Fairfax Financial Holdings Limited: Financial Results for the Third Quarter
(Note: All dollar amounts in this news release are expressed in U.S. dollars except as otherwise noted. The financial results are derived from unaudited interim consolidated financial statements for the three and nine months ended September 30, 2024 prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards") applicable to the preparation of interim financial statements, including International Accounting Standard 34 Interim Financial Reporting. This news release contains certain non-GAAP and other financial measures, including underwriting profit (loss), adjusted operating income (loss), combined ratio (both discounted and undiscounted), book value per basic share, total debt to total capital ratio excluding non-insurance companies and excess (deficiency) of fair value over carrying value, that do not have a prescribed meaning under IFRS Accounting Standards and may not be comparable to similar financial measures presented by other issuers. See "Glossary of non-GAAP and other financial measures" at the end of this news release and in the company's Interim Report for the three and nine months ended September 30, 2024 for further details.)
TORONTO, Oct. 31, 2024 (GLOBE NEWSWIRE) -- Fairfax Financial Holdings Limited (TSX:FFH) announces net earnings of $1,030.8 million ($42.62 net earnings per diluted share after payment of preferred share dividends) in the third quarter of 2024, primarily reflecting increased adjusted operating income of $1,136.8 million and net gains on investments. Book value per basic share at September 30, 2024 was $1,033.18 compared to $939.65 at December 31, 2023 (an increase of 11.7% adjusted for the $15 per common share dividend paid in the first quarter of 2024).
"In the third quarter of 2024 our property and casualty insurance and reinsurance operations produced adjusted operating income of $1,136.8 million up from $967.2 million in the third quarter of 2023 (or operating income of $1,516.3 million (2023 - $1,424.4 million) including the benefit of discounting, net of a risk adjustment on claims), primarily reflecting continued strong core underwriting performance and increased interest and dividends. Our underwriting performance in the third quarter of 2024 was outstanding, with our property and casualty insurance and reinsurance companies reporting a consolidated combined ratio of 93.9% and consolidated underwriting profit of $389.7 million, on an undiscounted basis, despite higher current period catastrophe losses of $434.5 million. Gross and net premiums written grew by 13.9% and 10.0%, reflecting the acquisition of Gulf Insurance, which added $778.4 million in gross premiums written and $420.5 million in net premiums written. Excluding Gulf Insurance, gross and net premiums written grew by 3.2% and 2.8%.
"Net gains on investments of $1,287.3 million in the quarter was principally comprised of mark to market gains on bonds of $828.6 million and mark to market gains on common stocks of $322.9 million.
"We remain focused on being soundly financed and ended the quarter with approximately $2.0 billion of cash and marketable securities and an additional $2.1 billion, at fair value, of investments in associates and consolidated non-insurance companies owned by the holding company," said Prem Watsa, Chairman and Chief Executive Officer.
