(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 consolidated financial statements prepared using the recognition and measurement requirements of International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS Accounting Standards”). This news release contains certain non-GAAP and other financial measures, including underwriting profit (loss), adjusted operating income (loss), combined ratio, combined ratio points, 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 for further details.)
TORONTO, Feb. 15, 2024 (GLOBE NEWSWIRE) — Fairfax Financial Holdings Limited (TSX:FFH) announces fiscal year 2023 net earnings of $4,381.8 million ($173.24 net earnings per diluted share after payment of preferred share dividends) compared to fiscal year 2022 net earnings of $3,374.2 million ($131.37 net earnings per diluted share after payment of preferred share dividends). Book value per basic share at December 31, 2023 was $939.65 compared to $762.28 at December 31, 2022 (an increase of 24.7% adjusted for the $10 per common share dividend paid in the first quarter of 2023).
“2023 was the best year in our history with net earnings of $4.4 billion, producing record adjusted operating income of $3.9 billion (or operating income of $5.7 billion including the benefit of discounting, net of a risk adjustment on claims) from our property and casualty insurance and reinsurance operations, reflecting records achieved in our core underwriting performance, interest and dividends of $1.7 billion and increased favourable results from profit of associates. All of our major insurance and reinsurance companies achieved combined ratios below 100% for a consolidated combined ratio of 93.2% and underwriting profit of $1.5 billion, on an undiscounted basis. Gross premiums written grew by 4.8% or $1.3 billion to $28.9 billion, while net premiums written grew by 3.5%, primarily reflecting new business and incremental rate increases in certain lines of business.
“On December 26, 2023 we acquired an additional 46.3% of Gulf Insurance, increasing the company’s total equity interest to 90.0% which will add approximately $2.7 billion of gross premiums written to our consolidated results in 2024.
“We have increased our annual interest and dividend income run-rate to approximately $2.0 billion and we anticipate it will remain at this level for approximately the next four years. Our fixed income portfolio continues to be conservatively positioned with effectively 69% of the fixed income portfolio invested in government bonds, 20% in high quality corporate bonds, primarily short-dated, and 11% in first mortgage loans.
“Our net gains on investments of $1.9 billion were principally comprised of net gains on common stocks of $1.2 billion and bonds of $0.7 billion.
“We remain focused on being soundly financed and ended 2023 in a strong financial position with $1.8 billion in cash and investments in the holding company, our debt to capital ratio at 23.1%,” said Prem Watsa, Chairman and Chief Executive Officer.
The table below presents the sources of the company’s net earnings in a segment reporting format which the company has consistently used as it believes it assists in understanding Fairfax:
Fourth quarter
Year ended December 31,
2023
2022
2023
2022
($ millions)
Gross premiums written
6,639.3
7,019.1
29,092.5
27,912.6
Net premiums written
5,161.5
5,612.8
22,903.6
22,271.7
Net insurance revenue
5,680.9
5,306.0
21,957.4
20,194.3
Sources of net earnings
Operating income – Property and Casualty Insurance and Reinsurance:
Insurance service result:
North American Insurers
265.7
245.5
977.1
964.0
Global Insurers and Reinsurers
714.7
823.1
2,828.0
1,886.7
International Insurers and Reinsurers
100.9
59.6
330.8
230.2
Insurance service result
1,081.3
1,128.2
4,135.9
3,080.9
Other insurance operating expenses
(246.8
)
(182.6
)
(822.1
)
(701.8
)
834.5
945.6
3,313.8
2,379.1
Interest and dividends
482.1
279.5
1,654.7
746.1
Share of profit of associates
153.4
164.5
761.6
721.5
Operating income – Property and Casualty Insurance and Reinsurance
1,470.0
1,389.6
5,730.1
3,846.7
Operating income (loss) – Life insurance and Run-off
(187.3
)
(85.2
)
(144.6
)
77.4
Operating income (loss) – Non-insurance companies
(40.3
)
61.1
121.9
221.3
Net finance income (expense) from insurance contracts and reinsurance contract assets held
(1,010.3
)
45.3
(1,605.6
)
1,617.3
Net gains (losses) on investments
1,464.4
496.2
1,949.5
(1,573.2
)
Gain on sale and consolidation of insurance subsidiaries
290.7
1,219.7
549.8
1,219.7
Interest expense
(130.5
)
(125.7
)
(510.0
)
(452.8
)
Corporate overhead and other
(153.4
)
26.0
(182.8
)
(52.2
)
Earnings before income taxes
1,703.3
3,027.0
5,908.3
4,904.2
Provision for income taxes
(28.5
)
(546.1
)
(813.4
)
(1,092.5
)
Net earnings
1,674.8
2,480.9
5,094.9
3,811.7
Attributable to:
Shareholders of Fairfax
1,328.5
2,318.1
4,381.8
3,374.2
Non-controlling interests
346.3
162.8
713.1
437.5
1,674.8
2,480.9
5,094.9
3,811.7
The table below presents the insurance service result for the property and casualty insurance and reinsurance operations reconciled to underwriting profit (loss), 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 of losses and ceded losses on claims recorded 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.
