Fairfax Financial Holdings Limited (FRFHF) Q4 2022 Earnings Call Transcript

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Fairfax Financial Holdings Limited (OTCPK:FRFHF) Q4 2022 Earnings Conference Call February 17, 2023 8:30 AM ET

Company Participants

Derek Bulas - Assistant Vice President, Legal

Prem Watsa - Chairman & CEO

Peter Clarke - President & COO

Jen Allen - CFO

Conference Call Participants

Nik Priebe - CIBC Capital Markets

Tom MacKinnon - BMO Capital

Mark Dwelle - RBC Capital Markets

Jaeme Gloyn - National Bank Financial


Good morning. Welcome to Fairfax’s 2022 Year-End Results Conference Call. Your lines person been placed successful a listen-only mode. After nan presentation, we will behaviour a question-and-answer session. [Operator Instructions] Today’s convention is being recorded. [Operator Instructions]

Your big for today’s telephone is Prem Watsa, pinch opening remarks from Mr. Derek Bulas. Mr. Bulas, please begin.

Derek Bulas

Good morning. And invited to our telephone to talk Fairfax’s 2022 year-end results. This telephone whitethorn see forward-looking statements. Actual results whitethorn disagree possibly materially from those contained successful specified forward-looking statements arsenic a consequence of a assortment of uncertainties and consequence factors.

The astir foreseeable of which are group retired nether Risk Factors successful our Base Shelf Prospectus, which has been revenge pinch Canadian Securities Regulators and is disposable connected SEDAR. Fairfax disclaims immoderate volition aliases responsibility to update aliases revise immoderate forward-looking statements isolated from arsenic required by applicable securities law.

I will now move nan telephone complete to our Chairman and CEO, Prem Watsa.

Prem Watsa

Thank you, Derek. Good morning, ladies and gentlemen. Welcome to Fairfax's 2022 year-end convention call. I scheme to springiness you a mates of highlights and past walk nan telephone to Peter Clarke, our President and Chief Operating Officer, to remark connected our security and reinsurance operations; and Jen Allen, our Chief Financial Officer, to supply immoderate further financial details.

2022 was an outstanding twelvemonth for Fairfax. Gross premiums accrued by 16% and contempt dense catastrophe losses driven by Hurricane Ian. Our security and reinsurance operations astatine a mixed ratio beneath 95% and grounds underwriting profit of $1.1 billion. We use greatly from diversification and world beingness erstwhile dealing pinch events specified arsenic catastrophes, COVID, aliases warfare -- acts (ph) of warfare to sanction a few.

Congratulations, of course, to each our Presidents, who proceed to turn profitably successful a beardown standing environment. Our decentralized attack works. Our operating income successful 2022 was up significantly, expanding year-over-year by astir 64%. For nan year, we had grounds operating net of $2.6 billion. As we proceed to deploy rate and short-term investments astatine higher rates, and pinch beardown and expanding underwriting income, we expect our operating net to proceed to grow.

Our book worth per stock accrued by 6%, adjusted for our dividend successful 2022 to $658 per stock notwithstanding nett losses connected our finance portfolio $1.7 billion, chiefly unrealized. Net losses connected investments were driven by losses of $1.1 cardinal connected our enslaved portfolio owed to rising liking rates during nan year, $244 cardinal was from mark-to-market movements connected our communal banal and reflecting nan diminution successful nan banal markets and $404 cardinal chiefly from overseas speech losses owed to nan strengthening of nan U.S. dollar against astir different currencies.

In nan 4th quarter, we closed nan waste of our pet security business to JAB for full proceeds of $1.4 billion, $1.15 cardinal successful rate connected closing and a statement for $250 million. The transaction resulted successful a pre-tax summation of $1.2 billion. JAB had a very awesome way record, truthful we decided to put $200 cardinal of nan proceeds backmost into that Fund V (ph).

Interest rates decreased somewhat successful nan 4th quarter, but did not offset increases successful nan first 9 months of 2022. As a result, astir of our competitors will still show ample declines successful book worth per share. For nan afloat year, declines will scope successful nan main from 10% to 30% very, very significant.

We person mentioned to you for galore years now that we person not reached for yield. We benefited greatly by having specified a debased duration, 1.2 years coming into nan twelvemonth 2022 connected our fixed income portfolio. Our debased long connected our $38 cardinal fixed income portfolio reduced nan effect of rising liking rates connected our bonds to a alteration of only 2.8% connected nan fixed income portfolio overmuch little than nan 8% to 15% driblet for many, galore companies successful our industry.

Notwithstanding our debased duration, we had $1 cardinal of unrealized enslaved losses for nan year, we expect overmuch of this will reverse complete nan short term. In nan meantime, we person been capable to put astatine higher liking rates, expanding our existent normalized yearly tally complaint for liking and dividend income to $1.5 billion, up from astir $530 cardinal astatine December 31, 2021 and $1.2 cardinal astatine September 30, 2022, a very important almost 3 times what we had astatine nan extremity of 2021.

As I've said antecedently galore times, semipermanent worth investing has gone done a very difficult clip for astir a decade now. As conscionable a quote what I said successful nan past, valuations of worth oriented stocks versus maturation stocks, peculiarly exertion person ne'er been truthful extreme, exceeding moreover nan utmost for nan dotcom era successful 2000. As nan system continues to normalize, we expect a reversion to nan main pinch value-oriented stocks coming to nan fall.

We proceed to judge our communal banal positions are very undervalued. I punctual you that successful nan years 2000 to 2002, successful that downturn, astir banal marketplace indices were down astir 50%, but our portfolio was up 100%. In 2022, peculiarly successful nan 3rd 4th of this year, arsenic we discussed successful our 3rd 4th call, exertion stocks including FANG stocks and Microsoft person travel down significantly.

From its high-end 2021, currently, Alphabet is down 37%, Amazon 48%, Facebook 54%, Microsoft 25%, Netflix 48%, Tesla 50%. Only Apple has dropped by little than 20%. Of course, smaller tech companies for illustration Zoom and Shopify are down 70% plus. And if history is immoderate guide, location is much to come. I will statement to you that nan NASDAQ dropped 50% successful 2000 and past dropped different 50% successful nan adjacent 2 years.

