Fairfax Reports Recent Developments
April 14 2021 - 5:47PM
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 2021 unaudited financial
results, including information reflecting key developments.
“As we did a year ago, we are providing our
shareholders with preliminary indications of some key developments
for Fairfax’s first quarter of 2021 financial results. Our
insurance companies continued to have strong underwriting
performance in the first quarter of 2021 with a consolidated
combined ratio of approximately 96%, favourable reserve development
and strong growth in gross premiums written of approximately
17%. Our investments increased significantly with net gains on
investments currently estimated at approximately $875 million for
the first quarter of 2021, primarily reflecting net unrealized
gains from our common stock portfolio. Mark-to-market movements on
certain of our non-insurance consolidated investments and
investments in associates, which will not be reflected in our
financial statements, also increased significantly in the first
quarter of 2021 by approximately $1 billion. We remain
focused on continuing to be soundly financed and expect that, at
the close of our RiverStone Barbados transaction, we will have paid
off our credit facility completely and will have cash and
marketable securities in the holding company of approximately $1.3
billion,” said Prem Watsa, Chairman and Chief Executive
Officer.
Key financial information for the first quarter
of 2021, 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:
- We currently
expect gross premiums written to increase from the first quarter of
2020 by approximately 17% to approximately $5.5 billion. The
company’s insurance and reinsurance operations continued to have
strong underwriting performance in the first quarter of 2021, with
a consolidated combined ratio of approximately 96% and net
favourable prior year reserve development, which will result in
solid operating income during the quarter despite the impact of the
U.S. winter storms.
- Net gains on
investments of approximately $875 million will primarily reflect
net unrealized gains on the company’s equity and equity-related
holdings, partially offset by net unrealized losses on bonds.
- At March 31, 2021
the excess of fair value over adjusted carrying value of
non-insurance investments in associates will be approximately $225
million, which is an improvement of approximately $684 million from
the deficiency of $458.5 million at December 31, 2020.
- At March 31, 2021
the excess of fair value over adjusted carrying value of certain
consolidated non-insurance subsidiaries will be approximately $125
million, which is an improvement of approximately $329 million from
the deficiency of $204.1 million at December 31, 2020.
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 |
In presenting the company’s preliminary
unaudited financial information in this news release, management
has included the measure “pre-tax excess (deficiency) of fair value
over adjusted carrying value”. The company considers its
non-insurance investments in associates and certain consolidated
non-insurance subsidiaries to be portfolio investments, and the
excess (deficiency) of fair value over adjusted carrying value of
these investments, while not included in the calculation of book
value per share, is regularly reviewed by management as an
indicator of investment performance. The fair values and adjusted
carrying values of the company’s investments in non-insurance
associates represent their fair values and carrying values that
will be presented in note 6 (Investments in Associates) to the
interim consolidated financial statements for the three months
ended March 31, 2021, with investments in associates primarily held
by Recipe, Fairfax India and Thomas Cook India excluded. The fair
values of the company's investments in certain consolidated
non-insurance subsidiaries are calculated as the company's pro rata
ownership share of each subsidiary's market capitalization, as
determined by traded share prices at the financial statement date.
The adjusted carrying values of those subsidiaries represent each
subsidiary's total equity that will be included in the company's
interim consolidated financial statements for the three months
ended March 31, 2021, less the respective carrying value of each
subsidiary's non-controlling interests.
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 and in any applicable Canadian
securities regulations. 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; 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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