Fourth quarter
Year ended December 31,
2023
2022
2023
2022
($ millions)
Insurance service result
1,081.3
1,128.2
4,135.9
3,080.9
Other insurance operating expenses
(246.8
)
(182.6
)
(822.1
)
(701.8
)
Discounting of losses and ceded losses on claims recorded in the period
(393.7
)
(412.8
)
(1,813.6
)
(1,302.7
)
Changes in the risk adjustment and other
138.5
(36.7
)
22.0
28.9
Underwriting profit
579.3
496.1
1,522.2
1,105.3
Interest and dividends
482.1
279.5
1,654.7
746.1
Share of profit of associates
153.4
164.5
761.6
721.5
Adjusted operating income – Property and Casualty Insurance and Reinsurance
1,214.8
940.1
3,938.5
2,572.9
Highlights for fiscal year 2023 (with comparisons to fiscal year 2022 except as otherwise noted) include the following:
Net premiums written by the property and casualty insurance and reinsurance operations increased by 3.5% to a record $22.7 billion from $21.9 billion, and gross premiums written increased by 4.8%, reflecting growth across most operating companies, partially offset by decreases at Odyssey Group (principally reflecting the non-renewal of a significant quota share contract which contributed nominal underwriting profit and decreased U.S. crop insurance) and at Brit following strategic underwriting actions to reduce both its gross and net property catastrophe exposure. The growth in both net and gross premiums written was also partially offset by decreased premium volume in both cyber and professional liability lines of business impacted by both pricing and coverage as the company continues to be disciplined in writing new business. Excluding the non-renewal of Odyssey Group’s quota share contract, gross premiums written increased by 6.0% and net premiums written increased by 5.0%.
The consolidated combined ratio of the property and casualty insurance and reinsurance operations was 93.2%, producing a record underwriting profit of $1,522.2 million, and included lower catastrophe losses of $897.3 million (representing 4.0 combined ratio points), compared to a combined ratio of 94.7% and an underwriting profit of $1,105.3 million in 2022. The property and casualty insurance and reinsurance operations continued to experience net favourable prior year reserve development, with a benefit of $309.6 million or 1.4 combined ratio points.
Adjusted operating income of the property and casualty insurance and reinsurance operations increased by 53.1% to a record of $3,938.5 million from $2,572.9 million, reflecting the best year in the company’s history for underwriting profit and interest and dividends.
Float of the property and casualty insurance and reinsurance operations increased by 14.9% to $33.4 billion at December 31, 2023 from $29.1 billion at December 31, 2022.
Operating loss of the Life insurance Run-off operations was $144.6 million compared to an operating profit of $77.4 million in 2022, principally reflecting net adverse prior year reserve development at Run-off of $259.4 million on an undiscounted basis, primarily related to latent hazard claims stemming from recent incremental increases in litigation activity and its associated costs.
Consolidated interest and dividends increased significantly from $961.8 million to a record $1,896.2 million (comprised of $1,654.7 million earned in the property and casualty insurance and reinsurance operations investment portfolio, with the remainder earned in life insurance and run-off, non-insurance companies and corporate and other), primarily reflecting higher interest income earned, principally due to extending the duration of the fixed income portfolio to take advantage of a general increase in sovereign bond yields throughout the year, net purchases of longer-dated U.S. treasury government bonds during 2023 and net purchases of first mortgage loans during 2022 and 2023. At December 31, 2023 the company’s insurance and reinsurance companies held portfolio investments of $60.7 billion (excluding Fairfax India’s portfolio of $2.3 billion), of which $7.2 billion was in cash and short term investments representing 11.8% of those portfolio investments. During 2023 the company used cash and net proceeds from sales and maturities of U.S. treasury and other government short term investments and short-dated U.S. treasuries to purchase $11.7 billion of U.S. treasuries with maturities between 5 to 7 years and to make net purchases of $2.3 billion of short-dated first mortgage loans. These actions should result in continued higher levels of interest income for approximately the next four years based on the current fixed income portfolio.