The table below presents the sources of the company's net earnings in a segment reporting format which the company has consistently used as it believes it assists in understanding Fairfax:
Third quarter
First nine months
2024
2023
2024
2023
($ millions)
Gross premiums written
8,302.2
7,272.2
25,276.7
22,453.2
Net premiums written
6,485.0
5,879.1
19,684.4
17,742.1
Net insurance revenue
6,503.6
5,724.5
18,537.1
16,276.5
Sources of net earnings
Operating income - Property and Casualty Insurance and Reinsurance:
Insurance service result:
North American Insurers
216.2
186.4
799.9
711.4
Global Insurers and Reinsurers
698.2
667.6
2,011.3
2,113.3
International Insurers and Reinsurers
125.5
78.6
319.5
229.9
Insurance service result
1,039.9
932.6
3,130.7
3,054.6
Other insurance operating expenses
(270.7
)
(183.8
)
(746.0
)
(575.3
)
Interest and dividends
544.2
453.7
1,591.8
1,172.6
Share of profit of associates
202.9
221.9
508.4
608.2
Operating income - Property and Casualty Insurance and Reinsurance
1,516.3
1,424.4
4,484.9
4,260.1
Operating income - Life insurance and Run-off
1.2
33.0
16.7
42.7
Operating income - Non-insurance companies
48.8
125.9
91.3
162.2
Net finance expense from insurance contracts and reinsurance contract assets held
(1,112.6
)
(7.9
)
(1,483.3
)
(595.3
)
Net gains on investments
1,287.3
56.0
1,470.4
485.1
Gain on sale of insurance subsidiary
—
—
—
259.1
Interest expense
(164.4
)
(124.8
)
(476.3
)
(379.5
)
Corporate overhead and other
(82.6
)
(15.3
)
(142.4
)
(29.4
)
Earnings before income taxes
1,494.0
1,491.3
3,961.3
4,205.0
Provision for income taxes
(374.5
)
(304.3
)
(1,016.3
)
(784.9
)
Net earnings
1,119.5
1,187.0
2,945.0
3,420.1
Attributable to:
Shareholders of Fairfax
1,030.8
1,068.9
2,722.7
3,053.3
Non-controlling interests
88.7
118.1
222.3
366.8
1,119.5
1,187.0
2,945.0
3,420.1
The table below presents the insurance service result for the property and casualty insurance and reinsurance operations reconciled to underwriting profit, a key performance measure used by the company and the property and casualty industry in which it operates. The reconciling adjustments are (i) other insurance operating expenses as presented in the consolidated statement of earnings, (ii) the effects of discounting on losses and ceded losses on claims incurred in the period, and (iii) the effects of the risk adjustment and other, which are presented in insurance service expenses and recoveries of insurance service expenses.
Third quarter
First nine months
Property and Casualty Insurance and Reinsurance
2024
2023
2024
2023
($ millions)
Insurance service result
1,039.9
932.6
3,130.7
3,054.6
Other insurance operating expenses
(270.7
)
(183.8
)
(746.0
)
(575.3
)
Discounting of losses and ceded losses on claims incurred in the period
(391.3
)
(391.4
)
(1,267.9
)
(1,419.9
)
Changes in the risk adjustment and other
11.8
(65.8
)
16.3
(116.5
)
Underwriting profit
389.7
291.6
1,133.1
942.9
Interest and dividends
544.2
453.7
1,591.8
1,172.6
Share of profit of associates
202.9
221.9
508.4
608.2
Adjusted operating income
1,136.8
967.2
3,233.3
2,723.7
Highlights for the third quarter of 2024 (with comparisons to the third quarter of 2023 except as otherwise noted, and excluding the effects of IFRS 17 when discussing the combined ratio and adjusted operating income) include the following:
Net premiums written by the property and casualty insurance and reinsurance operations increased by 10.0% to $6,420.4 million from $5,837.9 million, while gross premiums written increased by 13.9%, primarily reflecting the consolidation of Gulf Insurance on December 26, 2023 which contributed $420.5 million to net premiums written and $778.4 million to gross premiums written in 2024, and continued growth across most operating companies, partially offset by a decrease at Odyssey Group that reflected the non-renewal of a significant quota share contract which contributed nominal underwriting profit.
Underwriting profit of the company's property and casualty insurance and reinsurance operations increased to $389.7 million from $291.6 million in 2023, and the undiscounted combined ratio improved to 93.9% from 95.0% in 2023, primarily reflecting growth in business volumes, partially offset by higher current period catastrophe losses of $434.5 million compared to $388.7 million in 2023.
Adjusted operating income (which excludes the benefit of discounting, net of a risk adjustment on claims) of the property and casualty insurance and reinsurance operations increased by 17.5% to $1,136.8 million from $967.2 million, principally reflecting higher underwriting profit and interest and dividends.
