TORONTO, ONTARIO--(Marketwired - Feb 16, 2017) -
(Note: All dollar amounts in this news release are expressed in U.S. dollars except as otherwise noted. The financial results are prepared using the recognition and measurement requirements of International Financial Reporting Standards except as otherwise noted, and are unaudited.)
Fairfax Financial Holdings Limited (TSX:FFH)(TSX:FFH.U) announces a fiscal year 2016 net loss of $512.5 million ($24.18 net loss per diluted share after payment of preferred share dividends) compared to fiscal year 2015 net earnings of $567.7 million ($23.15 net earnings per diluted share after payment of preferred share dividends), reflecting net losses on investments, particularly in the fourth quarter, more then offsetting strong operating income. Book value per basic share at December 31, 2016 was $367.40 compared to $403.01 at December 31, 2015 (a decrease of 6.4% adjusted for the $10 per common share dividend paid in the first quarter of 2016).
"Our insurance companies continued to have excellent underwriting performance in the fourth quarter and full year of 2016 with consolidated combined ratios of 90.1% and 92.5% respectively. In 2016, all of our insurance companies again had combined ratios less than 100%, with Zenith National at 79.7%, Fairfax Asia at 86.4% and OdysseyRe at 88.7%. Our operating income was strong at $1,039 million. Net losses on investments of $1,204 million were primarily as a result of fundamental changes in the U.S. in the fourth quarter that may bolster economic growth and business development in the future. Consequently, we removed all our defensive equity index hedges and reduced the duration of our bond portfolios to approximately one year. Our investment actions resulted in our having cash and short term investments in excess of $10 billion at year-end," said Prem Watsa, Chairman and Chief Executive Officer of Fairfax. "In the fourth quarter we announced our agreement to purchase Allied World for $4.9 billion, a transformative acquisition for Fairfax. We continue to be soundly financed, with year-end cash and marketable securities in the holding company approaching $1.4 billion."
The table below shows the sources of the company's net earnings, set out in a format which the company has consistently used as it believes it assists in understanding Fairfax:
Fourth quarter | Year ended December 31, |
|||||||
2016 | 2015 | 2016 | 2015 | |||||
Gross premiums written | 2,244.1 | 2,202.4 | 9,534.3 | 8,655.8 | ||||
Net premiums written | 1,954.6 | 1,910.5 | 8,088.4 | 7,520.5 | ||||
Underwriting profit | 197.4 | 264.2 | 575.9 | 704.5 | ||||
Interest and dividends - insurance and reinsurance | 101.2 | 96.1 | 463.3 | 477.0 | ||||
Operating income | 298.6 | 360.3 | 1,039.2 | 1,181.5 | ||||
Run-off (excluding net gains (losses) on investments) | (121.0 | ) | (67.6 | ) | (149.4 | ) | (74.1 | ) |
Non-insurance operations | 57.5 | 44.6 | 133.5 | 127.8 | ||||
Corporate overhead, interest expense and other | (126.3 | ) | (63.1 | ) | (374.0 | ) | (351.5 | ) |
Net losses on investments | (1,073.7 | ) | (200.1 | ) | (1,203.6 | ) | (259.2 | ) |
Pre-tax income (loss) | (964.9 | ) | 74.1 | (554.3 | ) | 624.5 | ||
Income taxes and non-controlling interests | 263.4 | 29.3 | 41.8 | (56.8 | ) | |||
Net earnings (loss) attributable to shareholders of Fairfax | (701.5 | ) | 103.4 | (512.5 | ) | 567.7 |
Highlights for 2016 included the following:
Fourth quarter of 2016 | |||||||
($ millions) | |||||||
Realized gains (losses) | Unrealized gains (losses) |
Net gains (losses) |
|||||
Net gains (losses) on: | |||||||
Long equity exposures | (180.7 | ) | 334.6 | 153.9 | |||
Equity hedges and short equity exposures | (2,681.4 | ) | 2,334.1 | (347.3 | ) | ||
