Fairfax reveals substantial 2016 loss due to investments prior Allied World acquisition

Canada-based Fairfax Financial Holdings has announced that it made a net loss of $512.5 million for 2016, down substantially from the $567.7 million net profit it made the year before.

The company blamed the loss on investments, particularly in the fourth quarter. In 2016 it saw net losses on investments of $1.2 billion. This compares to net losses on investments of $259.2 million in 2015.

Explaining the negative development, Prem Watsa, chairman and CEO of Fairfax said: “Net losses on investments of $1.2 billion were primarily as a result of fundamental changes in the US in the fourth quarter that may bolster economic growth and business development in the future. Consequently, we removed all our defensive equity index hedges and reduced the duration of our bond portfolios to approximately one year. Our investment actions resulted in our having cash and short term investments in excess of $10 billion at year-end.

Fairfax is in the process of  acquiring Allied World, a Switzerland-based re/insurer.

“In the fourth quarter we announced our agreement to purchase Allied World for $4.9 billion, a transformative acquisition for Fairfax. We continue to be soundly financed, with year-end cash and marketable securities in the holding company approaching $1.4 billion.”

Fairfax saw its gross premiums written grow from $8.6 billion in 2015 to $9.5 billion in 2016. However, its combined ratio for its insurance and reinsurance operations crept up from 89.9 percent in 2015 to 92.5 percent in 2016. Underwriting profit fell from $704.5 million in 2015 to $575.9 million in 2016.

Watsa was, however, satisfied with the performance: "Our insurance companies continued to have excellent underwriting performance in the fourth quarter and full year of 2016 with consolidated combined ratios of 90.1 percent and 92.5 percent respectively.

“In 2016, all of our insurance companies again had combined ratios less than 100 percent, with Zenith National at 79.7 percent, Fairfax Asia at 86.4 percent and OdysseyRe at 88.7 percent. Our operating income was strong at $1.04 billion.”

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