Fairfax warns of $1.4bn net loss in Q1 as 'sudden shock' of COVID-19 wipes out investment gains

Canada-based property and casualty re/insurance conglomerate Fairfax Financial Holdings is expecting a net loss of approximately $1.4 billion in the first quarter of 2020 due to the COVID-19 pandemic, with nearly $1.5 billion net loss on investments reversing its  net gains on investments in 2019.

The Toronto-based company said that it is expecting an approximate 12 percent decrease in book value adjusted for the $10 per common share dividend paid in the first quarter of 2020.

The company has unveiled its preliminary unaudited financial information for the quarter, including information reflecting key developments as a result of the COVID-19 pandemic and its impact on global financial markets.

“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 Prem Watsa, Fairfax's chair and chief executive officer.

Watsa stated that despite the unprecedented turbulence its insurance companies continued to have strong underwriting performance and combined ratio. Howver, Fairfax has drawn approximately $1.8 billion from its credit facility for liquidity purposes to support its re/insurance operations, which Watsa says is "solely for extra security".

"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%.

"Net losses on investments currently estimated at approximately $1.5 billion primarily reflects unrealized losses in the fair value of our common stock and bond portfolio from the sudden shock of COVID-19 and reverses a significant amount of the $1.7 billion net gains on investments we reported in 2019."

Watsa added that the company remains 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 had approximately $2.5 billion in cash and marketable securities in its holding company at March 31, 2020.