Fairfax 2017 results jump on $1.9bn equity sale despite operating loss

Canada-based Fairfax Financial Holdings reported net earnings of $1.74 billion for 2017 compared to a net loss of $512.5 million in the fiscal year 2016.

The results improvement was driven by net after-tax gains in excess of $1.9 billion related to the reduction of its shareholding in ICICI Lombard and the sale of its 97.7 percent equity interest in First Capital.

“Our results in 2017 were the best in our thirty-two-year history, in spite of some of the largest catastrophe losses in history as a result of hurricanes Harvey, Irma and Maria and the California wildfires,” said Fairfax CEO Prem Watsa.

“We also ended the year with a record $2.4 billion in cash and marketable securities at the holding company level. The reduction of our shareholding in ICICI Lombard to about 10 percent resulted in a net after-tax gain of $930 million; and we entered into a strategic alliance with Mitsui Sumitomo Insurance Company resulting in the sale of First Capital for cash proceeds of $1.7 billion and a net after-tax gain of approximately $1.0 billion.”

On an operating level, the nat cat events left their mark in the 2017 results. The combined ratio of the insurance and reinsurance operations was 106.6 percent on a consolidated basis, including 11.2 consolidated combined ratio points of losses from hurricanes Harvey, Irma and Maria, and the California fires. For 2016 the combined ratio was of 92.5 percent. As a result, the operations produced an underwriting loss of $641.5 million compared to an underwriting profit of $575.9 million in 2016.

The insurance and reinsurance operations produced an operating loss (excluding investment results) of $215.7 million, compared to an operating income of $1.04 billion in 2016, reflecting $906.1 million of hurricane losses from hurricanes Harvey, Irma and Maria.

Overall, Fairfax grew gross premium written to €12.21 billion in 2017 from $9.53 billion in 2016.