Consolidated share of profit of associates of $1,022.2 million (comprised of $761.6 million earned in the property and casualty insurance and reinsurance operations investment portfolio, with the remainder earned in life insurance and run-off, non-insurance companies and corporate and other), principally reflected share of profit of $437.7 million from Eurobank, $149.6 million from Poseidon (formerly Atlas) and $129.1 million from EXCO Resources.
Net gains on investments of $1,949.5 million (net gains on investments of $1,464.4 million in the fourth quarter) consisted of the following:
Fourth quarter of 2023
($ millions)
Realized gains (losses)
Unrealized gains
Net gains
Net gains (losses) on:
Equity exposures
348.0
22.2
370.2
Bonds
102.6
894.5
997.1
Other
(98.9
)
196.0
97.1
351.7
1,112.7
1,464.4
Year ended December 31, 2023
($ millions)
Realized gains (losses)
Unrealized gains
Net gains
Net gains (losses) on:
Equity exposures
506.6
711.0
1,217.6
Bonds
(415.3
)
1,129.4
714.1
Other
(220.9
)
238.7
17.8
(129.6
)
2,079.1
1,949.5
Net gains on equity exposures of $1,217.6 million was primarily comprised of unrealized gains on common stocks, convertible bonds and net gains on equity derivatives. At December 31, 2023 the company continued to hold 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, on which the company recorded net gains of $624.8 million (fourth quarter of 2023 – $178.1 million).
Net gains on bonds of $714.1 million primarily reflected net gains on U.S. treasuries and U.S. treasury bond forward contracts.
The company’s fixed income portfolio is conservatively positioned with effectively 69% of the fixed income portfolio invested in government bonds, 20% in high quality corporate bonds, primarily short-dated, and 11% in first mortgage loans.
On December 26, 2023 the company acquired an additional 46.3% equity interest in Gulf Insurance for $756.1 million which increased the company’s interest to a controlling 90.0%. On closing of the transaction, the company re-measured its previously held equity accounted investment in Gulf Insurance and recognized a pre-tax gain of $279.9 million. The company also commenced consolidating Gulf Insurance and managing Gulf Insurance’s $2.4 billion investment portfolio.
Excluding the impact of Fairfax India’s performance fees to Fairfax (an accrual of $69.4 million in 2023 and a reversal of $36.4 million in 2022), which are offset upon consolidation, and the impact of non-cash impairment charges of $107.9 million recorded throughout the year related to the non-insurance companies, including Farmers Edge, operating income of the non-insurance companies decreased modestly to $299.2 million from $318.3 million, primarily reflecting higher operating expenses at Restaurants and retail, partially offset by higher business volumes at Dexterra Group and Thomas Cook India. At December 31, 2023 the holding company had a performance fee receivable of $110.2 million pursuant to its investment advisory agreement with Fairfax India for the period from January 1, 2021 to December 31, 2023. The company elected to receive the performance fee payable in cash and expects receipt of payment within the first six months of 2024.
Net finance expense from insurance contracts and reinsurance contract assets held of $1.6 billion in 2023 reflected interest accretion resulting from the unwinding of the effects of discounting associated with net claim payments made and the effect of modest decreases in discount rates during the year, compared to net finance income from insurance contracts and reinsurance contract assets held of $1.6 billion in 2022 which reflected the benefit of significant increases in discount rates during 2022 that was partially offset by the interest accretion.
Interest expense of $510.0 million (inclusive of $49.5 million on leases) was primarily comprised (other than on leases) of $330.5 million incurred on borrowings by the holding company and the insurance and reinsurance companies and $130.0 million incurred on borrowings by the non-insurance companies (which are non-recourse to the holding company).
Provision for income taxes of $813.4 million with an effective tax rate of 13.8% principally reflected non-taxable investment income that included the benefit of the gain on the sale of Ambridge by Brit, the tax rate differential on income and losses outside Canada primarily related to income taxed at lower rates in the U.S., Bermuda and Mauritius, and the change in tax rate for deferred income taxes related to deferred tax assets recognized as a result of new tax laws in Bermuda during the fourth quarter of 2023 including the introduction of a 15% corporate income tax effective January 1, 2025.
The excess of fair value over carrying value of investments in non-insurance associates and market traded consolidated non-insurance subsidiaries increased significantly to $1,006.0 million at December 31, 2023 from $310.0 million at December 31, 2022, with $315.2 million of that increase related to publicly traded Eurobank.
