal or regulatory proceedings or
significant litigation; failures or security breaches of our
computer and data processing systems; the influence exercisable by
our significant shareholder; adverse fluctuations in foreign
currency exchange rates; our dependence on independent brokers over
whom we exercise little control; impairment of the carrying value
of our goodwill, indefinite-lived intangible assets or investments
in associates; our failure to realize deferred income tax assets;
technological or other change which adversely impacts demand, or
the premiums payable, for the insurance coverages we offer;
disruptions of our information technology systems; and assessments
and shared market mechanisms which may adversely affect our
insurance subsidiaries; and adverse consequences to our business,
our investments and our personnel resulting from or related to the
COVID-19 pandemic. Additional risks and uncertainties are described
in our most recently issued Annual Report which is available
at www.fairfax.ca and in our Supplemental and Base Shelf
Prospectus (under “Risk Factors”) filed with the
securities regulatory authorities in Canada, which is
available on SEDAR at www.sedar.com. Fairfax disclaims
any intention or obligation to update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
applicable securities law.
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