The consolidated combined ratio of the insurance and reinsurance operations was 96.8%, producing an underwriting profit of USD 103.1 million, compared to a combined ratio of 97.0% and an underwriting profit of USD 88.4 million in 2019, primarily reflecting growth in net premiums earned and higher net favourable prior year reserve development, partially offset by higher current period catastrophe and COVID-19 losses.
Fairfax ended the first quarter of the current year with a net loss of USD 1,259.3 million, primarily reflecting unrealized losses on investments.
Fairfax 1Q2020 preliminary figures, y-o-y changes
- Gross premiums written: USD 4,776 million (+1.0%)
- Net premiums written: USD 3,699.9million (+10.1%), of which:
- Northbridge: USD 309 million (+20.1%)
- Odyssey Group: USD 864 million (+8.2%)
- Crum & Forster: USD 651 million (+20.5%)
- Zenith National: USD 254 million (-6.9%)
- Brit: USD 448 million (+3.3%)
- Allied World: USD 801 million (+10.1%)
- Fairfax Asia: USD 61 million (+15%)
- Others: USD 312 million (+12.4%)
- Combined ratio: 96.8% (-0.2 pp.)
- Underwriting profit: USD103 million (+16.6%)
- Net earnings (loss): USD (1,259) million (1Q2019: 769)
Net premiums written by the insurance and reinsurance operations increased by 10.1% to USD 3,699.9 million from USD 3,360.2 million. The only segment which decreased y-o-y in the net premiums written was Zenith National.
Operating income of the insurance and reinsurance operations decreased modestly to USD 225.6 million from USD 246.7 million, primarily reflecting higher share of losses of associates, partially offset by higher underwriting profit.
Interest and dividends of USD 217.9 million decreased from USD 235.9 million, primarily reflecting lower dividend income earned on common stocks and lower interest income earned due to sales and maturities of U.S. treasury bonds in the second half of 2019, partially offset by higher interest income earned on the reinvestment of the U.S. treasury bond proceeds into higher yielding, high quality U.S. corporate bonds and short-term investments.
Interest expense of USD 115.7 million was comprised of USD 64.2 million incurred on borrowings by the holding company and the insurance and reinsurance companies, USD 35.8 million incurred on borrowings by the non-insurance companies (which are non-recourse to the holding company) and USD 15.7 million of accretion on lease liabilities.
Net investment losses of USD 1,539.5 million, primarily resulting from the significant fall in equity markets in March 2020 reflecting the global economic disruption caused by the COVID-19 pandemic
Net losses on long equity exposures of USD 1,078.0 million was primarily comprised of unrealized depreciation of common stocks and equity-related derivatives. Net losses on other of USD 261.7 million primarily reflected unrealized foreign currency losses on investments denominated in the Canadian dollar, Indian rupee and British pound as the U.S. dollar strengthened relative to those currencies.
Since mid-March 2020, the company has been reinvesting its cash and short term investments at its insurance and reinsurance operations 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. Up to March 31, 2020, taking advantage of the increase in corporate spreads, the company had purchased approximately USD 2.9 billion of such bonds.
The company held USD 2,483.3 million of cash and investments at the holding company level (USD 2,477.3 million net of short sale and derivative obligations) at March 31, 2020, compared to USD 975.5 million (USD 975.2 million net of short sale and derivative obligations) at December 31, 2019.
The company's total debt to total capital ratio, excluding non-insurance companies, increased to 32.5% at March 31, 2020 from 24.5% at December 31, 2019, reflecting the USD 1,770.0 million drawn on the credit facility.
Prem Watsa, Chairman and Chief Executive Officer of Fairfax, said:
"Despite these unprecedented turbulent times our insurance companies continued to have strong underwriting performance in the first quarter of 2020 (...). 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 USD 2.5 billion in cash and marketable securities in its holding company at March 31, 2020."
More financial information about Fairfax can be found at www.fairfax.ca.