Fairfax Financial Holdings Limited has reported a decline in net earnings to $218.4 million for fiscal year 2020, as combined catastrophe and COVID-19 losses reached more than $1.3 billion.
Despite the high level of catastrophe and pandemic-related losses, Fairfax’s insurance and reinsurance operations recorded a consolidated combined ratio of 97.8%, resulting in underwriting profit of $309 million.
During the year, COVID-19 losses totalled $668.7 million, primarily at Brit, Odyssey Group and Allied World, representing 4.8 combined ratio points. Additionally, the firm booked catastrophe losses of $644.3 million for the year, representing 4.7 combined ratio points.
The pandemic loss is primarily driven from coverages related to business interruption (around 35%) and event cancellation (around 34%), with around 51% of the overall losses being IBNR.
Fairfax’s re/insurance operations also benefitted from net favourable prior year reserve development in 2020, reporting a benefit of $454.9 million.
“In 2020 all of our insurance and reinsurance companies except Brit achieved a combined ratio below 100%. Our consolidated combined ratio of 97.8% in 2020 included catastrophe losses of $644.3 million or 4.7 combined ratio points and COVID-19 losses of $668.7 million or 4.8 combined ratio points.
“Core underwriting performance continued to be very strong with a combined ratio excluding COVID-19 losses of 93.0%, continued favourable reserve development and growth in gross premiums written of 12.5%, resulting in operating income of $915.8 million despite the catastrophe and COVID-19 losses,” said Prem Watsa, Chairman and Chief Executive Officer (CEO).
For the year, gross and net premiums written both increased, to $19.1 billion and $14.8 billion, respectively, from the prior year.
“Our net losses on investments of approximately $1.5 billion at March 31, 2020 reversed over the remainder of the year and we finished 2020 with net gains of $313.1 million. We continue to focus on being soundly financed and ended the year with approximately $1.3 billion in cash and investments in the holding company. We expect that by end of the first quarter, with the closing of the RiverStone Barbados transaction described below, we will have in excess of $1.0 billion of cash and investments in the holding company, with our credit facility fully paid off.
“Throughout much of last year, I made public statements to the effect that our belief was that Fairfax shares were trading in the market at a ridiculously cheap price. Following our value investing philosophy, since the latter part of 2020 we have purchased total return swaps with respect to 1,407,864 subordinate voting shares of Fairfax with a total market value at the time of those agreements of $484.9 million ($344.45 (Cdn$443.93) per share),” said Watsa.
Within its results announcement, Fairfax has also revealed that on February 10th, 2021 it entered into an agreement pursuant to which OMERS will acquire an approximate 14% interest in Brit, for cash proceeds of approximately $375 million.