Early successful 2023, we announced nan waste of Ambridge an MGU (ph) owned by Brit to nan Amynta Group for $400 cardinal comprised of rate of $275 million, a statement for $125 cardinal and an further $100 cardinal that whitethorn beryllium receivable based connected 2023 capacity targets for Ambridge. Brit will proceed to supply a important magnitude of nan Ambridge business going forward.

On closing of this transaction, we will grounds a pretax summation of astir $275 million. dollars We wish Jess and Jeff nan principals down nan Ambridge and nan full squad each nan champion and look guardant to moving together pinch them into nan future. We proceed to do each we tin for our Ukrainian employees. Our full institution is down each 3 outstanding Ukrainian presidents that they look aft -- arsenic they look aft our labor nether highly difficult conditions.

I will now walk nan telephone to Peter Clarke, our President and Chief Operating Officer for further updates. Peter?

Peter Clarke

Thank you, Prem. We had nett net of $1.1 cardinal for nan afloat twelvemonth 2022 driven by a beardown 4th fourth pinch nett net of $2 cardinal successful nan quarter. As Prem highlighted, we had an outstanding twelvemonth pinch grounds operating income of $2.6 cardinal generated done underwriting income of $1.1 billion, liking and dividend income of $746 cardinal from our security and reinsurance operations and our stock of profits of associates of $721 million.

Our mixed ratio for 2022 was 94.7 and included supra mean catastrophe losses of $1.3 billion, while our gross premium was up 16%. In nan 4th quarter, we had a mixed ratio astatine 91, which included 3 points of catastrophe losses, while premium maturation moderated pinch gross premiums up 5% compared to nan 4th fourth of 2021. We proceed to spot favorable marketplace conditions successful galore of our awesome lines of business, much connected underwriting results later.

The nett nonaccomplishment connected our enslaved portfolio chiefly unrealized was $1.1 cardinal successful 2022 and was mostly nan consequence of nan important summation successful liking rates successful nan year. Due to our short duration, nan mostly of these losses are expected to unwind complete nan short-term. I will punctual you that nether IFRS accounting, each mark-to-market movements successful our enslaved portfolio spell done nett earnings.

Our nett losses connected our equity and equity related holdings were $244 cardinal successful nan year, driven by nan wide driblet successful equity markets, unrealized losses connected BlackBerry, Kennedy Wilson, Asian Value Fund and Stelco were nan main contributors to nan loss. Other finance losses of $404 cardinal consisted chiefly from unrealized overseas speech losses connected nan Indian rupee, Egyptian lb and Canadian dollar.

As mentioned successful erstwhile quarters, our book worth per stock of $658 does not see unrealized gains aliases losses successful our equity accounted investments aliases our consolidated investments -- our non-insurance consolidated investments which are not mark-to-market. At nan extremity of nan year, nan adjacent worth of these securities is successful excess of carrying worth by $310 million, an unrealized summation position aliases $13 per stock connected a pretax basis.

Our security and reinsurance businesses continued to turn quickly each complete nan world pinch $27.6 cardinal of gross premium successful 2022. We vanished nan twelvemonth disconnected beardown pinch a 91% mixed ratio successful nan 4th fourth and a mixed ratio of 94.7% for nan year. Our gross premiums were up 16%, an summation of astir $3.8 cardinal from nan erstwhile year. This maturation is driven by nan continued favorable marketplace conditions and beardown margins that prevail successful galore of our markets, peculiarly successful North America.

Crum & Forster had nan largest percent maturation among each our increasing 23% successful 2022, adding $867 cardinal of gross premium year-over-year. Crum & Forster maturation reflected accrued business volumes crossed astir of its segments driven by its A&H, surplus and specialty and commercialized lines divisions.

Odyssey Group's gross premiums were up 18% aliases conscionable complete $1 cardinal for nan year, driven by their U.S. Reinsurance section successful some its spot and casualty business segments. Odyssey Group's Insurance conception led by Hudson Insurance continued to grow astatine a slower complaint pinch single-digit growth. Brit grew 23% successful nan twelvemonth pinch gross premiums approaching $4 billion. Brit's maturation was driven by Ki, which contributed $834 cardinal to nan apical statement and was up complete 100% from nan erstwhile year.

As you know, Brit has power of Ki, truthful it's consolidated successful their numbers. Excluding Ki, Brit grew 10% for nan year, driven by its nonstop business and casualty treaty. Allied World, Northbridge and Zenith, each grew arsenic good astatine little levels, expanding their premium by 12%, 9% and 1%, respectively. The premium of our world operations was up 11% for nan year, pinch gross premium of almost $3 billion. Although, they are not seeing nan wide complaint increases knowledgeable from nan difficult marketplace conditions successful North America, gross premiums were up $280 cardinal successful 2022.

Fairfax LatAm was up 17%, and Colonade was up 10%.The summation for nan twelvemonth besides includes a afloat twelvemonth of Singapore Re successful nan 2022 results versus half a twelvemonth successful 2021. The world operations maturation was muted successful U.S. dollar position by nan strengthening of nan U.S. dollar against astir currencies arsenic good arsenic nan warfare successful Ukraine. Over time, we judge our world operations will beryllium a important root of growth, driven by underpenetrated security markets and beardown section economies.

Our companies proceed to turn into favorable marketplace conditions, though that maturation has been slowing, maturation premium successful nan 4th fourth was up 5%. While absolute complaint increases whitethorn trim successful immoderate lines, wide complaint level is expected to stay charismatic and pinch a very difficult reinsurance marketplace astatine nan 1:1 renewals, and different macro factors, nan difficult marketplace could beryllium extended passim 2023 aliases longer.

As antecedently mentioned, our mixed ratio was 94.7, producing a grounds underwriting profit of $1.1 billion. This is nan first clip we had underwriting income supra $1 cardinal successful a year. The mixed ratio included supra mean catastrophe losses for nan year, adding 6.1 mixed ratio points, astir half of which was from Hurricane Ian. This compares to a mixed ratio of 95 and catastrophe losses of 7.2 points for 2021.

