Fairfax Financial Holdings Ltd T.FFH

RBC

[retiredcf]

August 1, 2024

Fairfax Financial Holdings Limited Q2 Quick Take

TSX: FFH.U | USD 1,160.76 | Outperform | Price Target USD 1,275.00

Sentiment: Neutral

Q2 Results: Fairfax Financial reported 2Q/24 net earnings per share of $37.18, which compares with our $33.85 net estimate. On an operating basis, we calculate that the company earned $29.23 per share vs. our $30.06 forecast. We would consider Q2 results to be fairly in line with our estimates.

We didn't note many major surprises in the quarter and generally viewed this as a solid result. The combined ratio was in the range of recent quarters with higher-than-expected reserve releases offsetting an uptick in the expense ratio. Combined ratios by unit were mostly in the low to mid 90s. Premium growth was driven mainly by the Gulf acquisition and growth was a bit more mixed by unit compared to 2023. Interest and dividend income continues to gain traction as yield benefits flow through. A conference call will be held tomorrow morning at 8:30 a.m. ET. We expect the focus on the Q2 call to be views on P&C market commentary, rate vs. loss cost trends, the recent Sleep Country acquisition, premium growth opportunities, and the investment portfolio.

Premiums: Net written pre NWP growth in the P&C units grew +11.5% to $6.84 billion, just short of our +12.7% estimate. The acquisition of Gulf Insurance was a big contributor to top-line growth in the quarter.  Fairfax’s International Insurers and Reinsurers unit (+96.8%e quarter) drove the growth due to the acquisition and well above our +73.6% assumption. North American Insurers NWP grew +7.1% (RBC estimate: +7.7%) to $1.92 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 +1.0% (RBC estimate: +6.0%), dragged down by a premium decline at Odyssey Group and Brit (Allied World showed NPW growth).

Margins: The Q2 P&C combined ratio amounted to 93.9%, which was flat vs. last year and one point better than our 94.9% forecast. Total cat losses were $164.2 million (2.7 combined ratio points) vs. our $192.4 million (3.1 point) assumption. Favorable reserve development was 2.2 points vs. our 1.2 point forecast. On an ex-cat accident year basis, the combined ratio came in at 93.4% vs. 92.7% in Q2/23 (RBC forecast was 93.0%). The expense ratio was up 110 bps y/y to 30.9%.

Investments/other: Interest and dividend income totaled $614 million, which was close to our $621 million expectation. Book value per share was up 3.6% sequentially to end Q2 at $979.63. A total of $51.1M was spent on Q2 buybacks. Holding companhy cashe ended June at $2.5B.