Q1 2020 Earnings Call
Good morning, and welcome to Fairfax is 2021st quarter results Conference call. Your lines have been please listen only mode.
During the presentation, we'll we'll conduct a question and answer its fashion.
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We ask that you limit your questions to one today's conference is being recorded if you have any objections you may disconnect. At this time your host for today's call is proud to watch so without any remarks from Mr. Derek Nicholas Mr. B. Riley. Please begin.
Good morning, welcome to our call to discuss Fairfax is 2021st quarter results. This call may include forward looking statements actual results may differ perhaps materially from those contained in such forward looking statements. As a result of a variety of uncertainties and risks factors. The most foreseeable of which are set out under risk factors in our.
[laughter] shelf prospectus.
Has been filed with Canadian Securities regulators and is available on sheet.
In which now include the risk adverse consequences to Fairfax is business investments and personnel, resulting from related to the covert 19 pandemic Fairfax disclaims any intention or obligation to update or revise any forward looking statements, except as required by applicable securities laws I'll now turn the call over to work.
Chair and CEO from Watson.
Hey, Thank you direct and good morning, ladies and gentlemen.
Welcome to Paxars first quarter 2020 conference call.
As always I plan to give you some of the highlights and then pass the call. It the Gen Allen, our Chief Financial Officer up additional financial and accounting details.
Before I do and these unprecedented times I wanted to begin by thanking the people on the front lines doctors nurses in the hospitals, our grocery stores, so well leased one our utilities and many many many other essential services in our lives and you take for granted and.
Who have put themselves.
In Harm's way.
I was also wanted to thank our employees.
Although the well.
You are almost 100% working from home.
Not missing a beat in in a business, providing outstanding service to our customers I am very very grateful to all of them.
Coming now too obvious answer the first quarter.
Perhaps max's net loss in the first quarter was 1.26 billion compared to net earnings of 769 million into first quarter 2019.
Primarily reflecting net unrealized losses on investments a little better than our estimated net loss announced on April 14.
That's a great saw net loss of $47.38 was net earnings which have 26, 98 and 29 G.
Faxes book value per share decreased by 11.1%.
Adjusted for the $10 per share common dividend paid in the first quarter Twentytwenty.
It's a book value dropped to $422 Michelle.
Our insurance and reinsurance companies continue to have very good results with a strong combined ratio of 96.8% across the consolidated grew stronger themselves and producing an underwriting profit of 103 million the first quarter.
All of a major insurance companies generated a combined ratios of less than 100% seen it at 88% Allied world at about 94% North Bridge at 96.5, right 99.2, Odyssey 98.5, and probably botched at 97.4.
A combined ratio includes about 84 million or 2.6.
Combined ratio points of coal, but 19 losses. The majority of our losses are made and I'd be NR as our companies have not seen a significant amount of reported claims to date.
Each of our companies continue to monetize the situation closely.
There is a lot of uncertainty around the affects of covert 19.
And the effect that it could happen I losses, driven by the fact that the locked down continues to exist and no. One is completely sure. How long. This would last only time will tell but we are comfortable that $17 billion up well diversified book of business stronger so big and.
Strong pricing environment, we will manage well to this unprecedented event.
But the quarter operating income was strong at 226 million and we continue to grow by increasing underwriting profits and increasing our interest and dividend income.
Net losses and investments were 1.5 billion.
I'm not really resulting from the six nice tuck in fall in equity buckets at March 2020.
Due to the global economic disruption caused by the Cobot 19 endemic.
And that robust as a significant amount of the 1.7 billion net gains on investments to be reported in 2019.
Net losses on equities of 1.2 billion imploded unrealized losses on C. I'd be Kennedy Wilson, Atlas and Blackberry not lot losses on our though of 262 million included.
Unrealized foreign currency losses.
As we have mentioned many many times in our radio meetings and not right you ever bought some quarterly calls, but I acquiring accounting REIT stocks and bonds over call it mid market and subject to mark to market gains or losses quarterly and annual income will fluctuate and investment resolves will only make sense over the long.
Uh huh.
And the first quarter Twentytwenty, we had a negative 3.6% return on investment portfolio.
I could take a minute to look at page 188 of our annual report that speech 188 of our annual report last call them, which shows the annual total written on a investment portfolios for the last 34 years.
<unk> for you guys would be had a negative brookdale.
In each case, we rebounded significantly in the next year.
So from that table you can see in 1990, we had a negative 4.4% rich on 1991.
Last 14.6%.
1999.
Negative 2.7% in 2000 last 12.2%.
In 2013 negative, 4.3% 2014, 8.6% less 8.6%.
In 2016 negative 2.2% in 2017 last 6.8%.
Each time people worried about I investments.
Each time, they have a proven wrong.
In April 2020, we have already begun to recoup the unrealized losses up last quarter.
Oh underwriting income continues to increase with a lower consolidated combined ratio and strong organic growth continuing at our companies.
Sure Incent reinsurance business net written premium increased year over year by approximately 10%, 12% gross 10% net primarily due to growth in North Bridge Odyssey coming fraudster Allied world.
Seen it is our only company not seeing premium increases as workers compensation rates in the United States continue to decrease.
At the subsidiary level grade quickly that change and net premiums written for the first quarter was follows Odyssey, We honestly group plus 8% common foster plus 21% North bridge, let's 20% seen that down 70% Brett.
3% and Allied World last 10 cents.
We expect this trend to continue once we get past school, but my team and the economy open shop.
Now we continue to look to put more apart cash to walk you know insurance operation portfolios without reaching for yield or taking duration risk.
The significant opening up an investment grade spreads.
Allowed us to sell some of <unk> treasuries and short dated bonds and by 2.9 billion and high quality U.S. corporate bonds with an average yield of 4.25% and an average to them for years.
We now have an annual run rate of approximately 900 million and the interest and dividend income and continue to focus on redeploying cash and the increasing and investment income from that base level.
On March 30, plus 2020, we contributed a wholly own European run off real good robust on buffet dose amid a newly created ads b jointly owned with.
We received cash proceeds of 600 billion and 60% equity interest in reversal in Barbados, but that's fair value of six something.
And so we look caught it a pre tax gain of 117 million and de consolidated b assets and liabilities of European Renault that's what classified as held for sale at December 31st about 19.
