Fairfax Financial Holdings Ltd T.FFH

RBC

[retiredcf]

May 2, 2024

Fairfax Financial Holdings Limited Q1 First Glance - Steady results

TSX: FFH.U | USD 1,095.52 | Outperform | Price Target USD 1,200.00

Sentiment: Neutral

Q1 Results: Fairfax Financial reported 1Q/24 net earnings per share of $32.82 which compares with our $34.77 net estimate. On an operating basis, we calculate that the company earned $32.70 per share versus our $31.00 forecast. The slight upside was mainly in dividend and interest income.

Net/Net: Overall results in Q1 were fairly close to our estimates. Overall underwriting margins were in line as low cat losses were offset by a higher expense ratio. Global Insurers and Reinsurers generated a strong combined ratio (low 90s) while International Insurers & Reinsurance combined ratio weakened a bit y/y. Premium growth was up double digits due to the contribution from Gulf Insurance (premium growth trends were mixed by segment). Interest and dividend income was strong and remains a nice contribution while buybacks were large. A conference call will be held tomorrow morning at 8:30 a.m. ET. We expect the focus on the Q1 call to be views on P&C market commentary, segment results, premium growth, and investment portfolio repositioning. 

Premiums: Net premiums in the P&C units grew +11.8% to $6.25 billion, short of our +15.2% estimate. Recall this was the first quarter that Gulf Insurance was included in results, which drove premium growth higher. Fairfax’s International Insurers and Reinsurers unit (+68.4% NWP growth in the quarter) drove the growth due to the acquisition albeit below our +91.0% assumption. North American Insurers NWP grew +7.5% (RBC estimate: +11.4%) to $1.67 billion with growth in Crum & Forster and Northbridge partly offset by a decline in Zenith National (workers' comp unit). Global Insurers and Reinsurers NWP rose +4.0% (RBC estimate: +5.0%), dragged down by a premium decline at Odyssey Group (Brit and Allied World both showed NPW growth).

Margins: The Q1 P&C combined ratio amounted to 93.6% vs. 94.0% last year, in line with our 93.4% forecast. Total cat losses were $101.4 million (1.7 combined ratio points, below our 3.1 estimate). Favorable reserve development was 0.5 points vs. our 0.9- point forecast. On an ex-cat accident year basis, the combined ratio came in at 92.4% vs. 90.9% in Q1/23 (RBC forecast was 91.5%). The expense ratio was up 110 bps y/y to 31.2% due to internal investments (people and technology) and drove most of the y/y accident year combined ratio change.

Investments/other: Interest and dividend income totaled $589.5 million, slightly ahead of our $574.5 million expectation. Book value per share was up 0.6% sequentially to end Q1 at $945.44. Fairfax was active with buybacks and repurchased 240,734 shares for $260.3 million. Holding company cash ended March at $2.5 billion.