Fairfax Financial Holdings Ltd FRFXF

Ink Research

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Morning Report: Insiders are buying even as Fairfax Financial stock is flying

April 1, 2024

Insurer Fairfax Financial Holdings (FFH) has had a tremendous run, rallying 181.9% since we last featured it here on July 29,

2021. The stock set an all-time high of $1,563.49 on March 20th, but it has since dropped 4.0%. It caught our eye that directors have continued to buy. However, the stock's outlook has dropped to mostly sunny compared to sunny when we last highlighted it here. The stock's flight coincided with record earnings for 2023. 2023 net earnings were US$173.24 per diluted share versus US$131.37 in 2022. The outcome was driven by over US$5.7 billion in operating profits from Property and Casualty Insurance and Reinsurance (US$3.8 billion in 2022) which included just over US$1.6 billion in interest and dividends versus US$0.7 billion in 2022. However, net earnings dropped to US$52.87 per diluted share in Q4 2023 from US$91.87 in Q4 2022. In Q4, Fairfax recorded net finance expense from insurance contracts and reinsurance contract assets versus income a year earlier as the company experienced a decrease in discount rates and unwinding of discounting effects along with other factors. The expense was partially offset by higher net gains on investments and other factors.

In terms of the company's bond portfolio, during 2023 Fairfax used cash and proceeds from maturing securities to buy US$11.7 billion of US treasury notes with maturities between 5 to 7 years and made US$2.3 billion in net purchases of short-dated first mortgage loans. Fairfax expects this will support interest income over approximately the next four years. As of December 31, 2023, Fairfax reported a consolidated investment portfolio of just over US$63.4 billion including just over US$44 billion in bonds, cash, or short-term investments and equivalents.