No at March 30, plus 2020 as discussed in our E. G. M. We had drawn solely for safety reasons, approximately 1.28 billion from out for you a credit facility to protect our company.
To protect our company and age so if if these unprecedented turbulent times continued for an extended period.
During the first quarter of 2020, the company provided 420 million cash and marketable securities in capital support primarily to a insurance and reinsurance operations.
Subsequent to March 30, plus 2020 or not April 29 to 2020, so about a month later, we completed a bond offering up 630 million.
Principal amounts of 4.6% to 5.58% unsecured notes.
Due April 29, 2030, which has like a 10 year notes. This additional liquidity in this company, we now have repaid $500 million on our credit facility.
We continue to have approximately <unk> billion predominantly in cash and short term securities and the holding company. That's cash is invested in commercial paper one to three months.
We're not making any long term investments, but this cash some up mistakenly suggested we have.
We have drawn on this line only puts safety and expect to pay it back as the world gets back to normal busy.
All a large investments like that bags, India that bags Africa recipe and Thomas Cook, our all well financed and do not any do not need any cash from Fairfax. They either have significant cash themselves all have large lines to comfortably take them through this period of uncertainty.
Our cash at the holding company, it's a meat.
Any and every contingency that Fairfax might face in this I'm uncertain time period.
You will remember we continue to hold CPR link deflation well contracts, but the notional amount of 87 billion average remaining to maturity of 2.9 years. We carry these contracts I don't be 55 million and they do provide us with downside protection and the advent of a catastrophe.
No go all the batch.
As of March 30, Onest 2020, we have over 9 billion and subsidiary cash and short term investments in the insurance portfolio, which is about 25% about portfolio investments are took that take advantage of opportunities that come our way. So we have done not reach for yields overall.
These yards and so we've got significant amounts of liquidity and Rob and insurance company portfolios in our subsidiaries.
With a run rate up over 17 billion in gross premium a huge focus on underwriting discipline a portfolio of approximately 37 billion not including the Riverstone UK portfolio, which we will continue to manage.
And our investment team operating enough stock because market all grounded on affair and friendly culture, that'd be a boat or what 34 yards, we expect to generate.
A 15% return for shareholders over what time.
The best is yet to call I.
I'll now pass that it's called the Gen Allen, our Chief Financial Officer Jan.
Thank you Prem before I discuss the first quarter 2020 result, I would like to begin by providing can contacts on the quarter from that perspective of the procedures performed to ensure we had addressed the global uncertainty created Nichols at night pandemic.
On March 11, the World Health organization declared cobot, 19, a pandemic and globally governments and because it began to react on March 24, the government of Ontario mandated the closure of all non essential business in the province affected I.
Good luck with head office team had already started to work from home and we Bill welcome character continue to operate effectively.
Given the increase in global Lockdown, you'd love to supplement our quarterly processes and procedures to address the uncertainty created by the current environment.
Our standard quarterly processes, where expanded to ensure we had a good understanding around the no impact if any honor subsidiaries operation and our investment portfolio.
As well as ensuring all of our subsidiaries were able to meet the reporting timeline can deliver bulk apparent that.
Questionnaires supplemental data submission and various discussions that management of our operating company, we were well prepared for the quarter.
Even mirror early and then she did a loud Fairfax on April 14 to issue a press release on our preliminary unaudited financial information.
And address questions on the company's first quarter results, our AG I'm on April 16th.
Along with their pockets head office, all of our insurance and reinsurance companies and some of our non insurance operations have been able to continue to operate at 100% I.
And we have benefited can like decentralized structure during these challenging times.
Oh that 19 significantly impacted the global financial markets and macula that can be seen in Fairfax its financial first quarter results.
Now looking specifically at the first quarter result.
In first quarter 2020, Fairfax reported a net loss of 1.26 billion or net loss of $47.38 per share on a fully diluted basis.
That compared to the first quarter 2019, when we reported net earnings at 769 million were $26, a 98 cents per share on a fully diluted basis.
But the decrease primarily related to net unrealized losses on investments.
Resulting from the significant decline in equity markets in March 2020, reflecting the global economic disruption caused by the cold that 19 pandemic.
Despite the decline in the global financial markets, We reported an increase of 15 million, an underwriting profit and insurance and reinsurance operations.
<unk> 3 million or 96.8 combined ratio point.
On the underwriting profit of 8 million or 97% combined ratio in the first quarter 2019.
The improved underwriting results reflected growth in net premiums earned of 11.5% and higher net favorable prior year reserve development, which increased to 96 million like three combined ratio points in the first quarter 2020.
[noise] from 50 million or 1.7 combined ratio point in the first quarter 2019.
The combined 96.8 in the first quarter 2020 included called at night team losses of 84 million or 2.6 combined ratio points and higher Attritional current period, it's possible losses of 106 million or 3.2 combined ratio point.
Compared to 48 million or 1.6 combined ratio point current period catalog.
In the first quarter 2019.
Looking to our operating company results and starting with North bridge, North breaches underwriting profit at 12 million and they combined ratio of 96.5 in the first quarter of 2020.
Improved relative to with underwriting profit of 1 million and that combined ratio of 99.8 in the same period 2019.
[noise] increase an underwriting profit principally reflected lower non catastrophe loss experience related to current accident year across most lines of business.
Partially offset by net adverse prior year reserve development, a 3 million or one combined ratio point.
Lucky North bridge is share of emergence from Canadian automobile insurance industry. Its market The association in the first quarter 2020.
And that compared to net favorable prior year Reserve development, a 23 million <unk> 8.3, combined ratio points and the first quarter 2019.
Canadian dollar terms net premiums written by North bridge increased by 21% in the first quarter 2020.
Reflecting price increases across the group strong retention of renewal business growth in new business.
Odyssey group in the first quarter 2020 Odyssey group reported an underwriting profit a 13 million and that combined ratio of 98.5.
I compared to an underwriting profit at 41 million and they combine ratio of 94.3 in the same period last year.
The decrease in underwriting profit principally reflected cool that 19 losses, the 50 million or 6.1 combined ratio points in the first quarter 2020, and an increase in Attritional current period, possibly losses.
Partially offset by decrease commission expense ratio and increased favorable prior year Reserve development.
Attritional current period, possibly losses in the first quarter 2020, totaling 52 million that translated into 6.4 combined ratio points were higher than Attritional catastrophe losses of 36 million or five combined ratio point in the first quarter at 2019.