The company’s total debt to total capital ratio, excluding non-insurance companies, decreased to 23.1% at December 31, 2023 from 23.7% at December 31, 2022, primarily reflecting increased common shareholders’ equity as a result of the record net earnings reported in 2023, the impact of the Gulf Insurance transaction and the issuance of senior notes due 2033 (discussed below).
On December 7, 2023 the company completed an offering of $400.0 million principal amount of 6.00% unsecured senior notes due 2033. Subsequent to December 31, 2023, the company completed a re-opening of those notes for $200.0 million principal amount and used a portion of the aggregate net proceeds to redeem its remaining $279.3 million principal amount of senior notes due 2024. On February 14, 2024 the company announced that it will use the remainder of the net proceeds to redeem its Cdn$348.6 million principal amount of senior notes due 2025.
During 2023 the company purchased 110,528 of its subordinate voting shares for treasury and 364,723 for cancellation at an aggregate cost of $363.2 million.
There were 23.2 million and 23.6 million weighted average common shares effectively outstanding during 2023 and 2022 respectively. At December 31, 2023 there were 23,003,248 common shares effectively outstanding.
Consolidated balance sheet, earnings and comprehensive income information, together with segmented premium and combined ratio, prior year reserve development and catastrophe loss information, follow and form part of this news release.
As previously announced, Fairfax will hold a conference call to discuss its 2023 year-end results at 8:30 a.m. Eastern time on Friday February 16, 2024. The call, consisting of a presentation by the company followed by a question period, may be accessed at 1 (888) 390-0867 (Canada or U.S.) or 1 (212) 547-0141 (International) with the passcode “FAIRFAX”. A replay of the call will be available from shortly after the termination of the call until 5:00 p.m. Eastern time on Friday, March 1, 2024. The replay may be accessed at 1 (800) 934-9450 (Canada or U.S.) or 1 (203) 369-3854 (International).
Fairfax Financial Holdings Limited is a holding company which, through its subsidiaries, is primarily engaged in property and casualty insurance and reinsurance and the associated investment management.
For further information, contact:
John Varnell
Vice President, Corporate Development
(416) 367-4941
Information on
CONSOLIDATED BALANCE SHEETS
as at December 31, 2023, December 31, 2022 and January 1, 2022
(US$ millions except per share amounts)
December 31,
2023(1)
December 31,
2022
January 1,
2022
Restated(2)
Restated(2)
Assets
Holding company cash and investments (including assets pledged for derivative obligations – $197.7; December 31, 2022 – $104.6; January 1, 2022 – $111.0)
1,781.6
1,345.8
1,478.3
Insurance contract receivables
926.1
648.9
650.1
Portfolio investments
Subsidiary cash and short term investments (including restricted cash and cash equivalents – $637.0; December 31, 2022 – $854.4; January 1, 2022 – $1,246.4)
7,165.6
9,368.2
21,799.5
Bonds (cost $36,511.9; December 31, 2022 – $29,534.4; January 1, 2022 – $13,836.3)
36,850.8
28,578.5
14,091.2
Preferred stocks (cost $898.3; December 31, 2022 – $808.3; January 1, 2022 – $576.6)
2,447.4
2,338.0
2,405.9
Common stocks (cost $6,577.2; December 31, 2022 – $5,162.6; January 1, 2022 – $4,717.2)
6,903.4
5,124.3
5,468.9
Investments in associates (fair value $7,553.2; December 31, 2022 – $6,772.9; January 1, 2022 – $5,671.9)
6,607.6
6,093.1
4,749.2
Derivatives and other invested assets (cost $952.0; December 31, 2022 – $869.8; January 1, 2022 – $888.2)
1,025.3
828.5
991.2
Assets pledged for derivative obligations (cost $137.7; December 31, 2022 – $52.4; January 1, 2022 – $119.6)
139.3
51.3
119.6
Fairfax India cash, portfolio investments and associates (fair value $3,507.6; December 31, 2022 – $3,079.6; January 1, 2022 – $3,336.4)
2,282.7
1,942.8
2,066.0
63,422.1
54,324.7
51,691.5
Reinsurance contract assets held
10,887.7
9,691.5
9,893.1
Deferred income tax assets
301.1
137.3
449.1
Goodwill and intangible assets
6,376.3
5,689.0
5,928.2
Other assets
8,290.2
6,981.3
6,034.1
Total assets
91,985.1
78,818.5
76,124.4
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