Toronto-based Fairfax Financial, which recently swooped for NZ insurer Tower in a $197million deal, has announced a loss in revenues which it says is partly a result of fundamental changes in the US.
Fairfax announced a net loss of $512.5 million (NZ$713 million) for the fiscal year 2016, amounting to a $24.18 net loss per diluted share after payment of preferred share dividends. That’s compared to net earnings of $567.7 million in the fiscal year 2015, amounting to $23.15 net earnings per diluted share.
The slump in revenues, which the firm says reflects net losses on investments, was particularly driven by losses in the fourth quarter – at $701.5 million.
“Net losses on investments of $1,204 million were primarily as a result of fundamental changes in the US in the fourth quarter that may bolster economic growth and business development in the future,” Fairfax’s chairman and chief executive officer, Prem Watsa, said in a release.
Fairfax’s 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, Watsa said.
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“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,” he explained.
As a result of changes in the US, the firm removed all its defensive equity index hedges and reduced the duration of its bond portfolios to approximately one year, Watsa said.
“Our investment actions resulted in our having cash and short term investments in excess of $10 billion at year-end.”
Watsa called Fairfax’s agreement to purchase Allied World – a deal worth $4.9 million – a “transformative acquisition for Fairfax.”
“We continue to be soundly financed,” he said, “with year-end cash and marketable securities in the holding company approaching $1.4 billion.”
Fairfax’s insurance and reinsurance operations produced an underwriting profit of $575.9 million in 2016, compared to $704.5 million in the previous year, primarily reflecting greater catastrophe losses in 2016.
The operations produced operating income (excluding net losses on investments) of $1,039.2 million, compared to $1,181.5 million in 2015.
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