Net favorable prior year reserve development, or 42 million or five points you combine ratio point in the first quarter 2020, principally related to better than expected emerging into less insurance and reinsurance watch property catastrophe loss reserves.
I compared to net favorable prior year reserve development, a 36 million or five combined ratio points in the first quarter, 2019, which primarily reflected better than expected emergence late casualty and property catastrophe loss experience.
Odyssey group net premiums written increased by 8.2% 864 million in the first quarter 2020.
799 million in the first quarter 2019.
Increase principally reflecting growth in North America, Europe, Asia, and a London market, partially offset by a decrease in the U.S. insurance segment, primarily related to timing a premium recognition and there you let crop insurance business.
Moving onto Crumbing Forrester.
Hi, I'm enforcers underwriting profit increased to 16 million with a combined ratio of 97.4 in the first quarter 2020 from an underwriting profit up 11 million had a combined ratio of 97.8 in the first quarter 2019.
The increase in underwriting profit in the first quarter 2020, principally reflected increase business volumes.
Partially offset by increased commission expense, reflecting growth in the accident health.
So the business, yet student book and property catastrophe program, which attract higher commissions.
Peary catastrophe losses were marginally higher at 12 million in the first quarter 2020, and added 1.9 points to chronic forresters combined ratio that compared to the first quarter 2019 current period catastrophe losses were 5 million an added just under one combined ratio point.
From an forresters net premium written increased by 21% year over year, principally reflecting strong price increases across the group.
Growth in accident health surety credit program in surplus specialty lines of business.
We live National reported an underwriting profit of 20 million and that combined ratio of 87.9 in the first quarter 2020.
That compared to an underwriting profit at 39 million and that combined ratio of 78.3 in the first quarter keep thousand nights me.
The year over year decline in underwriting profit, mainly reflected price decreases and lower net favorable prior year Reserve development.
28 million were 16.8 combined ratio points in the first quarter 2020, compared to 37 million or 20.5 combined ratio points in the same period 2000 nights.
Net premiums written by being in a 254 million in the first quarter 2020.
Decreased by 7% year over year compared to net premiums written up 273 million in the first quarter 2019.
Principally reflecting price increases due to continuing favorable loss trends.
Brett.
Reported an underwriting profit of 3 million and a combined ratio of 99.2 in the first quarter 2020.
And that compared to an underwriting profit a 12 million and a combined ratio of 97% in the first quarter 2019.
A modest increase an underwriting profit in the first quarter 2020, principally reflected cold that 19 losses of 25 million worth 6.2, combined ratio points and an increase in Attritional current period catastrophe losses.
That was partially offset by net favorable prior year reserve development and a decrease in attritional loss ratio.
Attritional current period catastrophe losses in the first quarter 2020, totaling 12 million translating into a three combined ratio points.
Were higher than Attritional teacher catastrophe losses of 1 million that translated into 0.3 of the combined ratio point in the first quarter 2019.
Net favorable prior year reserve development of 14 million or 3.6 combined ratio points in the first quarter 2020, primarily reflected better than emergence claims experience in property liability.
Reliability at a number of classes written by Brits U.S. operations.
Net premiums written a 448 million in the first quarter 2020 increased by 3% year over year from 434 million in the first quarter 2019, reflecting the positive impact of underwriting initiatives in prior years.
Growth in the core business book of business and price increases.
Moving on to Allied World Allied World reported an underwriting profit 34 million and it combined ratio of 94.3 in the first quarter 2020 that compared to an underwriting loss of 13 million and a combined ratio one or 2.3 in the first quarter 2019.
The improvement in underwriting profitability in the first quarter 2020, Chris will be reflected no. That's not prior year reserve development that compared to net adverse prior year Reserve development, a 55 million or 9.7 combined ratio points in the first quarter 2020, partially offset.
Like current.
Period catastrophe losses in the first quarter of 2020.
Catastrophe losses in the first quarter of 2020 totaled 26 million and translated into 4.4 combined ratio points, primarily related to the Nashville tornadoes and Australia wildfires.
Net premiums written about 801 million in the first quarter 2020 increased by 10% year over year, reflecting the impact of improved pricing and growth across both the insurance, primarily north American global market block, one leading to excess casualty professional lines in general.
<unk>.
And the reinsurance segment, primarily related to casualty and professional liability treaty.
Looking at Fairfax Asia, <unk> Asian reported an underwriting loss of humiliate and a combined ratio of one or 2.7 in the first quarter 2020.
And compare that to the first quarter 2019 underwriting profit of 1 million and a combined ratio of 98.8.
Net premiums written by scare Fox Asia increased by 15% in the first quarter of 2020.
Selecting growth itself in on its 25% quota share reinsurance participation. What's your thoughts on first capitals net underwriting results.
Insurance and reinsurance other segment produced an underwriting profit at 7 million and that combined ratio of 97.4 in the first quarter 2020.
That compared to an underwriting loss of 3 million.
And that combined ratio of one or 1.3 in the same period 2019.
The improvement in underwriting profitability couldn't believe reflected higher net favorable prior year reserve development of 9 million or 3.2 combined ratio point in the first quarter of 2020 <unk>.
And compare that to 3 million or 1.1 combined ratio points in the first quarter 2019, and a lower underwriting expense ratio.
Excluding the impact of the 2019 acquisitions up ARX insurance and you know the Selna net premiums increased by 5% year over year.
And finally looking to run off.
As a friend noted on March 31st 2020, the company contributed it wholly owned European runoff group to a newly created joint venture entity Riverstone, Barbados limited for cash proceeds of 600 million and 60% equity interest and they've ever stone, Barbados, but the fair value at 605 million.
Well, most importantly manages riverstone, Barbados and high contemporaneously subscribed for a 40% equity interests for cash consideration of 600 million.
Based on the fair value of European run off at December 31, 2019.
At March 31, 2020, the closing date of the transaction Fairfax Deconsolidate, the assets and liabilities in European run off from its assets held for sale and the consolidate balance sheets and commenced the plane equity method of accounting to its joint venture interest in Riverstone Barbados.
The company recorded a pretax gain on T. consolidation of European run off of 117 million.
Excluding the first quarter 2000, 20.7 transfer and a reinsurance transaction in the first quarter 2019, other reinsurance transaction runoff reported an underwriting loss of 32 million in the first quarter 2020, which was higher when compared to the operating loss of 23 million in the same peer.