The company recorded a total net expense of $731.8 million from discounting insurance and reinsurance contracts, which was comprised of net finance expense from insurance contracts and reinsurance contract assets held of $1,112.6 million (reflecting interest accretion from unwinding the effects of discounting associated with net losses on claim payments made of $347.7 million and the effects of decreases in discount rates during the period on prior year net losses on claims of $764.9 million), partially offset by a net benefit of $380.8 million from discounting losses and ceded losses on claims incurred in the period, net of changes in risk adjustment and other. The decreases in discount rates during the period produced net gains on the company's bond portfolio of $828.6 million that exceeded the net finance expense of $764.9 million related to the effects of decreases in discount rates on prior year net losses on claims, for a net benefit of $63.7 million (2023 - a net benefit of $164.8 million).
Consolidated interest and dividends increased from $512.7 million in 2023 to $609.9 million (comprised of interest and dividends of $544.2 million (2023 - $453.7 million) earned by the investment portfolios of the property and casualty insurance and reinsurance operations, with the remainder earned by life insurance and run-off, non-insurance companies and corporate and other). At September 30, 2024 the company's insurance and reinsurance companies held portfolio investments of $65.3 billion (excluding Fairfax India's portfolio of $2.1 billion), of which $8.0 billion was in cash and short term investments representing 12.3% of those portfolio investments.
Consolidated share of profit of associates of $260.2 million principally reflected share of profit of $138.3 million from Eurobank and $61.7 million from Poseidon.
Net gains on investments of $1,287.3 million consisted of the following:
Third quarter of 2024
($ millions)
Realized gains (losses)
Unrealized gains (losses)
Net gains (losses)
Net gains (losses) on:
Equity exposures
(58.5
)
381.4
322.9
Bonds
40.9
787.7
828.6
Other
(161.9
)
297.7
135.8
(179.5
)
1,466.8
1,287.3
First nine months of 2024
($ millions)
Realized gains (losses)
Unrealized gains (losses)
Net gains (losses)
Net gains (losses) on:
Equity exposures
649.9
325.5
975.4
Bonds
35.8
283.2
319.0
Other
(144.9
)
320.9
176.0
540.8
929.6
1,470.4
Net gains on equity exposures of $322.9 million principally reflected a net gain of $229.5 million on the company's continued holdings of equity total return swaps on 1,964,155 Fairfax subordinate voting shares with an original notional amount of $732.5 million (Cdn$935.0 million) or $372.96 (Cdn$476.03) per share and net gains on common stocks of $99.2 million.
Net gains on bonds of $828.6 million principally reflected net gains of $502.5 million on U.S. treasuries as interest rates declined during the quarter.
Net gains on other of $135.8 million principally reflected unrealized gains of $184.0 million on the company's holdings of Digit compulsory convertible preferred shares.
The company's fixed income portfolio continues to be conservatively positioned with effectively 71% of the fixed income portfolio invested in government bonds and 19% in high quality corporate bonds, primarily short-dated.
At September 30, 2024 the excess of fair value over carrying value of investments in non-insurance associates and consolidated non-insurance subsidiaries was $1,921.4 million.
The company's total debt to total capital ratio, excluding non-insurance companies, increased to 24.2% at September 30, 2024 from 23.1% at December 31, 2023, reflecting increased total debt (principally the issuance of $1.0 billion principal amount of senior notes due 2054), partially offset by increased shareholder's equity (principally from the net earnings in 2024, partially offset by purchases of 1,012,906 subordinate voting shares for cancellation).
During the first nine months of 2024 the company purchased 1,012,906 of its subordinate voting shares for cancellation at an aggregate cost of $1,127.1 million. On September 30, 2024 the company renewed its normal course issuer bid.
