Fairfax Group Enjoys Mixed Fortunes For 1-Q

The future outlook for Fairfax Financial Holdings Ltd. (TSX: FFH) increased substantially with the almost 14 times increase in the company’s net earnings for the first quarter of this year to $154.6 million (equal to $10.60 a share) compared with the $11.3 million (46 a share) reported for the same period last year. The financial services holding company also revealed that several reinsurers have confirmed that they will cover much of the multi-million dollar adverse reserve development incurred at the group’s troubled TIG subsidiary.

And, while the group’s broker network consolidator operation Hub International Ltd (TSX: HBG) pulled in its share of profit and revenue growth for the first quarter of this year, the claims adjusting operation under Lindsey Morden Group Inc. (TSX: LM) continues to languish in the red as a result of declining revenues.

Investor concern had previously been raised when it seemed apparent that Fairfax’s Odyssey America Reinsurance Corp. (OARC) would have to incur the full US$300 million in adverse reserve development related to TIG. Now, a group of reinsurers led by Chubb Re has agreed to take US$200 million of the coverage. For the latest reporting period, Fairfax’s revenue rose by 16% to $2.03 billion from the $1.74 billion reported for the first quarter of 2002. The company’s net written premiums increased by 18.6% year-on-year. Overall, the company’s combined ratio dropped to 98.1% from the 100.1% reported for first quarter of 2002. The Canadian insurance operations saw even greater improvement in the combined ratio which had fallen by the end of first quarter of 2003 to 95.3% from last’s year’s 99.4%.

Lindsey Morden reported a net loss of $1.99 million for the latest reporting period, citing reduced revenue from both the U.S. and Canadian operations as being the prime cause. Although the adjuster was able to reduce its year-on-year loss significantly from the $7.94 million loss reported for the first quarter 2002, the latter figure was impacted by a one-time expense of $9.9 million due to legal settlement expenses. The company’s net loss translates to 14 a share for the first quarter of this year compared with a loss of 56 a share shown for the same period in 2002.

Hub faired significantly better on the revenue and earnings front, with the network consolidator disclosing an 80% year-on-year increase in net earnings to US$8.9 million for the first quarter of this year, equal to 28 a share. The company’s revenue also rose by 39% for the first quarter of this year to US$68.9 million compared with the US$49.5 million reported for the same period in 2002. The overall rise in revenue was partly attributed to an increase in contingency fee earnings.