2019.
The increase in operating loss reflected decreases in net premiums earned and interest and dividend income.
That was partially offset by net favorable prior year reserve development and the first quarter 2020 compared to net adverse prior year reserve development in the first quarter 2019, and lower operating expenses.
And now looking at the consolidated results, but they're Fox, our consolidated interest and dividend modestly decreased from 236 million in the first quarter 2019.
218 million in the first quarter 2020.
[noise], reflecting lower dividend income earned on common stock and lower interest income earned due to sales and maturity of U.S. treasury bonds and the second half of Nike.
Partially offset by the reinvestment of the U.S. Treasury bond proceeds into higher yielding high quality U.S. corporate bonds and short term investments.
Consolidated share of loss of associates, a 205 million in the first quarter 2020.
Compared to share a profit of associates of 122 million in the first quarter 2019, with the first quarter 2020, reflecting a noncash impairment charges of 192 million primarily on the company's investments in class resolute and its start.
And that compared to a significant share of the company's gain on outlets Corp, or formerly known as Seaspan, a 227 million in the first quarter 2019.
Consolidated net losses on investments of 1.5 billion in the first quarter 2020 couldn't be reflected the company's net equity exposures that were negative in class impacted by the decline in global financial markets caught like coal that 19.
And produced net losses of 1.1 billion, primarily comprised of net losses on common stocks of 840 million.
Equity warrants in call options of 145 million a long equity total return swaps at 72 million.
Fairfax recorded an income tax recovery, a 232 million at an effective tax rate of 14.3% and the first quarter 2020 compared to an income tax provision of 183 million at an effective tax rate of 18.4 in the first quarter of 2019.
The effective tax rate difference when the 26.5 Canadian statutory rate in the first quarter of 2020, primarily reflected the impact of tax rate differential in income and losses outside of Canada.
The change in unrecorded tax benefit losses in temporary differences and that was partially offset by non taxable investment income.
Finishing off with our financial position, our total debt to total cap ratio, excluding the consolidated non insurance companies increased to 32.5 at March 31st.
24.5 at December 31st primarily reflecting the short term borrowings on the company's credit facility of 1.8 billion and decrease common shareholders' equity due to the net loss reported in the quarter.
We ended the first quarter 2020, with an investment portfolio that includes holding company cash and investments of just under 40 billion, which increased from 39 billion at December 30, Onest 2019.
He had drawn 1.8 billion on the company's credit facility solely as precaution and support the insurance and reinsurance company should it be needed as a result of the effects of the cobot 19 pandemic and to allow them to can sneak girl in the strong market.
Also our non insurance companies have an increased focus on liquidity. During these uncertain time and it either drawn or have access to credit facilities, which are non recourse to the holding company.
On April 29, 2020, we completed the offering of 650 million principal amount of 4.25 unsecured notes that are due on April 29, 2030, Oh for net proceeds Dockets Commission expenses of 645 million.
Also on April 29, 2020, the company be paid 500 million at the amount drawn on its credit facility.
And that concludes my remarks, and paramo popped back over to you.
Thank you very much Jane.
I look forward to answering your questions. Please give us your name your company name and try to limit your questions. There would be one so that it's fair to all of the cold. Okay units, we are ready for questions.
Thank you.
I'll begin to question.
Yeah.
Next question. Please press star one.
Please.
<unk>.
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<unk>.
Our first question came from the lineup, Jeff and of course.
I understand.
Hi, there good morning from.
Good morning.
So my first question had to do with Ah the balance sheet, taking into account the debt issue that you. Just completed you still have I would guess it at 1.2 billion drawn on the the credit facility.
And I noticed in your disclosures there that on the the covenant related to the maximum debt to capital that you were getting pretty close to that maximum level or is there something there that we should be thinking about that you need to due to a another step here Tim to a shift around that liquidity or do you need to make some amendments to the to the covenant.
So not facility.
Yeah, So Jeff just the way to look at it is Ah we had a 2.5 billion at the end of March.
We drew 1.8 billion.
So there was 700 million if we paid the <unk> paid all of that Leinbach, we'd have had 700 billion.
Since that time, we've issued six I'm $50 million a better so we've gone over a billion dollars, if you'd like to keep and a holding company in cash and so if you take that Lyme disease.
After the debt issue, we'd be through a 1.3 billion something like that.
And.
So the credit line when we drew it up because the been markets were all closed and.
I've said for safety be wanted to draw that.
We paid 36 basis points as I've said to be a gym and that's it for unexpected events like what we went through in March and as I've said in my prepared remarks over time, we want to as well as.
The economies of the world that being said.
You know the United States since restarting up really restarts in a few weeks perhaps.
I think next week, India restarts and.
Economies of the world restart and you get back to normal we would expect to be on lights down significantly. So as you said, it's 1.21 point.
3 billion right now but overtime.
Take a don't do.
Since April as it was prior to.
Prior to cope with 19.
And your lenders are comfortable with what your position having draw that and versus where your balance sheet is today.
Yeah very month, because all we have to do is just drill them. Both in line I mean, we don't need to an a billion dollars in cash at the holding company. So [noise]. So all we have to do is take the caution, though a pay off the <unk>.
It's really met catch rate, Jeff because we borrowed the money and we've got it in cash and when I say cash it's up a commercial paper like one month to month three months or so it's very short on liability is short lines out like a LIBOR plus and the.
And the investments is liable plus a dog so we could turn around and pay off those sites anytime anywhere, but be keep doing <unk> billion because at least as as we get to know I'm seeing as I've said already in process of doing that.
Our lights would have come down if you look at it on a net basis, beating net debt.
Capital.
Insurance business as you know when running at 23, 24%, let's just been absolutely look at it because its cash is not going to be used for anything other than safety sitting in a holding company and a we're not going to make acquisitions were not you know without them.
Back any significant amounts of shares or do anything that so oh to the ordinary it's the safety when a storm going to the stone and we want to have a lot of cash at the holding company that's really all of those.
Okay and then one question here on the Ur Cobot 19 exposures I'm I'm just wondering if you should be thinking about or how we should be thinking of the regulatory risk here and in your.
Disclosures you do you say that some a U.S. state insurance commissioners are taking some action to protect consumers. So are there changes here that could a in the near term a mixed exposure maybe bigger than you might expect because of regulatory change.
