Fairfax Financial’s third-quarter net earnings fell to $929.6 million, or $43.32 per diluted share, from $1.15 billion a year earlier, mainly because of losses on US Treasury bonds as interest rates rose.
Net investment losses totalled $858.7 million, including $827.7 million on bonds. A large part of those losses was offset elsewhere in the income statement by a $679.3 million benefit on insurance contracts from the same rate changes, leaving a net interest-rate effect of $148.4 million. Fairfax said its fixed income portfolio remains conservatively positioned, with an average term of 3.1 years and 77% in US Treasury and other government bonds.
The P&C operations made an underwriting profit of $523.9 million, down from $540.3 million, with the undiscounted combined ratio rising to 92.5% from 92.0%. Fairfax said reinsurer Odyssey Group reported higher attritional losses and underwriting expenses, while Canadian insurer Northbridge had higher catastrophe losses. Other businesses in the Global Insurers and Reinsurers segment, which includes Allied World and Brit, improved.
Net premiums written rose 5.4%, driven by growth at Brit and Allied World and by international operations. Gross premiums written rose 9.3%. In the North American Insurers segment, the insurance service result rose to $313.7 million from $286.6 million.
Adjusted operating income from P&C operations rose to $1.38 billion, supported by $587.6 million of interest and dividends.
Fairfax has been busy outside insurance. Its Sleep Country subsidiary completed the $522.5 million acquisition of Sleep Number. Fairfax also agreed to take a 50% stake in Boots alongside Wittington Investments, and was selected to buy a controlling stake in India’s IDBI Bank for about $5.6 billion.
“This transaction represents a once in a lifetime opportunity to purchase a majority interest in a bank in one of the world’s fastest growing economies,” said Prem Watsa, chairman and CEO, of the IDBI deal.
For brokers placing business with Fairfax companies, including Allied World, Crum & Forster, Zenith and Odyssey Group, the results show a group that is still growing where pricing is attractive and keeping combined ratios in the low 90s. Odyssey’s higher attritional losses suggest reinsurance pricing pressure is starting to show at some reinsurers as the market softens.
