Fairfax 2-Q Earnings Drop on Investment Slide

A steep decline in realized gains has dampened earnings growth for Fairfax Financial Holdings (TSX: FFH) for the second quarter of this year. The company’s net earnings for the latest reporting period came in at US$46.0 million (US$3.13 a share) compared with the US$173.7 million (US$12.09 a share) reported for the same period in 2003.

Fairfax held true to underwriting discipline, posting an overall combined ratio of 94.9% for the latest reporting period, down from the 98.5% ratio shown a year ago. This saw an underwriting profit of US$54.9 million for the second quarter of 2004 against the US$13.8 million reported a year ago.

The company’s net written premiums for the second quarter of this year rose moderately to US$1.17 billion from US$1.14 billion disclosed the year prior. But, realized gains also undermined Fairfax’s earnings, falling in the second quarter to US$104.6 million from the US$403.7 million produced for the same period in 2003. Furthermore, the company was beleaguered by rising claims costs which tallied US$815.9 million for the second quarter of this year compared with the US$805.9 million shown a year ago.

For the first six months of 2004, Fairfax’s net earnings fell to US$85.5 million (US$5.76 a share) from US$275.2 million (US$19.06 a share) at the same point in 2003. Net written premiums for the latest six months came in at US$2.37 billion against the US$2.19 billion for the same period 12 months previous. Realized gains for the latest six month period also clocked in dramatically lower at US$165.2 million from the US$547.9 million reported over the previous comparative period. This is despite a gain of US$40.1 million from the secondary offering of Northbridge stock accounted for in the second quarter of 2004.