Q4 2022 Fairfax Financial Holdings Ltd Earnings Call
Welcome to Fairfax is 2022.
Conference call.
Been placed in a listen only mode. After the presentation, we will conduct a question and answer session.
At that time to ask a question. Please press star one on your phone keypad.
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Your host for today's call is Prem Watson with opening remarks from Mr. Derek <unk>.
Mr. <unk> please begin.
Good morning, and welcome to our call to discuss Fairfax is 2022 year end 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 risk factors. The most foreseeable of which are set out under risk factors in our base shelf.
Perspective, which has been filed with Canadian Securities regulators and is available on SEDAR.
Fairfax disclaims any intention or obligation to update or revise any forward looking statements, except as required by applicable Securities law I will now turn the call over to our chairman and CEO Prem Whatsapp.
Thank you Derek good morning, ladies and gentlemen, welcome to <unk> 2022 year end.
Conference call I plan to give you a couple of highlights and then pass the call to Peter <unk>, President and Chief operating officer to comment on the insurance and reinsurance operations and Jen Allen Chief Financial Officer to provide some additional financial details.
2022 was an outstanding year for sandbox.
Gross premiums increased by 16% and despite heavy catastrophe losses, driven by our opinion.
<unk> reinsurance operations had a combined ratio below 95% and record underwriting profit of $1 1 billion.
We benefit greatly from diversification and global presence when dealing with events such as catastrophes Covid All walk X award to name a few.
Congratulations of course, do all our President's who continue to grow profitably in that store.
Drawn rating environment.
Decentralized approach works.
Operating income in 2022 was up significantly increasing year over year by approximately 64%.
For the year, we had record operating earnings of $2 6 billion.
As we continue to deploy cash and short term investments at higher rates and with strong and increasing underwriting income we expect operating earnings to continue to grow.
Book value per share increased by 6% adjusted for our dividend in 2022% to $658 per share.
Standing net losses.
Investment portfolio of $1 7 billion, primarily unrealized.
Net losses on investments were driven by losses of $1 1 billion on our bond portfolio due to rising interest rates. During the year 244 million was from mark to market movements on our common stocks and reflecting the decline in the stock markets and $404 million, primarily from foreign exchange losses due to the strength.
<unk> of the U S dollar against most other currencies in the fourth quarter, we closed the sale of our pet insurance business to JV.
Total proceeds of $1 4 billion 115 billion in cash on closing and then for $250 million. The transaction resulted in a pretax gain of $1 2 billion.
<unk> has a very impressive track record so we decided to invest $200 million off the proceeds back into that fund five.
Interest rates decreased somewhat in the fourth quarter, but did not offset the increases in the first nine months of 2022 as a result, most of our competitors will still show large declines in book value per share.
For the full year declines will range in the main from 10% to 30% very very significant.
We have mentioned to you for many years now that we have not reached for yield.
We benefited greatly by having such a low duration, one two years coming into 2022.
On a fixed income portfolio.
Our low duration on a 38 billion fixed income portfolio reduce the impact of rising interest rates on our bonds to a decrease of only two 8% on the fixed income portfolio.
Much less than the 8% to 15% drop.
Many many companies in our industry.
Notwithstanding our low duration, we had $1 billion of unrealized bond losses for the year. We expect much of this will give us over the short term.
In the meantime, we have been able to invest at higher interest rates, increasing our current normalized annual run rate for interest and dividend income to $1 5 billion up from approximately $530 million at December 31, 2021, and $1 2 billion at September .
30th.
'twenty two.
A very significant almost three times, what we had at the.
End of.
2021, as I've said previously many times long term value investing has gone through a very difficult time for about a decade now.
Just what I said in the past valuations of value oriented stocks versus growth stocks, particularly technology have never been so screen exceeding even the extremes of the dot com era in 2000.
And as the economy continues to normalize we expect a reversion to the mean with value.
Our value oriented stocks coming through the fall we continue to believe our common stock positions are very undervalued.
Remind you that in the years.
2000 to 2002 and that downturn.
<unk> stock market indices were down about 50%, but our portfolio was up 100%.
In 2022, particularly in the third quarter of this year as we discussed in our third quarter call technology stocks, including Frank stocks and Microsoft has come down significantly from its high in 2021 currently alphabet is down 37% Amazon, 48% Facebook, 54% Microsoft 25.
As I said, Netflix, 48% Tesla, 50% when the Apple has dropped by less than 20%.
Of course smaller companies like zoom, and shopify down 70% plus.
If history is any guide there is more to come I will note for you that the NASDAQ dropped 50% in 2000, and then dropped another 50% of the next two years.
Early in 2023, we announced the sale of Enbridge and MGA owned by brick.
So the <unk> group for 400 billion comprised of cash of $275 million, a note for $125 million and an additional $100 million that may be receivable based on 2023 performance targets for Enbridge.
But we'll continue to wait a significant amount of the enbridge business going forward.