As our premium guidelines has expanded significantly, and pinch nan benefits of diversification, we person been capable to sorb important catastrophe losses wrong underlying underwriting profit. Northbridge had different outstanding year, posting an 89.4 mixed ratio, benefiting from nan compounding of year-over-year value increases and accrued caller business. Allied World generated a grounds $389 cardinal of underwriting profit, nan astir successful nan Fairfax group, while Crum & Forster & continues its dependable betterment pinch a mixed ratio of 94.5, down from 95.9 a twelvemonth ago.

Zenith had different bully twelvemonth astatine 94.7%, benefiting from favorable anterior twelvemonth reserve development. Odyssey and Brit were affected nan astir by catastrophe losses successful 2022, though some vanished very beardown successful nan 4th quarter, posting afloat twelvemonth mixed ratios of 96.3 and 97.8. Our world operations had a mixed ratio for nan twelvemonth of 99.3. Fairfax Asia had different beardown year, pinch a mixed ratio of 88.6, our Eastern European operations of 94.4, notwithstanding nan headwinds from nan warfare successful Ukraine, and Fairfax LatAm, excluding Brazil, produced different twelvemonth of underwriting profit.

Significant drought conditions successful Brazil resulted successful ag losses astatine Fairfax Brazil that resulted successful a mixed ratio of 128. And historical floods successful South Africa, mixed pinch nan difficult situation for centrifugal business, [indiscernible] ratio to 108. Our world companies proceed to navigate nan headwinds of inflationary pressures successful galore of their countries, particularly successful Fairfax LatAm.

For nan year, our security and reinsurance companies recorded favorable reserve improvement of $196 million, aliases nan use of 0.9 points connected our mixed ratio. This compares $356 cardinal aliases nan use of 2.2 points successful 2021. Essentially, each our security and reinsurance companies had favorable improvement successful 2022, pinch nan objection of Allied World, who had $30 cardinal of unfavorable reserve improvement connected precocious reported 2021 catastrophe losses that were reported early successful 2022.

RiverStone, our runoff operation, who negociate fundamentally each our latent liabilities, strengthened anterior twelvemonth reserves by $147 million, principally related to asbestos liabilities and different latent type claims. RiverStone continues to do an fantabulous occupation handling immoderate of our astir difficult claims. Our disbursal ratio continues to benefit, pinch our earned premium measurement outpacing expenses. Our wide underwriting disbursal ratio is 1.6 points little year-over-year, pinch nan underwriting disbursal ratio decreasing astatine fundamentally each our security and reinsurance operations.

We had different beardown twelvemonth of underwriting profit and expect that to proceed passim 2023. Our security and reinsurance operations person very beardown guidance teams and are very good positioned to capitalize connected their opportunities successful their respective markets.

I will now walk nan telephone to Jen Allen, our Chief Financial Officer to remark connected our non-insurance company's performance, wide financial position and caller transactions.

Jen Allen

Thank you, Peter. I will statesman my remarks connected nan results of our non-insurance consolidated companies for nan 4th fourth and nan afloat twelvemonth of 2022.

Looking astatine nan 4th fourth results, if you exclude nan effect of Fairfax India's capacity fees successful some periods, and a non-cash goodwill impairment complaint recorded successful nan 4th fourth of 2022 related to nan company's finance successful Farmers Edge, operating income for nan non-insurance companies improved by $31 cardinal to $94 cardinal successful nan 4th fourth of 2022 from an operating income of $64 cardinal successful nan 4th fourth of 2021.

This continued betterment of $31 cardinal successful nan 4th fourth of 2022 reflected nan aforesaid factors that resulted successful accrued operating income for nan afloat twelvemonth of 2022 from nan non-insurance companies, which was a important summation of $240 cardinal to $318 cardinal for nan afloat twelvemonth of 2022 compared to operating income of $78 cardinal successful nan afloat twelvemonth of 2021.

The summation successful nan operating income of $240 cardinal excludes nan effect of Fairfax India's capacity interest of $36 cardinal reversal of a payable for 2022, and an accrual of $85 cardinal aliases an disbursal successful 2021, and it besides excludes nan effect of a non-cash goodwill impairment complaint recorded successful 2022 of $133 cardinal related to nan company's finance successful Farmers Edge.

The important betterment of $240 cardinal from nan non-insurance companies reflected nan easing of COVID-19 restrictions that had antecedently negatively impacted this reporting segment. The $240 cardinal betterment for nan afloat twelvemonth of 2021 was driven by improvements reported successful each underlying operating segments.

With Fairfax India reporting higher operating income of $101 million, reflecting stronger stock of profit of associates from its underlying investments successful Sanmar and CSB Bank, and little stock of losses from its finance successful Bangalore Airport. Thomas Cook India benefited nan reporting conception by contributing $55 cardinal higher operating income, reflecting improved business volumes resulting from continued easing of COVID-19-related recreation restrictions that importantly benefited some their home and world recreation arsenic good arsenic its subsidiary, Sterling Resorts, whose resorts were afloat operational again successful 2022.

The edifice and unit conception reported higher operating income of $51 million, chiefly reflecting higher business volumes astatine Recipe, principally owed to reduced COVID-19 related operating restrictions successful 2022, and that was partially offset by accrued costs of income arsenic a consequence of nutrient and costs inflation. The higher operating income successful this conception besides reflected nan deconsolidation of Toys "R" Us (ph) Canada successful 2021, which reported an operating nonaccomplishment successful that period, and that was partially offset by marginally little business volumes of Gulf count successful 2022.

And finally, nan different operating conception reported higher operating income of $33 cardinal that chiefly reflected higher business volumes and improved margins astatine AGT, which were partially offset by nan deconsolidation of Mosaic Capital successful August 2021.

