October 12, 2022
Fairfax Financial Holdings Limited
Updating estimates for Hurricane Ian losses and model revision
Our view: We are updating our earnings estimates for Fairfax Financial to account for catastrophe losses from Hurricane Ian. Additionally, we have revised our model to follow the reporting format the company adopted in 2Q.
Key points:
Q3/22 Estimate Revision: We are lowering our Q3/22 EPS estimate to a loss of $(11.79) from earnings of $15.21 prior. The primary revisions in 2022 were the Q3/22 catastrophe loss changes (we now assume roughly $500 million of catastrophe losses in the quarter versus $300 million previously), as well as a $500 million unrealized loss assumption accounting for mark- to-market losses based on Q3/22 financial market performance.
2022 & 2023 Estimates: Our 2022 EPS estimate falls to a loss of $(23.61) from prior earnings assumptions of $4.25, with the change primarily related to our Q3/22 revisions. In 2023, we expect earnings of $78.75 vs our prior $79.25 assumption. On an operating basis we model $49.04 of earnings in 2022 ($61.05 prior) and $65.43 in 2023 (vs $67.59 prior).
Price Target: We are lowering our price target to $700 from $725 previously. On the current 1.38 USD/CAD exchange rate, this is roughly C $965 from C$925 previously. Our price target remains based on roughly 1.0x our YE2023 BVPS estimate.
Model Revision: As part of this update, we reconfigured our financial model to match Fairfax's recent reporting format. The company has grouped its previously separately reported Northbridge, Crum & Forster and Zenith units into its "North American Insurers" unit. Allied World, Odyssey Group and Brit are now "Global Insurers and Reinsurers". Fairfax Asia, Group Re and other international insurers now fall into the "International Insurers and Reinsurers" grouping. We made only modest changes in adapting our prior estimates to the revised format.