On closing of this transaction, we will record a pretax gain of approximately $275 million.
We wish suggestion, Jeff the principles behind to Enbridge and the entire team all the best and look forward to working together with them.
Into the future.
We continue to do all we can for our Ukrainian employees.
Whole company is behind all three outstanding Ukrainian President and they look at as they look after our employees on the.
Extremely difficult conditions.
I will now pass the call to Peter Clark, Our President and Chief operating officer before the update speed ups.
Thank you Pam.
We had net earnings of $1 1 billion for the full year 2022, driven by a strong fourth quarter with net earnings of $2 billion in the quarter.
As Prem highlighted we had an outstanding year with record operating income of $2 6 billion.
Generated through underwriting income of $1 1 billion.
Interest and dividend income of $746 million from our insurance and reinsurance operations and our share of profits of associates of $721 million.
Our combined ratio for 2022 with $94 seven and included above average catastrophe losses of $1 3 billion, while our gross premium was up 16%.
In the fourth quarter, we had a combined ratio of 91, which included three points of catastrophe losses, while premium growth moderated with gross premiums up 5%.
Compared to the fourth quarter of 2021.
We continue to see favorable market conditions in many of our major lines of business.
More on underwriting results later.
The net loss on our bond portfolio, primarily unrealized was $1 1 billion in 2022 and was generally the result of the significant increase in interest rates in the year.
Due to our short duration. The majority of these losses are expected to unwind.
Over the short term.
I will remind you that under Ifr Ias accounting all mark to market movements on our bond portfolio go through net earnings.
Our net losses on our equity and equity related holdings were $244 million in the year.
Driven by the overall drop in equity markets.
Unrealized losses on Blackberry entity, Wilson Asian value fund and scale coal were the main contributors to the loss.
Other investment losses of 404 million consisted primarily from unrealized foreign exchange losses on the Indian rupee Egyptian pound and Canadian dollar.
As mentioned in previous quarters, our book value per share of $658 does not include unrealized gains or losses in our equity accounted investments.
Our consolidated investments are non insurance consolidated investments, which are not mark to market.
At the end of the year the fair value of these securities is in excess of carrying value by $310 million.
An unrealized gain position or $13 per share on a pre tax basis.
Our insurance and reinsurance businesses continued to grow rapidly rapidly all over the world with $27 6 billion of gross premium in 2022.
We finished the year off strong with a 91 combined ratio in the fourth quarter and a combined ratio of 94, 7% for the year.
Our gross premiums were up 16% an increase of approximately $3 8 billion from the previous year.
This growth is driven by the continued favorable market conditions and strong margins that prevail in many of our markets, particularly in North America.
Crum <unk> Forster had the largest percentage growth among all our companies growing 23% in 2022.
Adding 867 million of gross premium year over year.
Crum <unk> Forster growth reflected increased business volumes across most of its segments driven by its A&H surplus in specialty and commercial lines divisions.
Odyssey group's gross premiums were up 18% or just over $1 billion for the year driven by their U S reinsurance division in both its property and casualty business segments.
Odyssey group's insurance segment led by Hudson insurance continued to expand.
But at a slower rate with single digit growth.
<unk> grew 23% in the year with.
With gross premiums approaching 4 billion.
<unk> growth was driven by key which contributed $834 million to the top line and was up over a 100% from the previous year.
As you know Brett has control of key so it's consolidated in their numbers.
Excluding key break grew 10% for the year driven by its direct business.
And casualty Treaty.
Allied World North Bridge, and Zenith, all grew as well at lower levels, increasing their premium by 12%, 9% and 1% respectively.
The premium of our international operations was up 11% for the year with gross premium up almost 3 billion.
Although they are not seeing a broad rate increases experienced from the hard market conditions in North America.
Gross premiums were up $280 million in 2022.
Fairfax Latam was up 17% and colonnade was up 10%.
The increase for the year also includes a full year of Singapore re in the 2022 results versus half a year in 2021.
The international operations growth was muted in U S. Dollar terms by the strengthening of the U S dollar against most currencies as well as the war in Ukraine.
Over time, we believe our international operations will be a significant source of growth driven by Underpenetrated insurance markets and strong local economies.
Our companies continue to grow into favorable market conditions.
Although that growth has been slowing.
Premium in the fourth quarter was up 5%.
While absolute rate increases may reduce in some lines overall rate level is expected to remain attractive and with a very hard reinsurance market at the one one renewals and other macro factors the hard market could be extended throughout 2023 year or longer.
As previously mentioned, our combined ratio was $94 seven producing a record underwriting profit of $1 1 billion.
This is the first time, we had underwriting income about above 1 billion in a year.
The combined ratio included above average catastrophe losses for the year, adding six one combined ratio points about.
About half of which was from hurricane Ian.
This compares to a combined ratio of 95 and catastrophe losses of seven two points for 2021.
As our premium base has expanded significantly and with the benefits of diversification, we have been able to absorb significant catastrophe losses within underlying underwriting profit.