If we move and look to nan finance capacity from our investments successful associates successful nan 4th fourth and nan afloat year, our consolidated stock of profit of associates of $256 cardinal successful nan 4th fourth of 2022, reflected continued beardown results from our associates, and was principally comprised of stock profits of $78 cardinal from Atlas Corp., $41 cardinal from Golf Insurance, $39 cardinal from EXCO Resources, and $33 cardinal from Eurobank. And that compared to stock profits of only $55 cardinal successful nan 4th fourth of 2021 that was comprised of stock of profits of $62 cardinal from Atlas Corp., $20 cardinal from Eurobank, and that was partially offset by a stock of nonaccomplishment of $31 cardinal from Resolute.

Similarly, for nan afloat twelvemonth of 2022, nan consolidated profit of stock of associates of conscionable complete $1 cardinal reflected beardown results from our investments pinch stock of profits of $263 cardinal from Eurobank, $258 cardinal from Atlas Corp., $159 cardinal from Resolute and $82 cardinal for Mexico Resources, that was importantly higher compared to nan stock of profit of associates of $402 cardinal that we reported for nan afloat twelvemonth of 2021.

If we move now for a mates of comments connected nan cardinal transactions successful nan quarter. A fewer cardinal transactions that were closed successful nan 4th fourth of 2022, pinch first, connected October 31, '22, we sold our liking successful nan Crum & Forster pet security group and pet wellness that included each of their worldwide operations to nan Independence Pet Group and definite of its affiliates, which are mostly owned by JAB holding institution for $1.4 billion, paid arsenic rate astatine arsenic $1.15 cardinal successful rate and $250 cardinal successful debentures.

As a consequence of that sale, nan institution recorded a pretax summation of conscionable complete $1.2 cardinal and an after-tax summation of $934 million, and we deconsolidated nan assets and liabilities pinch carrying values of $149 cardinal and $32 million, respectively.

Secondly, connected October 28, 2022, nan institution acquired each nan aggregate voting shares and subordinate voting shares successful nan superior of Recipe, different than nan shares that were owned by nan institution and astir 9.4 cardinal aggregate voting shares that were owned by Kara Holding Company astatine a rate acquisition value of CAD20.73 per stock aliases $342 cardinal successful aggregate. That was comprised of rate information of $243 cardinal and an summation successful borrowings by Recipe of $100 million.

As a consequence of that transaction, nan institution recorded a nonaccomplishment successful retained net of $66 cardinal and a alteration successful non-controlling liking of $276 cardinal astatine December 31, 2022 and we had an equity ownership successful Recipe of 84%, inclusive of nan Recipe shares that are held successful nan ABLN that we entered into pinch RiverStone Barbados. Recipe was past subsequently delisted from nan Toronto Stock Exchange.

Subsequent to December 31, 2022, we announced nan waste of Ambridge by Brit. As noted by Prem successful his opening remarks, connected January 7, 2023, Brit entered into statement to waste Ambridge Group, it's managing underwriter operations to Amynta Group. The institution will person astir $400 cardinal connected closing and an further $100 cardinal whitethorn beryllium receivable based connected 2023 capacity targets of Ambridge.

Closing of this transaction is taxable to customary closing conditions, including regulatory approvals and is expected to hap successful nan adjacent fewer months. Upon closing that transaction, we expect to grounds a pretax summation of astir $275 cardinal and that's anterior to ascribing immoderate adjacent worth to that further receivables.

Before I adjacent pinch commentary connected nan company's financial condition, I wanted to supply an update connected nan take of nan caller accounting modular for security contracts, IFRS 17, which nan institution adopted connected January 1, 2023. IFRS 17 will first beryllium presented successful nan company's consolidated financial study successful nan first 4th of 2023 pinch each comparative periods restated successful compliance pinch IFRS 17.

IFRS 17 brings sizeable changes to nan measurement, position and disclosure of nan company's security and reinsurance operations. It will not, however, impact nan company's underwriting strategy, it’s prudent reserving, management's usage of accepted capacity metrics specified arsenic gross premiums written, nett premiums written and mixed ratios aliases nan company's rate flows.

The institution anticipates signaling connected modulation and accommodation that will summation opening communal shareholders' equity arsenic astatine January 1, 2022, that will not transcend 2.5% of nan communal shareholders' equity astatine December 31, 2021. There will besides beryllium an summation to opening communal shareholders' equity reflected for nan afloat twelvemonth 2022 owed to nan discounting of nan claims reserves nether IFRS 17.

We expect signaling a worldly use to nan restated consolidated connection of net for nan afloat twelvemonth of '22 and to nan communal shareholders' equity arsenic astatine December 31, 2022. This is successful narration to nan preamble chiefly of nan discounting of declare reserves nether nan caller standard.

In closing, a fewer comments connected our financial condition, nan liquidity position of nan institution remains beardown pinch our rate and investments astatine nan holding institution astatine $1.346 cardinal astatine December 31, 2022, that's principally held successful rate and short dated investments and our entree to our $2 cardinal unsecured revolving in installments facility.

As discussed connected erstwhile calls, that holding institution rate and investments is to meet immoderate and each contingency that Fairfax whitethorn face, and we are not making immoderate semipermanent investments pinch this rate different than to support nan company's decentralized building of our security and reinsurance companies.

In closing, a fewer remarks to full indebtedness to full headdress ratio and excluding nan investments successful our consolidated non-insurance companies, nan ratio was 26.2% astatine December 31, 2022, an summation compared to nan 24.1% astatine December 31, 2021, chiefly consequence of nan summation successful full indebtedness from our issuance of $750 cardinal of our elder notes successful August 2022, and a alteration successful nan non-controlling liking that reflected nan company's acquisition of nan further shares of Allied World from non-controlling liking successful nan 3rd 4th of 2022.

At December 31, 2022, nan communal shareholders' equity accrued by $291 million. That reflected nan nett net attributed to shareholders of Fairfax of $1,147 million, and that was partially offset by different broad income losses of $383 cardinal that reflected unrealized overseas rate losses, nett of our hedges.

We had communal preferred and stock dividends paid successful 2022 of $295 cardinal and purchased for cancellation of astir 388,000 subordinate voting shares nether nan normal people issuer bid for a costs of $200 cardinal astatine an mean costs per stock of $515.

