Fairfax Financial Holdings Limited has released preliminary financial information ahead of its results for the first quarter of 2020, which shows that the company expects to incur a net loss of $1.4 billion, largely due to the impact of the COVID-19 pandemic on investment markets.
Chair and Chief Executive Officer Prem Watsa explained that Fairfax’s underwriting performance remained strong, but said that the “sudden shock” of COVID-19 had resulted in $1.5 billion of net losses on investments.
This contrasts with the net investment gains of $1.7 billion that the company recorded over 2019.
But the consolidated combined ratio of Fairfax’s insurance and reinsurance operations remained below 100% in Q1, with solid operating income anticipated due to continued strong reserving.
“These are unprecedented turbulent times and we wanted to provide our shareholders with preliminary indications of some key developments for Fairfax’s first quarter of 2020 financial results,” said Watsa.
“Our insurance companies continued to have strong underwriting performance in the first quarter of 2020 with a consolidated combined ratio below 100%, favourable reserve development and strong growth in gross premiums written of approximately 12%,” he continued.
“We remain focused on continuing to be soundly financed and have drawn on our credit facility solely to ensure that we maintain high levels of liquid assets during these uncertain times.”
Fairfax has drawn approximately $1.8 billion from its credit facility for liquidity purposes to support its insurance and reinsurance operations if the COVID-19 crisis continues for an extended period.
Including the $600 million proceeds from the sale of its 40% interest in UK run-off group, RiverStone UK, which closed on March 31, 2020, Fairfax had approximately $2.5 billion cash and marketable securities in its holding company at March 31, 2020.
During the first quarter of 2020, Fairfax utilised $400 million and $300 million of its cash and marketable securities to provide capital support to its insurance and reinsurance operations and to pay common and preferred share dividends, respectively.
And since mid-March 2020, Fairfax has been reinvesting its cash and short term investments into higher yielding investment grade US corporate bonds with an average maturity date of 4 years and average interest rates of 4.25%, that it expects to benefit interest income in the future.