Subsequent to September 30, 2024:
On September 30, 2024 it was announced the company will, through its insurance and reinsurance subsidiaries, increase its investment in Peak Achievement Athletics Inc. ("Peak Achievement") to a controlling interest by acquiring the 42.6% equity interest owned by Sagard Holdings Inc. The company currently applies the equity method of accounting to its investment in Peak Achievement and expects to consolidate Peak Achievement in its Non-insurance companies reporting segment upon closing, which is anticipated to occur in the fourth quarter of 2024, subject to customary closing conditions. Peak Achievement is engaged in the design, manufacture and distribution of performance sports equipment and related apparel and accessories for ice hockey, roller hockey, and lacrosse, under brands such as Bauer Hockey, Cascade Lacrosse and Maverik Lacrosse.
On October 1, 2024 the company, through its insurance and reinsurance subsidiaries, completed its previously announced acquisition of all of the issued and outstanding common shares of Sleep Country Canada Holdings Inc. ("Sleep Country") for purchase consideration of $880.6 million (Cdn$1.2 billion) or Cdn$35.00 per common share. The company will commence consolidating Sleep Country in its Non-insurance companies reporting segment in the fourth quarter of 2024. Sleep Country is a specialty sleep retailer with a national retail store network and multiple e-commerce platforms.
At September 30, 2024 there were 21,990,603 common shares effectively outstanding.
Consolidated balance sheet, earnings and comprehensive income information, together with segmented premium and combined ratio information, follow and form part of this news release.
As previously announced, Fairfax will hold a conference call to discuss its third quarter 2024 results at 8:30 a.m. Eastern time on Friday November 1, 2024. The call, consisting of a presentation by the company followed by a question period, may be accessed at 1 (888) 390-0867 (Canada or U.S.) or 1 (212) 547-0141 (International) with the passcode "FAIRFAX". A replay of the call will be available from shortly after the termination of the call until 5:00 p.m. Eastern time on Friday, November 15, 2024. The replay may be accessed at 1 (866) 405-7293 (Canada or U.S.) or 1 (203) 369-0605 (International).
Fairfax Financial Holdings Limited is a holding company which, through its subsidiaries, is primarily engaged in property and casualty insurance and reinsurance and the associated investment management.
For further information, contact:
John Varnell
Vice President, Corporate Development
(416) 367-4941
CONSOLIDATED BALANCE SHEETSas at September 30, 2024 and December 31, 2023(US$ millions except per share amounts)
September 30, 2024
December 31, 2023
Assets
Holding company cash and investments (including assets pledged for derivative obligations, $200.7; December 31, 2023, $197.7)
2,046.4
1,781.6
Insurance contract receivables
786.0
926.1
Portfolio investments
Subsidiary cash and short term investments (including restricted cash and cash equivalents, $1,142.7; December 31, 2023, $637.0)
8,017.3
7,165.6
Bonds (cost $38,884.1; December 31, 2023, $36,511.9)
39,406.2
36,850.8
Preferred stocks (cost $900.0; December 31, 2023, $898.3)
2,760.9
2,447.4
Common stocks (cost $6,568.6; December 31, 2023, $6,577.2)
6,995.8
6,903.4
Investments in associates (fair value $9,070.4; December 31, 2023, $7,553.2)
7,512.5
6,607.6
Derivatives and other invested assets (cost $784.0; December 31, 2023, $952.0)
847.3
1,025.3
Assets pledged for derivative obligations (cost $112.5; December 31, 2023, $137.7)
114.8
139.3
Fairfax India cash, portfolio investments and associates (fair value $3,376.9; December 31, 2023, $3,507.6)
2,052.3
2,282.7
67,707.1
63,422.1
Reinsurance contract assets held
11,290.4
10,887.7
Deferred income tax assets
274.4
301.1
Goodwill and intangible assets
6,239.2
6,376.3
Other assets
8,272.8
8,290.2
Total assets
96,616.3
91,985.1
Liabilities
Accounts payable and accrued liabilities
4,953.3
5,487.2
Derivative obligations
322.9
444.9
Deferred income tax liabilities
1,502.7
1,250.3
Insurance contract payables
1,060.7
1,206.9
Insurance contract liabilities
49,254.2