Net equity exposures | (2,862.1 | ) | 2,668.7 | (193.4 | ) | ||
Bonds | 150.9 | (932.4 | ) | (781.5 | ) | ||
CPI-linked derivatives | - | (62.2 | ) | (62.2 | ) | ||
Other | 195.9 | (232.5 | ) | (36.6 | ) | ||
(2,515.3 | ) | 1,441.6 | (1,073.7 | ) | |||
Year ended December 31, 2016 | |||||||
($ millions) | |||||||
Realized gains (losses) | Unrealized gains (losses) |
Net gains (losses) |
|||||
Net gains (losses) on: | |||||||
Long equity exposures | (184.2 | ) | 79.5 | (104.7 | ) | ||
Equity hedges and short equity exposures | (2,634.8 | ) | 1,441.9 | (1,192.9 | ) | ||
Net equity exposures | (2,819.0 | ) | 1,521.4 | (1,297.6 | ) | ||
Bonds | 648.7 | (326.0 | ) | 322.7 | |||
CPI-linked derivatives | - | (196.2 | ) | (196.2 | ) | ||
Other | 98.9 | (131.4 | ) | (32.5 | ) | ||
(2,071.4 | ) | 867.8 | (1,203.6 | ) |
($ in millions) | ||||||||||||||
Underlying CPI Index | Floor Rate(1) |
Average Life (in years) |
Notional Amount |
Cost | Cost(2) (in bps) |
Market Value |
Market Value(2) (in bps) |
Unrealized Loss |
||||||
United States | 0.0 | % | 5.7 | $ | 46,725.0 | $ | 286.9 | 61.4 | $ | 35.2 | 7.5 | $ | (251.7 | ) |
United States | 0.5 | % | 7.8 | 12,600.0 | 39.5 | 31.3 | 34.3 | 27.2 | (5.2 | ) | ||||
European Union | 0.0 | % | 5.0 | 43,640.4 | 300.3 | 68.8 | 12.5 | 2.9 | (287.8 | ) | ||||
United Kingdom | 0.0 | % | 5.9 | 4,077.6 | 22.6 | 55.4 | 0.5 | 1.2 | (22.1 | ) | ||||
France | 0.0 | % | 6.1 | 3,322.5 | 20.7 | 62.3 | 0.9 | 2.7 | (19.8 | ) | ||||
5.6 | $ | 110,365.5 | $ | 670.0 | $ | 83.4 | $ | (586.6 | ) |
(1) | Contracts with a floor rate of 0.0% provide a payout at maturity if there is cumulative deflation over the life of the contract. Contracts with a floor rate of 0.5% provide a payout at maturity if cumulative inflation averages less than 0.5% per year over the life of the contract. |
(2) | Expressed as a percentage of the notional amount. |
Subsequent to year-end:
There were 23.1 million and 22.2 million weighted average shares outstanding during the fourth quarters of 2016 and 2015 respectively. At December 31, 2016 there were 23,093,566 common shares effectively outstanding.
Unaudited consolidated balance sheet, earnings and comprehensive income information, along 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 2016 results at 8:30 a.m. Eastern time on Friday, February 17, 2017. The call, consisting of a presentation by the company followed by a question period, may be accessed at 1 (800) 857-9641 (Canada or U.S.) or 1 (517) 308-9408 (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, March 3, 2017. The replay may be accessed at 1 (888) 566-0452 (Canada or U.S.) or 1 (203) 369-3048 (International).
Fairfax Financial Holdings Limited is a holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management.
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; 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; the timing of claims payments being sooner or the receipt of reinsurance recoverables being later than anticipated by us; the inability of our subsidiaries to maintain financial or claims paying ability ratings; risks associated with implementing our business strategies; risks associated with our use of derivative instruments; the failure of our hedging methods 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; 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 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; 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; an impairment in the carrying value of our goodwill and indefinite-lived intangible assets; 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; and assessments and shared market mechanisms which may adversely affect our U.S. insurance subsidiaries. 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.