And finally, conscionable to note, nan company's yearly 2022 yearly report, which will see nan Chairman's missive to shareholders will beryllium posted connected nan company's website aft 05:00 P.M. connected March 10, 2023. And that concludes my remarks for nan 4th and nan afloat twelvemonth 2022.

I will move nan telephone backmost complete to Prem.

Prem Watsa

Thank you very much, Jen. We now look guardant to answering your questions. Please springiness america your sanction and your institution sanction and effort to limit your questions to only one, truthful that it's adjacent to each connected nan call.

Okay, Jill, we are fresh for nan questions.

Question-and-Answer Session


Thank you, Mr. Watsa. [Operator Instructions] Our first mobility will travel from Nik Priebe pinch CIBC Capital Markets. Your statement is open.

Nik Priebe

Okay. Thanks for nan question. In your prepared remarks, you discussed firming marketplace conditions successful nan reinsurance abstraction and your belief that difficult marketplace conditions could beryllium extended here, you participate crossed galore different lines and geographies, which are astir apt difficult to overgarment pinch a wide brush. But fixed wherever we mightiness beryllium successful nan security cycle, really do you judge nan magnitude of complaint increases that you're achieving compares to projected nonaccomplishment costs trend? Like, arsenic you look forward, would you expect to beryllium building further margins from here?

Prem Watsa

We deliberation broadly speaking, you made nan constituent that we run successful different segments, different parts of nan world. Broadly speaking, complaint increases will transcend nonaccomplishment costs. But, Peter, you want to adhd to that, Peter?

Peter Clarke

Sure, Prem. Yeah. No, for 2022, connected average, we sewage possibly astir 7% value increase. So we still deliberation that, that's greater than our nonaccomplishment costs successful nan businesses that we run in. We run successful complete 200 profit centers astir nan world. So it's very difficult to put a wide number connected it. But -- and past astatine 1:1, nan reinsurance marketplace was highly hard, particularly connected nan spot feline side.

The business that we wrote connected a consequence adjusted ground was up anyplace successful nan vicinity of 40% to 50%. That's connected a consequence adjusted basis. So arsenic that flows done to nan security companies, we deliberation that would beryllium a awesome facet that keeping nan difficult marketplace going for 2023, and we'll spot really nan marketplace -- nan reinsurance marketplace goes for nan remainder of nan year.

Nik Priebe

Okay. That’s bully color. That’s my question. Thank you.

Prem Watsa

Thank you very much. Jill, adjacent question?


Our adjacent mobility is from Tom MacKinnon pinch BMO. Your statement is open.

Prem Watsa

Good morning, Tom.

Tom MacKinnon

Yeah. Good morning, Prem. Question pinch respect to gross premium written increases and nett premium written increases successful nan 4th quarter. With respect to Odyssey successful particular, seems nan trends look to beryllium slowing a small bit. Not judge what would beryllium driving that? Is location immoderate benignant of alteration successful your information successful immoderate benignant of quota stock arrangements? What's nan renewals person been like, et cetera?

Prem Watsa

Odyssey had -- if you noticed nan 4th fourth 2021 was a very important 4th fourth for them. For nan year, they had an increase, arsenic you tin spot of, whether nan summation successful Odyssey was astir 18%, right, which is phenomenal. But we return a semipermanent position successful position of, what's happened successful nan past 5 years arsenic our premiums person gone from $13.6 cardinal to $27 billion, up 100%. $27 cardinal puts america among nan apical 20, 25 companies successful nan world, that's successful nan world. And a mixed ratio during that 5 years is 96%, pinch fantabulous reserving, very blimpish reserving. And truthful that's really we look astatine it.

And nan effect of this, you've recognized it now, but what's happened is for nan longest time, we didn't scope for yield. And so, astatine nan extremity of 2021, we had liking and dividend income of $500 million, $530 cardinal to beryllium exact. 50% of our portfolios were successful rate and short word net 6 ground points, nothing. But we return a semipermanent view. And successful 2022, our liking and dividend income went up significantly, and they're moving coming astatine $1.5 billion, and we are slow expanding long to two, which intends that '23, $1.5 billion, '24, $1.5 billion. That's astir apt much than we've ever had successful nan past, liking and dividend income of that amount.

Underwriting profit pinch our business, arsenic you've seen, $1.1 cardinal past year, $1 billion, we think, is not -- it's conservative. And associates, which Jen highlighted very well. Associates and non-insurance income is -- connected a blimpish ground is $0.5 billion. So you adhd that up, $1.5 billion, $1 cardinal of underwriting profit, $0.5 billion, $3 cardinal of operating income, which was equates to astir $100 a stock for Fairfax shareholders. This would beryllium nan first clip that we tin make that remark that we've sewage $100 of net per stock for nan adjacent mates of years.

And past connected apical of that, historically, we've made a batch of gains. And arsenic you know, worth investing is coming backmost nicely. So that's really we spot our company, not connected a quarter-by-quarter basis, but complete time. We built our institution complete nan agelong term. It's rather transformational, going from $13.6 cardinal to $27.6 cardinal now. That's each successful U.S. dollars. And pinch operating income, connected a blimpish ground of $100 a share. And that's -- connected apical of that, we expect to make gains arsenic we person for 37 years, we conscionable completed 37 years. So I conscionable wanted to put that successful position for you, Tom.

Tom MacKinnon

Yeah. Thanks. And if I could conscionable compression 1 much in. The modulation to IFRS 17, Jan 1, 2022, astatine astir 2.5%. But past you talk astir erstwhile you authorities nan afloat twelvemonth 2022, there's going to beryllium moreover further benefits. So does that mean if we look astatine nan modulation connected nan book astatine Jan 1, 2023, that it could beryllium greater than 2.5%?

Prem Watsa

Why doesn't Jen reply that? And perhaps, Peter, you tin adhd to it, too. But Jen, your comments connected IFRS 17?