Yeah, so and so there's a the or that cobot 19 is still there right because the economy has and Oh.
Toby opened up small business has opened up but it's very you know it's very clear.
Right and the United States, but take Libby very clear that you have to have a property laws before you have a business interruption no in the U.S. as some Gulf and those who want to Oh, you know retroactively.
Quite coverage.
For the Cobot 19, that'd be a a lot of law suits there'll be some legal expenses for our companies, but but the whole U.S. industry will defend that right to the Supreme Court.
And contracts sake within the United States as I've said that our age yet so we look at our exposures are not company and we have not much we have only Britain in London, and Asia and all of these other places where would be have insurance operations, a where we think dogs.
Bush is very limited.
And Brett we have some cancellation insurance and we have some exposure there but.
But when you look at our company.
Yeah 17 billion in gross premium 13 14 in net premium you know a briefing at 90, 697% combined to underwriting profit itself is so significant that we think not only wouldn't be come through this handling a cold, but 19 claims well, but being the we'd be one of the strong.
Companies on the other side of it.
Okay. Thanks for that color I'll requeue.
Thank you. Thank you Jeff next question Dennis.
Next question is from their line of Junior <unk> private Investor. Your line is now open.
Good morning from I was going.
Okay very good junior how you doing.
Pretty good. Thanks, So I've two questions. One question is about the short exposure on the balance sheet.
What does that composed of and then the second question would be.
The stock price right now is under book, probably what do you guys plan on doing to bring that back up it seems like there's an infant.
Investor confidence issue.
Bill.
So you know we've gone through periods of the past junior where we sold below book value I said that you know Soc plays a very very cheap and Ah Ah. So you know it won't be that long how do you go answer to your second question that this performance theyre going to perform.
We had a fluctuation in the first quarter, though you had corona virus you had the price of already come down.
Shutdown unexpected shutdown and the world's economy.
Great uncertainty.
So be it creates chronic and a stock prices have come down dramatically not only of facts, but.
Stock prices in the Canada stuck places in the United States I've gone through individual stock price.
Are you surprised you're taking advantage of some of that.
All of the world by the way the suck was a good and up because these economies of shutdown and so you don't leave that Weve seen a interest and dividend income is running at 900 million I told you, we're taking it a higher than that as time goes by <unk>.
Got lots of cash and marketable securities on a on a insurance company portfolios and and I've been mentioned if history is indeed guide whenever we've had a decline in investment portfolios into the first quarters, 3.6%.
The next year.
Weve been up.
Significant be about and so so these are fluctuations we faced with 35 years and we expect to.
Do well out over time in terms of the trial the short position. It just so you know small remnants that Oh, we have decided not to short and this was the last remnant thatll be gone too.
Okay. Thanks. Thank you. Thank you junior and Ah Ah next question units.
Next question is from the line of Tom It came in.
Emo capital your line is now open.
Yeah. Thanks, good morning Crown.
Thank Tom.
Yeah.
4 million in.
Order.
Mike.
But more color as well what four with excellent.
Playing well good idea.
Related to you know that much in some cancellations stuff or I think at Britt.
Other than some of the other divisions as well.
Related to.
The jurisdictions that moves.
So is that sort of us so Tom I'm a good question, it's up it's basically I'd be an outcome.
And it's too early to get the claims what I've been out we lived through a book go a lot companies go through the a book of insurance or reinsurance and and you know we put some and a brick by brick put a decided to put some and Odyssey decided to put some and and basically I'd be dog.
But when we look at cancellation to ensure launch is one where we had a school, but 19 at EWC Enslaves cancellation insurance credit insurance travel insurance, we look through our exposures <unk>, we do have some cancellation insurance, mainly through but but at the total perspective of <unk> businesses.
It's small and and and when do you look at a you know yara, where they don't have these oh they have.
Don't have specific language against a virus and pandemics.
Small exposure there we'd be very small on that and.
And you you you know you're going to get some claims through because of the market volatility. So did though you'll get some directors and officers losses.
And it'll depend on the how long beach. So these markets say down to know they rebounded and what the effects of so that'd be some there'll be some losses on the there'll be some litigation expenses, but in the main I mean, we've had a quarterly the first quarter, we've done up 12% and B H.
Yeah. My said you know whether it'd be look at no crystal ball, we're just looking at what the possibilities that second and third quarter will.
Like you'd be down and the fourth quarter when like to be up but we look at it then and it's different for each of our companies with overall over the year. We think you know with.
Our best guess right now is flat, even though we were up 12% and a and b and not unlike the we'd be up 10%, perhaps and because rates are still strong and after the school, but 19 now on the other side of it rates will go up again, because lots of companies.
So oh losses and.
Oh, you know we had a 11% drop in book value you look at any company in the United States that has equity exposures and you'll see decreases up 16% because we did we went and looked at 16% down to 7%.
So when the range in terms of Oh, Rob dropping up a cloud you could shed and as I said, Tom in the past and the fast there's no guarantee of course as you know, but a in the Fas Oh, sorry positions of all come back up pretty and somebody in and out and then and the yet to follow.
So so we think a these cobot 19 losses.
For rest wouldn't be a quite limited the risk on them on the property site in the United States business interruption.
You know through the governors that I talked about earlier.
With that risk. So we think it's minimal but there was sent through is that the governor's we'll take it then tried to the change it. It's it's minimized by the fact that the U.S. government.
As act the federal reserves have come and that's what so much on money into the U.S. economy, you know more than 30% a GDP it than the more recently that Fred game and said they were going to back two trillion dollars. So in terms of all sorts of bonds. The they'll go by including some jump on and that the.
But the small business is getting money and so it's not like they need the monies from business interruption, they've got other sources and does so assuming that we just have to wait and see.
If if the U.S. government did not respond.
Then perhaps that would be at led most at risk, but but we feel comfortable at the moment.
Tom watching it very carefully and the industry feels very comfortable that part of the a U.S. industry of college.
Industry Association feels very comfortable.
And just as a follow up you know cold.
In fact, I'm sure but.
When you look at your volumes are unfolding like left something on <unk> like recipe or Thomas Cook.
They have felt a little bit of that.
Certainly.
You know the pain of covered my team and <unk>.
The second older than.
Third as well you have any comment back to what you're seeing there.
Yeah, they will be them. That's very good question. So that's why I addressed it because some of you are concerned that we need money useful or you know Thomas go Oh that lives and India Africa.