CONSOLIDATED BALANCE SHEETS |
as at December 31, 2016 and December 31, 2015 |
(unaudited - US$ millions) |
December 31, 2016 | December 31, 2015 | |
Assets | ||
Holding company cash and investments (including assets pledged for short sale and derivative obligations - $94.4; December 31, 2015 - $62.8) | 1,371.6 | 1,276.5 |
Insurance contract receivables | 2,917.5 | 2,546.5 |
Portfolio investments | ||
Subsidiary cash and short term investments | 9,938.0 | 6,641.6 |
Bonds (cost $8,699.1; December 31, 2015 - $11,258.9) | 9,323.2 | 12,286.6 |
Preferred stocks (cost $111.2; December 31, 2015 - $220.5) | 69.6 | 116.6 |
Common stocks (cost $4,824.0; December 31, 2015 - $6,004.2) | 4,158.8 | 5,358.3 |
Investments in associates (fair value $2,955.4; December 31, 2015 - $2,185.9) | 2,393.0 | 1,730.2 |
Derivatives and other invested assets (cost $546.2; December 31, 2015 - $628.5) | 179.7 | 500.7 |
Assets pledged for short sale and derivative obligations (cost $223.9; December 31, 2015 - $322.9) | 228.5 | 351.1 |
Fairfax India cash and portfolio investments (cost $983.0; December 31, 2015 - $848.7) | 1,002.6 | 847.4 |
27,293.4 | 27,832.5 | |
Deferred premium acquisition costs | 693.1 | 532.7 |
Recoverable from reinsurers (including recoverables on paid losses - $290.9; December 31, 2015 - $286.3) | 4,010.3 | 3,890.9 |
Deferred income taxes | 732.6 | 463.9 |
Goodwill and intangible assets | 3,847.5 | 3,214.9 |
Other assets | 2,518.4 | 1,771.1 |
Total assets | 43,384.4 | 41,529.0 |
Liabilities | ||
Accounts payable and accrued liabilities | 2,888.6 | 2,555.9 |
Income taxes payable | 35.4 | 85.8 |
Short sale and derivative obligations (including at the holding company - $42.2; December 31, 2015 - $0.6) | 234.3 | 92.9 |
Funds withheld payable to reinsurers | 416.2 | 322.8 |
Insurance contract liabilities | 23,222.2 | 23,101.2 |
Borrowings - holding company and insurance and reinsurance companies | 3,908.0 | 3,067.5 |
Borrowings - non-insurance companies | 859.6 | 284.0 |
Total liabilities | 31,564.3 | 29,510.1 |
Equity | ||
Common shareholders' equity | 8,484.6 | 8,952.5 |
Preferred stock | 1,335.5 | 1,334.9 |
Shareholders' equity attributable to shareholders of Fairfax | 9,820.1 | 10,287.4 |
Non-controlling interests | 2,000.0 | 1,731.5 |
Total equity | 11,820.1 | 12,018.9 |
43,384.4 | 41,529.0 |
CONSOLIDATED STATEMENTS OF EARNINGS |
for the three and twelve months ended December 31, 2016 and 2015 |
(unaudited - US$ millions except per share amounts) |
Fourth quarter | Year ended December 31, |
||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||
Revenue | |||||||||||||
Gross premiums written | 2,244.1 | 2,202.4 | 9,534.3 | 8,655.8 | |||||||||
Net premiums written | 1,954.6 | 1,910.5 | 8,088.4 | 7,520.5 | |||||||||
Gross premiums earned | 2,415.1 | 2,346.8 | 9,209.7 | 8,581.7 | |||||||||
Premiums ceded to reinsurers | (331.7 | ) | (311.4 | ) | (1,347.5 | ) | (1,210.7 | ) | |||||