Jen Allen

Sure. Thanks, Tom. I deliberation possibly I'll conscionable springiness a small spot much colour connected IFRS 17, Tom. The biggest takeaway is your nett reserves will now beryllium discounted nether IFRS 17. So you person to do that retrospectively. So arsenic you indicated, we would person to person a starting point, which is Jan 1, '22. That's nan remark that it will not beryllium successful excess of nan 2.5% of book worth per share. But then, successful accordance pinch nan standard, we person to restate each nan periods successful 2022, which we're presently undergoing.

But conscionable to put it successful context, fixed nan existent liking complaint situation successful 2022, wherever important liking complaint increases, you tin benignant of look astatine nan comparison to our enslaved portfolio duration, which was astir 1.2% up to 1.6% by year-end, that costs america astir $1 cardinal of mark-to-market losses. If you construe that into a nett reserve position, that's larger. At twelvemonth extremity '21, we had nett reserves of $25.5 billion. That benignant of gives you a consciousness of why we're claiming that it will beryllium worldly because nan enslaved portfolio was little than that nett reserve position. But you're correct that astatine Jan 1, 2023, it will beryllium nan cumulative opening, positive nan alteration successful '22.

The only different remark I want to make is, successful nan financial statements, we will do nan IFRS 17 ground and on pinch nan note, wherever we're going to effort to support nan cardinal metrics that nan institution evaluates capacity connected specified arsenic a mixed ratio, gross premiums written, nett premiums written, that will beryllium done successful nan MD&A bridging you betwixt nan IFRS 17 and nan aged benignant of guidance capacity metrics, pinch nan biggest quality is taking retired that effect of nan discounting connected nan claims.

Tom MacKinnon

Okay. Thanks for that.

Prem Watsa

Jen, convey you. Peter, immoderate comments to adhd to that.

Peter Clarke

No, I deliberation nan only point I would accent is what Jen said connected the, nan measurement we're going to negociate our security and reinsurance operations will not change. We'll look astatine our reserves connected a discount -- undiscounted basis. There is simply a batch of uncertainty successful nan reserves, and again, we'll look astatine our mixed ratios connected a discounted basis. But otherwise, Jen summed it up rather nicely.

Prem Watsa

So that's a very important constituent to make to each our shareholders connected nan line. This discounting is very dangerous. It's IFRS 17. It's thing that nan accounting occupation has travel on. We don't person a choice. But arsenic Peter said, and Jen said, we're going to not negociate our affairs connected a discounted basis, and we're going to mitigate nan effects of this discounting arsenic overmuch arsenic possible. Because it's -- discounting, long-tail liabilities, 0.5%, 1% tin alteration things very dramatically. So each our companies that decentralized, they're tally connected america connected nan aforesaid ground that we've tally successful nan past. No alteration connected that.

Jill, next, nan question?


Thank you. Our adjacent mobility is from Mark Dwelle pinch RBC Capital Markets. Your statement is open.

Mark Dwelle

Yeah. Good morning. Just a mini numbers mobility first. In nan Brit unit, location was a mini magnitude of adverse reserve development. Could you talk a small spot astir what that mightiness person involved?

Prem Watsa

Sure. Peter?

Peter Clarke

I'm trying to deliberation through. In total, they had favorable development. I deliberation they did fortify a small spot of their casualty reserves, connected nan 2016 to 2018 years. Nothing significant. Their reserves are still successful a very beardown position. It's conscionable pinch claims inflation, each our companies are really trying to beryllium prudent and possibly not releasing arsenic galore reserves connected those years and taking a hold and spot approach. So thing significant.

Prem Watsa

So, Mark, an important constituent location for you. Reserve releases, arsenic I think, arsenic Peter said and arsenic Jen said, were very overmuch little this twelvemonth compared to past year. And that's had been conservative. Like our reserve position, we think, is an fantabulous style because we've expanded successful a difficult market. In 2000, 2002, 2001 it was nan difficult market. Began astatine nan extremity of nan twelvemonth because of September 11, 2002, '03 and '04, we doubled our premium.

And past we saw successful nan lawsuit of R&D (ph), for example, reserve redundancies for nan adjacent almost a decade. And astatine that time, we had reserve deficiencies coming from TIG. And truthful it benignant of netted off. But astatine this time, of course, we person -- our companies are successful a very bully position. And truthful we expect our reserve redundancies -- expect, nary certainty connected this, by nan way, to past for immoderate time. And our reserve position, arsenic Peter said, reserve redundancies last, successful '22, very small.

Mark Dwelle

Appreciate nan color, Prem. There's not a batch to prime connected successful these numbers. So I had to find astatine slightest to return a flick at.

Prem Watsa

Good, Mike.

Mark Dwelle

Other mobility that I had, conscionable wanted to proceed nan speech you've been doing stock buybacks reasonably steadily complete nan past respective years. The 4th fourth was a small little than immoderate of nan caller quarters. But possibly conscionable update your reasoning connected really you're reasoning astir buybacks. The banal value has travel up rather a bit, which is good.

Prem Watsa

I'll return a ace connected it, Mark, and past walk it connected to Peter. So stock buybacks, we conscionable deliberation is nan correct measurement to do -- spell guardant for our shareholders. We bought 2 cardinal shares successful 2021, and we proceed to bargain an normal people issuer bit. And truthful constituent number one, I've said galore times, financial position, financial strength. We're not going to bargain backmost banal astatine nan disbursal of our financial position. You'd expect maine to opportunity that because connected a semipermanent ground that you person to person financial spot and we person that.

Number 2 is our security business. I mean we've expanded our security business huge, doubled our premium and go 1 of nan world's largest security companies, spot casualty companies pinch fantabulous underwriting and fantabulous reserving and a very diversified guidelines truthful that you person $1.3 cardinal of feline losses and you still person 96% mixed ratio, a 95% mixed ratio past twelvemonth with, arsenic I said, very mini consequence redundancies taken. So that's a very bully position to beryllium in. But arsenic nan security rhythm changes and flattens retired some, Peter?