You know a or <unk> recipe or any other but all of them at the moment all of them you know Fairfax India's got like couple of hundred million dollars of Ah Ah cash and marketable securities.
Fairfax Africa's gun and honored and 30 million.
Oh and lines on to draw and and an hour and on and on and on Thomas Cook is basically a net cash so they're going to spray much impacted growth, perhaps impacted for the rest of the young but the fellow who runs at my other one as you know prepared for it and reacted very soon.
Never can be and so he is there's no question do you know income it'd be there on the other side and and a recipe and so.
All of the restaurants are close.
And though.
Very soon to the next few weeks a they should start opening up and up and then the question is well customers come back and so you have to remember people said the same thing and a 2000, a you know September 11th after that and lines were empty for some time.
And if we were all worried about security and stadiums God Securities and conventions olds got security and and buildings in New York Entresto ultimately got tons of security and so here, we think its testing and the big amount of testing will be which everyone's working on.
Is you know like a pregnancy test you got to test that's a immediate or that you and I can take and no no if you've got it or not and and remember for <unk> and Canada.
I was just came over 79% of that that's in Canada for corporate 19, 79%, Canada Olo Kinda. These are health Canada.
Statistics, well from a long term nursing homes.
So you know most upon us.
You know none of them you're going to sell my.
But oh, you know wouldn't be able to handle that so so you've got testing that's improving you're seeing it all over the please give that youve seen gilliat the treatment of this disease is improving.
You know so they've got all these medicines that are coming through <unk> and and remember this is only a month no month, and and and you've got vaccines. So most people think vaccine. So yeah 18 months, so well, Oxford University and Astra Zeneca I've said, they're coming.
In September it's worked on monkeys, though.
Human trials will be all over in June July and that.
You know there.
Ramping production up immediately there's another.
I think it looks like so that came out and said that the human trials will be done in June and so the vaccines that coming in if you had a vaccine tomorrow, a good feel very comfortable right dumb and.
And the same thing with the test if you had a pregnancy type test that we could all use you feel very comfortable well the whole world is working on that I know abbott's working on a Johnson <unk> Johnson's working on it all of the companies are working on it than some of the brightest minds in the world, but but the incentives are particularly in the United States. So.
This will change and it will change significantly when it happens the only problem as you can say women lab.
And that's just something we have to live but.
Okay. Thanks for that.
Thank you. Thank you Tom next question units.
Your next question is from the line as Paul.
Your line is now open Paul.
Hi, good morning.
But I'd like.
Two questions both sort of related.
Alan.
Gosh regulatory capital so.
The first one.
Around.
I remind us what your long term.
It is for financial leverage.
And given that you just recently raised 650 billion bonds.
[laughter] target leverage ratio.
So oh, yeah. So they'll wait we look at it is a net cash I told you if it's a net debt to total capital.
And that's about we've always maintained cancer building company, we've had a billion dollars for the past 10 years, most rating agencies don't give us credit for that but that's how we look at it people look at it on a gross leases gross leases a is about 34% and we expect that.
To come down and a significant be and Oh on a net basis as I said, that's for like 24% and and so so you know.
The equity ratio, that's totally capital will come down significantly as we pay that though.
As we feel that lame duck.
And so that's that's what the Oh plan to do over.
Over the time once normalcy, but we don't need to and I've been in dollars and Aldi company, we just habit because its oh is it for safety for the uncertainty.
But what can we can though I take it down significantly we've already paid 500 million as you, though I understand so you're saying as you get a box I'd say that.
But on a gross basis of 24, you're comfortable.
Operating.
Yeah, very much and Ah that'd be expected to come down overtime kinda okay.
Second question provided some capital to your insurance subs Q1 is it.
Good.
And I frequently get as around the regulatory statues conservatory ratios for those subs and capital adequacy. There are there any sort of quantifiable measures you can provide us.
To give investors comfort that insurance subs are indeed, well capitalized.
Yeah, So oh, we bother to each of them up different you know I feel and.
If you on Brett it's different from or the United States in Canada, we have but we always want to keep extra capital and each of <unk> companies and so when Oh, we needed to put some money as we as you mentioned 400 million I talked about that in the gym, Oh, we put that money and.
And and if anybody's needed, though over the next year. It was so we put some money in a way to make sure they have that excess capital it to in relationship to the up.
Insurance companies, so and so.
You know statutory I think they build a report at the end of May so you'll you'll be able to look at those that you don't report so.
When they come out, but but so our insurance companies, we always want them to be well capitalized, but took lily and this time period, when though right. So.
Increasing and the environment is good for lunch business and we have.
Probably fair to say no bias so take this with the type of salt.
But probably fair to say that we have the best group of insurance companies and 35 years, and <unk> and a really really good group of residence running it will be <unk> company for the longest I'm I mentioned that the days again.
We've got you know 17 billion, but the equity accounted a interested and.
Middle Eastern operations called G., I see a Greek operations, which is called Euro life, and I didn't operation called digit, but pretty close to $20 billion and a 20, you went 20 billion U.S. all over the world diversified run by terrific management, President Cidade de centralized struck.
To that we have and great was hoping that it was up well.
And so we expect to come out on the other side very strong and like we have in the past take advantage of the high rates and like friend I business.
Great. Thank you.
Thank you very much a units next question.
Next question is from the line of Martin finale of RBC capital markets. Your line is now open.
Yeah, Good morning, and I've got a couple of quite fine by us.
The first question, maybe for Jennifer I suppose.
There were impairments in the quarter related to investments in associates can you talk through the process of how those were calculated in derived when I look at the exhibit and a you know and good so no six in the in the in the financials when I see quite a number of companies that are.
Trading that or have a fair value below carrying value.
But you only seem to have taken a an impairment related to two or three of these so could you talk through that process a little bit.
Yeah. So.
[laughter] judge and I'll take a quick record that passed on to you, but Oh you know.
What I mentioned first of all those mark when do you have a 35% drop.
In the stock market. It in March 21 days because Rob.
And you know since 1929, I think it was a huge drought and and it doesn't actually you have to go to individual stock prices to see how significantly that drop was and you know.
Sort of a scattered like it didn't make a difference what's docket was what company. It was just stuck places where it came down and a panic because of that extreme uncertainty. So we expect a lot of that to come back and I look at these oh.