Net premiums earned | 2,083.4 | 2,035.4 | 7,862.2 | 7,371.0 | |||||||||
Interest and dividends | 136.3 | 145.1 | 555.2 | 512.2 | |||||||||
Share of profit (loss) of associates | (32.6 | ) | 11.8 | 24.2 | 172.9 | ||||||||
Net losses on investments | (1,073.7 | ) | (200.1 | ) | (1,203.6 | ) | (259.2 | ) | |||||
Other revenue | 661.3 | 455.0 | 2,061.6 | 1,783.5 | |||||||||
1,774.7 | 2,447.2 | 9,299.6 | 9,580.4 | ||||||||||
Expenses | |||||||||||||
Losses on claims, gross | 1,495.8 | 1,448.9 | 5,682.9 | 5,098.4 | |||||||||
Losses on claims ceded to reinsurers | (230.9 | ) | (301.6 | ) | (964.3 | ) | (712.0 | ) | |||||
Losses on claims, net | 1,264.9 | 1,147.3 | 4,718.6 | 4,386.4 | |||||||||
Operating expenses | 439.9 | 408.2 | 1,597.7 | 1,470.1 | |||||||||
Commissions, net | 349.3 | 339.6 | 1,336.4 | 1,177.3 | |||||||||
Interest expense | 67.3 | 55.6 | 242.8 | 219.0 | |||||||||
Other expenses | 618.2 | 422.4 | 1,958.4 | 1,703.1 | |||||||||
2,739.6 | 2,373.1 | 9,853.9 | 8,955.9 | ||||||||||
Earnings (loss) before income taxes | (964.9 | ) | 74.1 | (554.3 | ) | 624.5 | |||||||
Recovery of income taxes | (260.7 | ) | (59.0 | ) | (159.6 | ) | (17.5 | ) | |||||
Net earnings (loss) | (704.2 | ) | 133.1 | (394.7 | ) | 642.0 | |||||||
Attributable to: | |||||||||||||
Shareholders of Fairfax | (701.5 | ) | 103.4 | (512.5 | ) | 567.7 | |||||||
Non-controlling interests | (2.7 | ) | 29.7 | 117.8 | 74.3 | ||||||||
(704.2 | ) | 133.1 | (394.7 | ) | 642.0 | ||||||||
Net earnings (loss) per share | $ | (30.77 | ) | $ | 4.19 | $ | (24.18 | ) | $ | 23.67 | |||
Net earnings (loss) per diluted share | $ | (30.77 | ) | $ | 4.10 | $ | (24.18 | ) | $ | 23.15 | |||
Cash dividends paid per share | $ | - | $ | - | $ | 10.00 | $ | 10.00 | |||||
Shares outstanding (000) (weighted average) | 23,148 | 22,235 | 23,017 | 22,070 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
for the three and twelve months ended December 31, 2016 and 2015 |
(unaudited - US$ millions) |
Fourth quarter | Year ended December 31, | |||||||||
2016 | 2015 | 2016 | 2015 | |||||||
Net earnings (loss) | (704.2 | ) | 133.1 | (394.7 | ) | 642.0 | ||||
Other comprehensive income (loss), net of income taxes | ||||||||||
Items that may be subsequently reclassified to net earnings | ||||||||||
Net unrealized foreign currency translation losses on foreign operations | (140.0 | ) | (112.3 | ) | (80.2 | ) | (557.9 | ) | ||
Gains (losses) on hedge of net investment in Canadian subsidiaries | 25.0 | 39.6 | (37.5 | ) | 218.8 | |||||
Share of other comprehensive loss of associates, excluding net gains (losses) on defined benefit plans | (45.7 | ) | (5.6 | ) | (35.6 | ) | (25.0 | ) | ||
(160.7 | ) | (78.3 | ) | (153.3 | ) | (364.1 | ) | |||
Items that will not be subsequently reclassified to net earnings | ||||||||||