Peter Clarke

Yeah. No, conscionable to add, if we look backmost complete nan past 3 years, arsenic Prem said, we've grown significantly. And we've mostly funded nan superior required to turn done soul intends done our operating earnings. And there'll beryllium a clip erstwhile maturation will slow. And nan anticipation is erstwhile maturation slows, and our net will past nutrient dividends to Fairfax. And past we tin look astatine each nan options disposable and buying backmost our ain shares, particularly astatine these prices would beryllium thing -- would beryllium of awesome liking to us. [Multiple Speakers]

Prem Watsa

Mark, we're looking astatine why person we bargain backmost our stock, you mightiness say? And so, if you consciousness comfortable pinch what I said earlier astir $100 a share, and our banal is trading astatine $650 U.S. You person to look astatine it and everything is successful U.S. dollars. And truthful we're looking astatine it, and pinch our way grounds and what we've built, astatine 6.5 times earnings, we deliberation it's a terrific acquisition for each our shareholders.

Our book worth is going up. Our intrinsic value, and I've said this galore times, I'm repeating myself. The intrinsic worth is much, overmuch higher than wherever nan book worth is. So our attraction is that, but not astatine nan disbursal of our financial position, not astatine nan disbursal of allowing security companies to grow and return advantage of a bully market.

Mark Dwelle

Thanks very overmuch for nan color. I admit it.

Prem Watsa

Thank you, Mark. Next question, Jill?


Thank you. Our adjacent mobility is from [indiscernible]. Your statement is open.

Unidentified Participant

Hello. I person a fewer questions for Jennifer successful India, really overmuch vulnerability do we person to nan Adani Group debt? What are nan existent plans for nan Bangalore Airport successful 2023? And lastly, are we going to get caught up successful nan Modi-Adani governmental confederation situation?

Prem Watsa

Yeah, 3 things. We person nary vulnerability to nan Adani Group, constituent number one. Point number two, connected Bangalore International Airport, we said successful our property merchandise successful nan Indian -- Fairfax India, property merchandise that nan Bangalore International Airport is coming backmost successful space. It's a awesome airport. I was location erstwhile Prime Minister Modi opened it. And it is possibly for nan champion efforts you'll ever see, if you spell there. The number of passengers has travel backmost to nan pre-COVID levels domestically.

And I deliberation we've said thing for illustration 85%, 88% for world travel. The T2, it's called nan 2nd word numbers already operating domestically. And anyone that goes location is conscionable nan guidelines that what this has -- really this has been built successful 4 years, including 2 years of COVID successful India. So it's rather a miracle. And it's Hari Marar, nan feline who is nan President and Chief Executive Officer, who's done that.

In position of Adani and he's 1 of nan investors -- 1 of nan companies successful India. And arsenic you've seen successful nan United States aliases Canada aliases elsewhere, you person these instances. And truthful I deliberation India will proceed to do highly well. We're very excited astir India, each nan possibilities of India notwithstanding nan Adani arena that took spot recently.

Unidentified Participant

Okay. That sounds for illustration bully news. All right. Is location immoderate plans connected nan airdrome for this year?

Prem Watsa

Plans successful what sense?

Unidentified Participant

About nan IPO aliases nan waste of our stakes?

Prem Watsa

Yeah. Sorry, yeah. The Anchorage is simply a institution that we are putting successful our liking successful nan Bangalore International Airport, and it's an infrastructure improvement company, much airports for infrastructure. And we've sewage an exertion successful process. And erstwhile that exertion is approved, and erstwhile nan opportunity is right, we look astatine doing an IPO.

Unidentified Participant

Okay. Thanks for nan info. Just to reiterate, I deliberation I've spoken earlier astir this. I for illustration to person an summation successful nan dividend alternatively of nan buybacks to use nan semipermanent shareholders.

Prem Watsa

Thank you for that. And we'll -- we bought a batch of shares and we deliberation it's nan champion point we could do for our shareholders. Fairfax India has bought 3 cardinal shares, I think, astir past twelvemonth astatine astir $12 a stock and bought astatine astir nan aforesaid value astatine 19 cardinal shares complete a longer play of time. But we'll see what you say. We look astatine each of those dividend versus a buyback, and we'll see what you opportunity arsenic we spell forward.

Unidentified Participant

Okay. Thanks, Prem

Prem Watsa

Thank you very much. Next question, Jill?


Our adjacent mobility comes from Ruby [indiscernible] pinch Red Rock. Your statement is open.

Unidentified Participant

Hello. Thank you, Prem and team. It's Ruby [indiscernible]. Thank you very overmuch for your stewardship of nan worth successful Fairfax, galore of america are very happy shareholders complete time, arsenic you say, it's astir nan long-term. My mobility is astir some existent (ph) and forward-looking. You said successful nan convention telephone astir nan imaginable for maturation and profit successful North America successful nan world markets and looking guardant to that maturation successful nan future.

But I've sewage immoderate questions astir your African investments, some connected your security successful South Africa, pinch nan mixed ratio being 108, and location conscionable seems to beryllium truthful overmuch uncertainty and challenges ahead, and some successful nan security and successful your finance successful Helios Fairfax arsenic good as, is it clip successful nan operating companies and your security operations to reallocate immoderate of those resources from wherever nan imaginable isn't arsenic great, for illustration arsenic an example, successful Africa or, arsenic an example, would you displacement finance from thing for illustration BlackBerry into much AGT wherever location is overmuch much semipermanent potential? So again, convey you for your stewardship, and I look guardant to your comments.

Prem Watsa

Thank you very overmuch for your question. In Africa, we've sewage terrific -- I'll inquire Peter to talk astir Bright, South African operation. But connected our Helios Fairfax company, it's tally by Tope (ph) and Baba. These guys are excellent. They've started a institution from scratch. 15, 20 years of way grounds successful Africa, successful each parts of Africa. And we are shareholders pinch them, we support them. And we are -- Fairfax Africa, I'm sorry to say, didn't person overmuch occurrence successful Africa.

And truthful we decided to merge, arsenic you know, pinch Helios. And now you've sewage possibly the, utilizing Blackstone, you've sewage nan Blackstone of Africa, who is attraction connected Africa. And we've decided to spell pinch them and put pinch them for nan agelong term. We've conscionable begun. It's possibly a year, 1.5 years that we've begun and digesting immoderate of nan aged Fairfax Africa. And past besides Africa is not particularly, progressive correct now, but it will be, location is tons of opportunity there. And these 2 gentlemen, Tope and Baba cognize it calls. So that's connected Helios Fairfax, Africa.