Situations myself, where we have a big difference between <unk>, what we carry it doesnt and if it's an associate Oh, what we carried and what the struck phrases you know for example, no.
You know just to use one example, seaspan.
I mean, its stock prices come down about 50% from the end of the Oh.
Which if you look at the company and examine it other than the good 19 pandemic worry and it's like them the economy and all of that it's very very stable run by terrific management and as much as we're talking here on this school within a year and perhaps a little longer it'll be back.
That drives and higher than that because you've got some terrific mounted we deem running it.
But some of those impairments that we took a we look at each one of them separately and and I'm involved and looking at it feel very comfortable but let me that surprised at dawn to Jan to give you the process as to how we went through it.
Jan.
Sure. Thanks, Graham So mark as you indicated on no six we do get quite extensive disclosure around our investments and associates.
In particular leaves me if we look out the chart on table six you can see that most of the drivers on impairment really did the late to the discount rates that we had to change based on current environment I'm looking at the underlying cash flows are process for covert 19 was probably more robust than we would normally do.
You on any given quarter from the ones that prime indicated that had just gone under water I would say mid March neighbor very strong performers up until the last couple of weeks that didn't indicate that there was any long term impairment on those investments on the no Waikiki standard for example, very strong company was well.
Above our carried value at year end. So we go through a very robust protest on a quarter to look at cod there with underlying we it's not a fair value concept, we do disclose fair value, but it's a value when you which is that longer term you at lucky not cash flows speaking with management understanding the operator.
And then publications and at that time, we knew there was no underlining impairments that we needed to recognize in the quarter on some of it with other positions. We didn't focused on the ones that we had disclosed in the past I'm being a chart on <unk> six and as we indicated we did take an impairment of 192.
During the quarter.
Thank you for that I appreciate the bank extra color.
Thank you. Thank you Mark any other question Mark.
One other question just I'm sure.
You are already covered a number of topics related to the covert 19.
Provision, but I wanted to ask additionally.
With respect to workers compensation exposures, I guess I noticed that none of the neither murder crumb or.
Yes.
Set up any type of reserves at this point is there any color that you can give in terms of any exposure that those businesses might have.
You know to frontline workers or people involved in health care or things of that nature I wanted to give a sense of perhaps what what might be in the pipeline. Eventually a you know as the as the virus progress is.
So we have they're very limited exposure to employees, providing direct patient care.
And really no exposure for quest to festival respond as workers compensation dizziness.
And see that buckets, you know is really well because of them very very conservative. So prices are going down rates are going down. So that's why the businesses going down.
But that combined ratio as you saw the first quarter was very good.
They wouldn't be a responsive to that customers in terms of Ah differing payments at some oh requirements like California from the California government.
But I must say, we have Oh, Randy good management fees that are well manage through this up.
As as we go through it but we have limited exposure Ah Ah moment, <unk>, but because we monitored all the time, though.
Okay. Thank you. Thank you for the answers and a good luck in the upcoming quarter.
Thank you very much a units next question.
Next question is from the line of Jamie.
No Bank financial your line is now open.
Well. Thank you good morning.
First question I, just want to give a maybe quantify some of the commentary that you provided around the around the exposure outside of the U.S. to business interruption, and then again to the workers compensation, where are you, saying, it's it's limited or minimal.
You should I interpret that as being a less than 5% of the individual companies exposure or a the consolidation moves or how should I think about that in terms of quantifying the commentary.
Attached to talk to quantify but the way we look at it is individually.
You know if you look at workers compensation than seen that we we really do think it'd be manageable and at that level. Then you put it that so Fairfax and you know it.
You know if I can use of what gets lost in the rounding right because it's a good odds.
Got it right about 700 billion at premium we like 17 billion then.
Total.
Gross premium so so that's what that's what I'm a JV.
Yes, I mean, if I ask it a little bit differently. When we think about catastrophes generally speaking the rule of thumb is around one the hopper sent to the global catastrophe is going to be Fairfax is share.
You know.
We can look at cobot as being a global catastrophe would Fairfax is share of those estimates land that that one and a high percentage or would it be something significantly below that based on some of the commentary. This yeah from all that we know Jimmy right no significantly below yeah.
First of all people have all sorts of numbers you know, it's always because it's a it's ongoing be economy is still not totally a opened up a so you have to just looking at a much Mac I'd think about with the you know 10 billion on the low side 140 billion on the hype side that though it's all guesstimate said.
Oh could last week. So you know what do you get a hurricane you could but really puts a models on them and you can figure out the way, it's gone and you can get a pretty good sense for or what the insured values are matea itself, you know you're stepping into the and the dog, but oh, but the other thinking as.
As for multiple look we've done we'll have some losses don't get to be wrong, but we'll have some losses, but oh, we don't think it'll affect our underwriting profit, let's put it that we expect to make an underwriting profit.
2020.
Okay, great and the a and the losses taken to date and your estimates to date or how far how did you look in terms of assessing event cancellation and I've traveled cancellation is that a is that a three month six month 12 month that you took to arrive at those estimates.
For the for the rest of the I think a is a way to look at a 2020 and relapse them cancellation losses, particularly at Brett No question, but love some losses there.
Because it's in Lloyds business a.
A lot of it has done large when they might get a little from I lied than 11 from.
I'm, a little from Bob Odyssey, but but small the one that we've done a really gets a mall is and and Brett but again as I said, Oh, you know well within our ability to outlet as a company as for at Fairfax.
Thanks, and not one one more just Ah around the investment portfolio I was just talking about this at the G M. A investing and some some higher yielding bonds I'm seeing some increases in double b in particular.
Small on a on the Grand scheme, but still an increasing double B and then also in the Triple B space can you talk about some of the industries that you were.
Investing in on the fixed income side and then also given your commentary around you know what seems to be a bullish outlook for.
For for or the markets in general why not be more aggressive in terms of utilizing some of that's a credit line and a and holding company cash to pick up some assets, you're maybe at the stress levels.
Yeah, so with the Oh, the first of all the holding company cash that will never use we you know that's just for safety.
It's very very.
Yeah, and expensive I said over the last time, I said, I think we'd like to and <unk> percent and we put in commercial paper and we get get on little more than that maybe a 100 basis points, but you know some people when we did the bond issue that thought we were using that money to buy bonds, they're not buying bonds with a bank commercial paper. So there's no it's literally.
