Fairfax Financial Holdings Ltd T.FFH

Alternate Symbol(s): FRFHF | T.FFH.PR.C | FXFLF | FRFZF | T.FFH.PR.D | FRFGF | T.FFH.PR.E | FXFHF | T.FFH.PR.F | FAXRF | T.FFH.PR.G | FAXXF | T.FFH.PR.H | FRFXF | T.FFH.PR.I | T.FFH.PR.J | T.FFH.PR.K | FRFFF | T.FFH.PR.M | FFHPF

Financial Services Insurance - Property & Casualty

Fairfax Financial Holdings Limited is a Canada-based holding company. The Company, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and the associated investment management. The Company’s segments include Property and Casualty Insurance and Reinsurance, Life insurance and Run-off and Non-insurance companies. The Property and Casualty Insurance and Reinsurance segment includes North American Insurers, Global Insurers and Reinsurers and International Insurers and Reinsurers. The Life Insurance and Run-off segment include Eurolife and Run-off. The Non-insurance companies segment includes restaurants and retail, Fairfax India, Thomas Cook India and others. Eurolife underwrites traditional life insurance policies (endowments, deferred annuities, whole life and term life), group benefits, including retirement benefits, and accident and health insurance policies. The North American Insurers include Northbridge, Crum & Forster and Zenith National.

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Fairfax Financial Holdings Ltd

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Post by retiredcfon Nov 07, 2022 10:00am

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Post# 35078655

RBC 2

Their upside scenario target is US$975.00. GLTA

November 4, 2022
Fairfax Financial Holdings Limited

Strong underwriting, improving investing returns drive solid 3Q results

Our view: Core underwriting margins continue to improve and investment income is steadily rising as cash is deployed. Associate and non-insurance operations are also improving contributing additional operating income. Fairfax is delivering good results in all areas of the business and is in a very strong financial position. We think this has been an overlooked story and while the business remains complex, at 85% of book value it is trading at such a significant discount to peers it deserves a fresh look. We remain at Outperform.

Key points:

Adjusting estimates: We are raising our 2022 net income estimate to $21.50 from $(23.61) which reflects the results in the quarter, higher operating income and a $42 realized gain on the sale of the Pet business. We’ve raised our 2023 estimate to $95.75 from $78.75 reflecting higher investment income and moderately better underwriting margins associated with still strong underwriting conditions. We initiate a 2024 estimate of $100.00. On an operating basis we are raising our estimate to $68.91 from $49.04 for 2022 reflecting the upside in the quarter, better underwriting margins and higher associate and investment income. Our 2023 estimate rises to $82.33 from $65.43 reflecting similar factors, and we initiate a 2024 operating EPS estimate of $86.58.

Price target: Our target remains $700 (about C$950 at a 1.35:1 exchange rate). This remains based on approximately 1.0x book value which we apply to ending 2023 book.

3Q results: Reported 3Q22 net loss per share of $3.65 vs. earnings of $16.44 last year and our $(11.79) estimate. On an operating basis, the company earned $14.92 per share (RBC forecast was $2.97). Results reflect better than forecast underwriting income as well as upsides in investment income, profit from associates and non-insurance company income.

Items of note: It was another strong quarter for premium growth with the company’s largest units. Odyssey was particularly impressive up 27%. The overall combined ratio amounted to 100.3% vs. 101.1% which beat our 101.6% forecast. Total cat losses were $803 million or 15 combined ratio points. The company closed its sale of Crum’s pet insurance business in October which will result in a $992 million after tax gain in 4Q (we’ve included this in our estimates since it is known). Buybacks in the quarter totaled about 209,000 shares (about $110 million).

Positives: 1) Excellent underlying combined ratio fo 86.2%; 2) Strong premium growth; 3) rising investment income.

Negatives: 1) Higher than expected cat losses; 2) loss on acquisition of Allied World shares; 3) adverse portfolio marks impact book value.