Share of net gains (losses) on defined benefit plans of associates | (40.9 | ) | 23.7 | (33.2 | ) | 28.8 | ||||
Net losses on defined benefit plans | (18.3 | ) | (2.2 | ) | (18.3 | ) | (6.1 | ) | ||
(59.2 | ) | 21.5 | (51.5 | ) | 22.7 | |||||
Other comprehensive income (loss), net of income taxes | (219.9 | ) | (56.8 | ) | (204.8 | ) | (341.4 | ) | ||
Comprehensive income (loss) | (924.1 | ) | 76.3 | (599.5 | ) | 300.6 | ||||
Attributable to: | ||||||||||
Shareholders of Fairfax | (886.4 | ) | 69.7 | (696.4 | ) | 316.0 | ||||
Non-controlling interests | (37.7 | ) | 6.6 | 96.9 | (15.4 | ) | ||||
(924.1 | ) | 76.3 | (599.5 | ) | 300.6 |
SEGMENTED INFORMATION
(unaudited - US$ millions)
Net premiums written and net premiums earned by the insurance and reinsurance operations (excluding Runoff) in the fourth quarters and years ended December 31, 2016 and 2015 were:
Net Premiums Written
Fourth quarter | Year ended December 31, | ||||
2016 | 2015 | 2016 | 2015 | ||
Northbridge | 251.2 | 226.9 | 942.6 | 887.0 | |
OdysseyRe | 486.6 | 468.9 | 2,100.2 | 2,095.0 | |
Crum & Forster | 437.0 | 449.1 | 1,801.1 | 1,659.4 | |
Zenith National | 148.0 | 143.1 | 819.4 | 785.4 | |
Brit(1) | 317.8 | 383.5 | 1,480.2 | 946.4 | |
Fairfax Asia | 88.6 | 77.1 | 303.1 | 275.9 | |
Insurance and Reinsurance - Other | 112.8 | 67.1 | 458.4 | 489.8 | |
Insurance and reinsurance operations | 1,842.0 | 1,815.7 | 7,905.0 | 7,138.9 |
Net Premiums Earned
Fourth quarter | Year ended December 31, | ||||
2016 | 2015 | 2016 | 2015 | ||
Northbridge | 233.2 | 212.8 | 908.8 | 874.7 | |
OdysseyRe | 521.3 | 513.4 | 2,074.1 | 2,204.1 | |
Crum & Forster | 457.2 | 433.8 | 1,769.5 | 1,522.0 | |
Zenith National | 211.2 | 200.6 | 807.3 | 766.4 | |
Brit(1) | 352.8 | 398.5 | 1,399.3 | 892.5 | |
Fairfax Asia | 104.0 | 85.7 | 302.5 | 287.0 | |
Insurance and Reinsurance - Other | 111.0 | 95.8 | 437.2 | 442.7 | |
Insurance and reinsurance operations | 1,990.7 | 1,940.6 | 7,698.7 | 6,989.4 |
Combined ratios of the insurance and reinsurance operations (excluding Runoff) in the fourth quarters and years ended December 31, 2016 and 2015 were:
Fourth quarter | Year ended December 31, | ||||||||
2016 | 2015 | 2016 | 2015 | ||||||
Northbridge | 91.8 | % | 93.0 | % | 94.9 | % | 91.8 | % | |
OdysseyRe | 80.4 | % | 71.6 | % | 88.7 | % | 84.7 | % | |
Crum & Forster | 97.9 | % | 96.6 | % | 98.2 | % | 97.7 | % | |
Zenith National | 76.6 | % | 81.4 | % | 79.7 | % | 82.5 | % | |
Brit(1) | 99.1 | % | 94.6 | % | 97.9 | % | 94.9 | % | |
Fairfax Asia | 95.9 | % | 82.5 | % | 86.4 | % | 87.9 | % | |
Insurance and Reinsurance - Other | 91.3 | % | 84.3 | % | 93.7 | % | 89.6 | % | |
Insurance and reinsurance operations | 90.1 | % | 86.4 | % | 92.5 | % | 89.9 | % |
(1) Brit is included in the company's financial reporting with effect from June 5, 2015.
Fairfax Financial Holdings Limited
John Varnell
Vice President, Corporate Development
(416) 367-4941