FFH Warns of Big 20Q1 Loss

Fairfax Financial Holdings Limited has announced:

preliminary unaudited financial information which will be finalized for the Company’s first quarter of 2020 unaudited financial results, including information reflecting key developments as a result of the COVID-19 pandemic and its impact on global financial markets. We are currently estimating a net loss in the first quarter of 2020 of approximately $1.4 billion and an approximate 12% decrease in book value adjusted for the $10 per common share dividend paid in the first quarter of 2020.

  • “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. 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. 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 had approximately $2.5 billion in cash and marketable securities in its holding company at March 31, 2020,” said Prem Watsa, Chair and Chief Executive Officer.

  • Since mid-March 2020, Fairfax has been reinvesting its cash and short term investments into higher yielding investment grade U.S. corporate bonds with an average maturity date of 4 years and average interest rates of 4.25%, that will benefit interest income in the future. To date, taking advantage of the increase in corporate spreads, Fairfax has purchased about $2.9 billion of such bonds.
  • Share of losses of associates of approximately $250 million will reflect impairment losses related to Fairfax’s investments in Quess, Resolute and Astarta of approximately $200 million, as well as the Company’s share of losses of associates.
  • Net losses on investments of approximately $1.5 billion will reflect unrealized losses on the Company’s equity and equity-related holdings and bonds.
  • Fairfax has drawn, solely as extra security, approximately $1.8 billion from its credit facility for liquidity purposes to support its insurance and reinsurance operations if these unprecedented turbulent times continue for an extended period. Fairfax was able to borrow these funds at no net cost to the Company as we were able to reinvest the proceeds into short term investments at a favourable spread while maintaining access to the funds if needed. Including the approximately $600 million proceeds from the sale of its 40% interest in Fairfax’s 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 utilized approximately $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.
  • At March 31, 2020, the decrease in common shareholders’ equity will primarily be as a result of a net loss currently estimated at approximately $1.4 billion, principally from net losses on investments, unrealized foreign currency translation losses of approximately $200 million on foreign subsidiaries and foreign operations which will be recorded in accumulated other comprehensive income as a component of common shareholders’ equity on the consolidated balance sheet (principally as a result of the strengthening of the U.S. dollar), and the payment in the first quarter of the annual common share dividend of approximately $276 million.

This was released early on the evening of April 14, according to Globe Newswire, so the market has not reacted at time of writing.

Affected issues are: FFH.PR.C, FFH.PR.D, FFH.PR.E, FFH.PR.F, FFH.PR.G, FFH.PR.H, FFH.PR.I, FFH.PR.J, FFH.PR.K and FFH.PR.M

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