On BlackBerry, AGT, we look astatine that each nan time. And I'll person immoderate comments successful nan yearly study astir that. On South Africa and Bright. Peter?

Peter Clarke

Yeah. All I'd adhd location is Bright, Bright has had a mates of reliable years and it's chiefly driven from catastrophe type losses. They had important losses from COVID, which were really unexpected. And past this -- nan past mates of years, there's been important floods successful South Africa, and that's affected their results. So they've had 2 years now pinch a mixed ratio astir 100. But 1 of nan biggest strengths of Fairfax is we return a semipermanent approach, and we deliberation complete nan agelong term, Bright will nutrient beardown underwriting results. That's nan attraction of nan squad there. And they're putting done important complaint increases, particularly connected spot feline exposed business. And I deliberation complete time, will beryllium very fine.

Prem Watsa

And conscionable to adhd to what Peter said, we person nary volition of trading Bright that you talk astir allocation of capital. No volition of trading Bright. We person nary intension of trading immoderate of our companies. We person a very bully team. We're very happy pinch nan squad that we person location and we expect them to execute successful nan years to come. Jill, adjacent question?


Thank you. Our adjacent mobility is from Jaeme Gloyn pinch National Bank Financial. Your statement is open.

Jaeme Gloyn

Yeah. Thanks. Sorry, a small precocious joining in. Just wanted to excavation deeper connected nan apical statement maturation of 7% successful nan 4th from a gross premiums written perspective, a small lighter than possibly what we had and possibly a small spot lighter than inclination fixed nan difficult marketplace conditions we're in. So I'm conscionable funny if there's immoderate one-time factors of nary and thing you're intentionally pulling backmost connected successful definite markets aliases types of risks aliases geographies aliases thing on those lines?

Prem Watsa

Some lines, Jaeme, for illustration D&O for nationalist companies, nan pricing has travel down some. But arsenic Peter said, broadly speaking, you person a difficult market. Reinsurance rates astatine 1:1 were up significantly. We person a reinsurance business, we use from that. But for illustration you said, reinsurance costs will person to beryllium passed connected by security companies. And truthful location will beryllium a mitigating effect connected pricing. pricing will travel down, flatten retired and travel down. We don't cognize erstwhile that will be. We don't expect that to beryllium successful 2023.

But we are very excited astir nan truth -- arsenic I said successful an earlier question, nan truth that successful this difficult market, Fairfax has grown to beryllium 1 of nan largest companies successful nan business and has terrific management. We've done it internally. For example, nan past acquisition was Allied, arsenic you know, and it had astir $3 cardinal successful premium successful that area, gross written premium, and it's moving astatine $6.5 cardinal and 90s mixed ratio and an outstanding way grounds each complete nan world, akin to Odyssey.

And -- but each our companies are doing very good and our disbursal ratios person travel down. The reserving is excellent. And -- but we do spot maturation successful nan future. We do spot growth. And if maturation slows down, arsenic it will immoderate time, past we expect, arsenic Peter said, to look astatine continuing to bargain backmost banal astatine important amounts.

Jaeme Gloyn

Okay. So if I understand, I guess, nan position adjacent word is that, that maturation complaint will reaccelerate, aliases there's a position that it should reaccelerate and that you'll benignant of maintain. And if it doesn't reaccelerate, you'll support underwriting leverage done stock buybacks? Is that...

Prem Watsa

That's nan nonstop way, right? We don't forecast, right? We don't forecast it. We return it arsenic it comes, and it's a very decentralized operation. And we tin show you that nan standing situation is good. I tin show you, we'll grow astatine 15% aliases 10%, didn't show you past year, didn't show you 2 years ago. We conscionable look astatine what our companies look and doing nan correct point for our shareholders agelong term.

Jaeme Gloyn

Okay. Great. Thanks, Prem.

Prem Watsa

Thank you [indiscernible]. Jill, possibly past question, Jill?


It will travel from Tom MacKinnon pinch BMO. Your statement is open.

Tom MacKinnon

Yeah. Thanks very much. Just trying to get -- I deliberation you mentioned restaurants and retail, different pinch successful respect to immoderate of your non-insurance pretax operating earnings. I don't -- did you mention Thomas Cook India. I'm conscionable trying to get nan things that sum up to nan $61 cardinal that you've put?

Prem Watsa

Yes, Tom. I will a batch of that will beryllium put successful our worth report. But Jen did mention it. Jen remark connected Thomas Cook.

Jen Allen

Yeah. So Tom, you're looking astatine nan 4th aliases nan YTD number?

Tom MacKinnon

The quarter.

Jen Allen

The 4th of $61 million. Yeah. So nan measurement we look astatine it, if you set for nan goodwill successful Paramount Farmers Edge and nan Fairfax India, you've sewage a $94 cardinal compared to $63 million. And astir of that is driven by nan edifice and unit list. We will springiness much specifications connected that successful nan yearly report, but it's astir up possibly $10 cardinal successful that segment. And past Thomas Cook, India, admit past twelvemonth they were successful restrictions and COVID lockdown. So antagonistic effect successful '21, that's flipped to a profit successful 2022 for nan quarters.

Tom MacKinnon

Okay. So we'll conscionable person to hold to get nan specifications of nan $61 cardinal that you've provided conscionable hold until we get nan yearly report, I presume then, right?

Jen Allen


Prem Watsa

We'll disclose each of that successful nan report. And truthful -- but this takes america done nan 09:30 time. Thank you very overmuch for joining america connected this call. And we look guardant to seeing you all, astatine our Annual General Meeting successful Toronto connected April 20. And Jill, convey you very overmuch for nan call.


Thank you, Mr. Watsa. This does reason today's convention call. We convey you each for participating. You whitethorn now disconnect, and person a awesome remainder of your day.

Editor: Naga

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