Fairfax Financial Holdings has announced a net loss of $881.4 million in the second quarter of 2022 after net earnings of $1,201.4 million in the same period a year earlier.
Meanwhile, the company reports 27.5% and 40.5% year-over-year increases between Q2 2021 and Q2 2022 in gross written premiums for Odyssey Group and Brit, its main civil liability insurers/specialty.
Prem Watsa, chairman and CEO of Fairfax Financial Holdings, said in a statement that the company had continued its excellent underwriting performance in the second quarter of 2022 with a consolidated combined ratio of 94.1%, with all our top insurance companies with combined ratios below 95% in the quarter.
He added: “Net investment losses of $1,547.9 million during the quarter were primarily comprised of market value losses on common stock of $873.8 million, reflecting the 16% decline in the S&P 500 during the quarter and bond market value losses of $413.4 million due to continued rising interest rates.The gain on the sale of our pet insurance business to JAB, the gain additional consolidation of Digit Insurance and the gain on the sale of Resolute are not recognized in the second quarter as these transactions have not closed.”
It was in February that Fairfax announced that Brit had returned to underwriting profitability in 2021, producing its strongest result for five years, with a profit of $90.6 million compared to a loss of more than $217 million of dollars in 2020 as the combined ratio strengthened to 95.7%.
Meanwhile, late last year the company announced it was selling 10% of its Odyssey business to CPPIB Credit Investments and pension fund OMERS. Each was to acquire a 4.995% stake in Odyssey through a new class of securities, for a total cash purchase price of $900 million.
Announcing the latest results, Watsa said he discussed rising interest rates and the impact they had had on the value of Fairfax’s bonds.
He said: “Our low duration of 1.2 years in our $36 billion fixed income portfolio (primarily cash, short-term investments and US Treasuries and short-duration Canadian government bonds) reduce the impact that rising interest rates had on the fair value of our bonds in the second quarter of 2022 to just a 1.1% decrease in the fixed income portfolio, while allowing the company will benefit from an increase in interest income in the second quarter and in the rest of 2022 and future periods, as we deployed the portfolio in one or two Treasuries per year.”
He added: “Given the low duration of the bond portfolio, if investments are held to maturity, a significant portion of the net unrealized losses recorded in the first six months of 2022 of $965 million will be reversed in the next 12 to 18 months. Interest and dividend income increased from a run rate of approximately $530 million per year at the end of 2021 to a current normalized rate of approximately $950 million per year.”
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