Cash the way to look at it is we can take that money and pay it off tomorrow. So there's no risk on that at all in a insurance company portfolios <unk> the spreads widened significantly at much they've all come down, though as you know, but when they widened we but we didn't go down and quality we.
We're buying like a minimum would be like triple b flaws, and Ah, but lots of ways and where the spreads which will you know Disney was a borrowing money at 50 basis points above five year treasuries they have to pay 250 basis points when they came in.
And.
You know, Berkshire Hathaway or the though.
The energy a company came out and they pay that 350 basis points I think above the five year.
Bonds 350 basis points about a five year treasuries. So we got phone up <unk> percent, but they were all very high quality.
In our minds and we don't take rating agencies, all either do a risk analysis ourselves and a very high quality goods good.
Because it will be it will be we didnt reach for yield and so no. We're seeing good opportunity that some secondary stuff. If you as Brian Brassy do leads the charge at the he said the half of that $2.93 billion in bond purchases in the insurance company insurance company portfolios have.
With with secondary and half of which was brand new new issues and we still have a lot of cash and short term bonds as I mentioned and no. We're gonna be looking at opportunity, there's lots of opportunity and we bought a you know debt plus war roads and companies a comfortable giving US 25, 30% 40% of the company.
Because they know we are not something that trend dnbi and I belong to overview. So this is a good time for us with selective of clause and.
But but aren't investment team led by weight, but.
Is looking at the opportunities and if you have any anyone on the call. If you think go we could be helpful. Oh, Please let us know.
The Jamie Thank you for that question a units next week.
Next question is from the line of me Calabasas.
Capital Management. Your line is now open.
Yes. Thank you. Thank you for taking my call and then sort of what's on <unk>. Good morning, good money Mccallum <unk> Yeah [laughter]. Thank you know I just wanted to ask you Uh huh.
Two quick ones one these and looking at your airport in India, you Mark crop there you're holding in there and last year. We are re anchorings transaction, but these your you you have not markdown tomorrow or others on Florida.
<unk> for the foreign exchange exposure on I wanted to ask you about that.
My second question, if I may.
He said I was wondering and taking a bit of a higher view.
Yeah, and see how is how well he has worked for parks at your your position gene in bonds, where you haven't reached for you I was wondering eat your stated goal of can person on your rate ready to return.
Isn't being counterproductive on the equity exposure of Fairfax, where.
Perhaps Oh, you know you you have been.
I would take perhaps are guilty of what's been ground described that's fair weather investing where your car purchase to perhaps low quality securities at times, so pick or business conditions because.
Because of died or two to reach that 15% per year is that correct because of that in our show up ever so because of the boat very good questions on Abengoa International Airport.
You know I get you Gotta Airport that has the going from 30 million 60 million in a few years and then ultimately to 90 million and a you Abba.
Just a buying 10% from us of our holding company like $2.7 billion.
You know to up to a good deal and I have an asset like that or worry about cobot 19, though the fact that they didn't economy shut down or does it do you think that affects the long term value of Bangalore internationally for the third largest airport in the <unk> and the India with that type of growth.
When Shanghai Airport might be a 20 billion and other airports would be like a multiples of $3 billion. So so we don't think that that has any impact at all or a mechanical and the second point to make us a good point that so you know we're very careful we're not a that's why we're quite optimistic because stock prices.
The cheap the markets might be high because of Microsoft and Amazon and all of these but I'm looking at stock prices actual stock prices of companies that I know and that's a ton of them that that are very cheap that doesn't mean it won't go though it might go lower who knows but ah, but we think goods enough that.
Meet some Ben Grim as Useight billion buying bend, it below intrinsic value and ticking along to him approach and as I began a rough prepared remarks every I'll be gone down Mikael rebar. The next year, we've gone out and that's no guarantee that will happen, but oh I'm, hoping that would be the case, so because thank you for them.
Question units <unk> units next question.
<unk>.
The next question is from the lineup.
Yeah Talis your line is now open.
Hi, Good morning, I have two questions I just want to know came into cashed out you tool for the from the credit line, what kind of Doomsday scenario are you can we can we assume you're forecasting that you think you might need that cash.
So they're very simply when we took that catch the buckets window, but nobody could do a bond issue well by the end of the April we did a bond issue 650 billion right, but then might chip you were trying to do a but there was like 10 or 15 days. There was no bond issue. The one could do a bond issue that AAA.
A company could do a bond issue well the bond market opened up its opened up Federal reserve was been fantastic up you know a the Kazakh there's been huge all of these things up.
Unprecedented cool, but 19, a that took place and an unprecedented shutting down locked down a bit worlds economy.
Changed when there was unprecedented activity by the U.S. government the federal reserve never before they've done. This so and so if we were able to the bond issue at 650 billion and and of course the conditions now a much much better, but we just wanted to look and see how.
Everything worked out well Jeep and and we think overtime Bill.
You know will pay the lined out down significantly but at that time, there was a major him out of uncertainty as I'm sure you you notice.
Thank you any other question yeah.
Thank you a unit.
Our final question is from the lineup.
Individual investors. Your line is now open [noise].
Thank you. Good morning upgrade I was just wondering where the stock price being at the up you know Oh, you know if you call. It 65 cents on a daughter when a b to B and you know he feels is expected to dollar to go out a 15% in the long run rate are you looking at churning some of your anyway.
That's been portfolio cash into the fortunate events, obviously sounds like there it sounds like already go to question either [laughter] kind of go into so I was just trying to get your views on that thank you.
Yeah no. Thank you that's very good question that I've said publicly update you add but elsewhere that first auto priority. This a company that's being built over the long term long after I've gone. So number one is financially sound nodes number two is to make sure that because our insurance companies arent that growth mode right.
Now to make sure we have enough resources to support them.
And then finally, Oh, we always look at on stock price we bought.
Over the.
You know 35 years there'll be a there was a time in the past for that'd be bought 25% about shares outstanding. So we look at all of that but not at the expense of the first two items financial soundness and the ability of mine insurance reinsurance companies to take advantage of the opportunity. So thank you again for your questions and units.
Or is there no further questions. Thank you all for joining us on this call. We look forward to the next one and thank you a U.S. forward ROE for your work. Thank you very much.
You're welcome. Thank you speakers and this does conclude today's conference call. Thank you all for participating you may disconnect now.