Fairfax Financial Holdings Ltd T.FFH

RBC

[retiredcf]

February 16, 2024

Fairfax Financial Holdings Limited 
Q4 First Glance - Results top expectations

TSX: FFH.U | USD 912.94 | Outperform | Price Target USD 1,085.00

Sentiment: Neutral

Q4 Results: Fairfax Financial reported 4Q/23 net earnings per share of $52.87, which exceeded our $30.70 net estimate. On an  operating basis, we calculate that the company earned $31.15 per share vs. our $27.70 forecast. The combined ration was the main source of the upside. 

Net/Net: Overall results exceeded our estimates with a good underwriting result. Solid reserve releases and accident year margins were both positives in our view. Growth was impacted by a few large nonrenewals while associate income was below the recent run rate. The company raised their run-rate target of interest and dividend income to $2.0 billion (up from $1.5 billion) and the company expects to achieve this level over each of the next four years. A conference call will be held tomorrow morning at 8:30 a.m. ET. We expect the focus on the Q4 call to be views on P&C market commentary, segment results, premium growth, and investment portfolio repositioning.

Premiums: Net written premiums in the P&C units declined 5.5% to $5.18billion falling short of our +7.0% estimate. This was driven by several non-renewals at Odyssey Group and Brit (all other units reported y/y NWP growth). Fairfax's International Insurers and Reinsurers unit (+24.7% NWP growth in the quarter) led the way and surpassed our +8.5% assumption. North American Insurers NWP grew +8.3% (RBC estimate: +7.6%), with growth of 5% or better across all units (Northbridge, Crum & Forster, and Zenith National). Global Insurers and Reinsurers NWP fell -16.3% (RBC estimate: +6.6%), dragged down by premium declines at Odyssey Group and Brit (Allied World showed almost +3% NWP growth).

Margins: The Q4 P&C combined ratio amounted to 89.9% vs. 91.0% last year, comparing favorably to our 94.4% forecast. Total cat losses w below our 4.1 estimate. Favorable reserve development was $151.7 million (2.7 points) well ahead of our 0.9-point forecast. On an ex-cat accident year basis, the combined ratio came in at 89.4%, which was similar to 89.3% in Q/23 and vs 89.5% in Q/22 (RBC forecase was 91.2%).

Investments/other: Interest and dividend income totaled $536.6 million, slightly ahead of our $533.9 million expectation. Associate income totaled $127.7 million, below our $225 million assumption. Book value per share was 7.2% sequentially to end Q4 at $939.65.  Cash and investments at the holding company totalled nearly $1.8 billion as of YE'23.