Canada-based insurance holding company Fairfax Financial Holdings Ltd. (FFH, FFH.TO) on Thursday reported a 20% increase in profit for the third quarter from last year, helped by underwriting profit at its insurance and reinsurance operations along with increased interest and dividend income.
Third-Quarter Results
For the third quarter, the company's net earnings increased to US$562.4 million, or US$30.88 per share, from US467.6 million, or US$25.27 per share in the year-ago quarter. Analysts polled by Thomson Reuters expected the company to report earnings of US$9.91 per share for the quarter. Analysts' estimates typically exclude special items.
The increase in quarterly net earnings was primarily due to underwriting profit at the company's insurance and reinsurance operations compared to an underwriting loss in the year-ago period along with increased interest and dividend income. These were partially offset by reduced net investment gains.
Underwriting profit earned by the company's insurance and reinsurance operations in the quarter was US$1.6 million compared to the underwriting loss of US$170.3 million in the prior-year period, which primarily suffered from U.S. hurricane losses.
Total revenues for the quarter surged 40% to US$2.21 billion from US$2.16 billion in the prior-year quarter. Analysts had consensus revenue estimate of US$1.57 billion for the quarter.
Prem Watsa, Chairman and Chief Executive Officer of Fairfax Financial, said, "Besides excellent results, we have now privatized OdysseyRe and we financed it by issuing $1 billion of common stock. We have also now publicly issued 10-year bonds and preferred shares in Canada for the first time ever. After the OdysseyRe privatization, Fairfax continues to have in excess of $1 billion in cash and marketable securities at the holding company level, and also has a significantly increased annual dividend capacity from its three major insurance/reinsurance operations."
Peer Performance
Zurich, Switzerland-based ACE Ltd. (ACE) said Tuesday that its third-quarter profit surged from last year, driven by higher underwriting income. The company posted net income available to holders of common shares of US$494 million, or US$1.46 per share, for the third quarter, compared to US$54 million, or US$0.16 per share, in the prior-year quarter.
Other Metrics
Fairfax's net premiums written in the third quarter decreased 6% to US$1.06 billion from US$1.13 billion in the year-ago quarter, reflecting the impact of weak economic conditions and the foreign currency translation impact of the year-over-year strengthening of the U.S. dollar. These were partially offset by the inclusion of the results of Advent and Polish Re in the latest quarter.
Interest and dividend income for the quarter was US$184.7 million, up 36.2% from US$135.6 million in the year-ago period. The increase was primarily attributable to the impact on the latest quarter's portfolio yield of the purchases in the fourth quarter of 2008 and in 2009 of higher yielding municipal and other tax exempt debt securities and corporate bonds using the proceeds of sale of lower yielding government bonds. The latest quarter's results also benefited from the inclusion of the results of Advent and Polish Re.
Operating income of the company's insurance and reinsurance operations for the quarter, excluding net gains and losses on investments, was US$133.0 million, compared to operating loss of US$64.9 million in the year-ago period, primarily due to improved underwriting results as well as interest and dividend income.
The combined ratio of the company's insurance and reinsurance operations for the latest quarter was 99.8% on a consolidated basis, compared to 114.8% in the same period last year.
As at September 30, 2009, Fairfax held US$2.34 billion of cash, short term investments and marketable securities at the holding company level, or US$2.33 billion net of short sale and derivative obligations. This compares to cash, short term investments and marketable securities of US$880.1 million, or US$862.7 million net of short sale and derivative obligations, as at June 30, 2009.
Holding company debt during the third quarter was US$1.40 billion, as a result of the company's issuance of C$400 million of unsecured senior notes.
As at September 30, 2009, Fairfax's total debt to total capital ratio was 20.9%, compared to 23.7% as at December 31, 2008. The decrease in the ratio is primarily due to an increase in shareholders' equity, partially offset by the reduction in non-controlling interests following the privatization of insurer Northbridge in the first quarter.
Year-To-Date Results
For the first nine months of fiscal year 2009, Fairfax's net earnings were US$777.4 million, or US$43.42 per share, down from US$1.13 billion, or US$59.89 per share, a year ago, reflecting significant gains on credit default swaps and equity hedges in the year-ago period.
Total revenue for the nine-month period declined to US$5.23 billion from US$5.78 billion in the same period last year.
Stock Quotes
FFH closed Thursday's regular trading session on the NYSE at US$352.59, up US$9.59 or 2.80% on a volume of 49,997 shares. In the past 52 weeks, the stock has been trading in a range of $210.28-$382.38.
On the Toronto Stock Exchange, FFH.TO closed Thursday's regular trading session at C$376.90, up C$4.35 or 1.17% on a volume of 59,348 shares.
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