Maintain their $2000 target. GLTA
Underwriting Results In Line, Interest Income Steps Up Further Our Conclusion
Fairfax reported a generally in-line quarter on the underwriting side of its
business. The consolidated combined ratio was generally comparable with
our estimate and the year-ago period, and top-line growth was consistent
with the expectation set out for 2024 at the recent Investor Day. On the
investment side, Fairfax reported a modest mark-to-market loss, whereas we
had expected a gain, but this was overshadowed by better-than-expected
interest and dividend income (which is a more important/reliable income
stream, in our view). There is no change to our thesis and we continue to
favour FFH and rate it Outperformer for the significant re-rating potential (see
our recent thesis refresh here).
Key Points
Underwriting margins were generally in line. On an undiscounted basis,
the consolidated combined ratio came in at 93.6%, a touch higher than our
estimate of 93.0%, but slightly lower than year-ago levels of 94.0%.
Catastrophe losses contributed 1.7 combined ratio points in Q1, lower than
the 3.7 points one year ago (primarily reflecting losses associated with the
earthquake in Turkey). Favourable prior-year reserve development
amounted to 0.5 combined ratio points versus 0.6 points one year ago.
No surprises on growth, either. Excluding the consolidation of Gulf
Insurance Group, gross and net premiums written (GPW and NPW)
increased 4% and 5% Y/Y, respectively. This was generally unchanged from
the prior quarter when GPW and NPW growth was in the low to mid single
digits. This is also aligned with the level of growth the company indicated it
expects in 2024 at its recent Investor Day.
Interest and dividend income was a bit better than expected. Total
interest and dividends amounted to $590 million, 10% higher sequentially
and reflected an annualized run-rate of ~$2.4 billion (comfortably above full-
year guidance of +$2.0 billion). This was also 4% higher than our estimate of
$567 million.
Mark-to-market losses were reported, whereas we had expected a gain.
Fairfax reported net losses on the investment portfolio of $59 million,
whereas we had expected a gain of ~$300 million. Net gains on equity
exposures (excluding the total return swaps) were slightly negative in Q1,
whereas we had expected a gain considering the momentum of the broader
equity markets in the period.
BVPS growth and valuation. Book value per share increased 2.3%
sequentially, excluding the impact of the dividend paid in the period. Fairfax
now trades at 1.18x P/B, which remains towards the low end of the peer
group range. The stock also trades at 7.6x P/E based on the rolling NTM
consensus EPS estimate, whereas peers trade at 14.6x.