Northbridge had another outstanding year, posting an 89.4 combined ratio.
Fitting from the compounding of year over year price increases and increased new business.
Allied World generated a record $389 million of underwriting profit the.
The most in the Fairfax group.
While Crum <unk> Forster continued its steady improvement with a combined ratio of 94 five.
Down from $95 nine a year ago.
<unk> had another good year at $94 seven benefited benefiting from favorable prior year Reserve development.
Odyssey and Brett were affected the most by Caf catastrophe losses in 2022.
Although both finished very strong in the fourth quarter posting full year combined ratios of $96 three and 97 eight.
Our international operations had a combined ratio for the year of 99, 3%.
Fairfax Asia had another strong year with combined ratio of $88 six.
Our eastern European operations of 94 four <unk>.
Notwithstanding the headwinds from the war in Ukraine.
And Fairfax Latam, excluding Brazil produced another year of underwriting profit.
Significant drought conditions in Brazil resulted in AG losses at Fairfax, Brazil that resulted in a combined ratio of 128.
And historic floods in South Africa, combined with a difficult environment for motor business.
Bright bind ratio.
218.
Our international companies continue to navigate the headwinds of inflationary pressures in many of their countries, especially in Fairfax Latam.
For the year, our insurance and reinsurance companies recorded favorable reserve development of $196 million or the benefit of <unk> nine points on our combined ratio.
This compares.
$356 million or the benefit of two two points in 2021.
Essentially all our insurance and reinsurance companies had favorable development in 2022 with.
With the exception of Allied World, who at $30 million of unfavorable reserve development on late reported 2021 catastrophe losses that were reported early in 2022.
Riverstone, our run off operations, who manage essentially all our late and liabilities strengthened prior year reserves by 147 million principally related to asbestos liabilities and other latent type claims.
Riverstone continues to do an excellent job handling some of our most difficult claims.
Our expense ratio continues to benefit with our earned premium volume outpacing expenses. Our overall underwriting expense ratio is one six points lower year over year with.
With the underwriting expense ratio decreasing that essentially all our insurance and reinsurance operations.
We had another strong year of underwriting profit and expect that to continue throughout 2023 or.
Our insurance and reinsurance operations have very strong management teams and are very well positioned to capitalize on their opportunities in their respective markets.
I will now pass the call to Jen Allen, our Chief Financial Officer to comment on our noninterest companies perform non insurance companies performance overall financial position and recent transactions.
Thank you Peter I will begin my remarks on the results of our non insurance consolidated company for the fourth quarter and the full year of 2022.
Looking at the fourth quarter result, if you exclude the impact of Fairfax, India performance fees in both periods and a noncash goodwill impairment charge recorded in the fourth quarter of 2022 related to the company's investment in farmers edge operating income, but the non insurance companies improved by.
31 million to $94 million in the fourth quarter of 2022 from an operating income of $64 million in the fourth quarter of 2021.
This continued improvement of $31 million in the fourth quarter of 2020 to reflect the same factors that resulted in increased operating income for the full year of 2022 from the non insurance companies, which was a significant increase of 240 million to $318 million for the full year two.
And in 'twenty two.
Operating income of $78 million and the full year of 2021.
The increase in the operating income of $240 million excludes the impact of Fairfax, India performance fee of $36 million reversal of a payable for 2022, and an accrual of 85 million or an expense in 2021 and it also excludes the impact of a noncash goodwill impairment charge.
<unk> recorded in 2022 of $133 million related to the company's investment in farmers edge.
This significant improvement of $240 million from the non insurance companies reflected the easing of COVID-19 restrictions that had previously negative negatively impacted this reporting segment.
The $240 million improvement for the full year of 2021 was driven by improvements reported in all underlying operating segments with Fairfax, India reporting higher operating income of $101 million, reflecting stronger share profit of associates from its underlying investments and San Martin M. D. S.
<unk> Bank and.
And lower share of losses from its investment in Bangalore Airport.
Thomas Cook, India benefited the reporting segment by contributing $55 million higher operating income.
<unk> improved business volumes, resulting from continued easing of COVID-19 related travel restrictions that significantly benefited both their domestic and international travel.
As well as its subsidiary Sterling resorts, Hoover's, whose resorts were fully operational again in 2022.
The restaurant and retail segment reported higher operating income of $51 million, primarily reflecting higher business volumes at recipe.
Principally due to reduced COVID-19 related operating restrictions in 2022 and that was partially offset by increased cost of sales as a result of food and wage inflation.
The higher operating income in this segment also reflected the deconsolidation of toys R US Canada in 2021, which reported an operating loss in that period.
And that was partially offset by marginally lower business volumes at Gulf Count in 2022.
And finally, the other operating segments reported higher operating income of $33 million.
Primarily reflected higher business volumes and improved margins at agg, which were partially offset by the deconsolidation of mosaic capital in August 2021.
If we turn and look to the investment performance for investors from our investments in associates in the fourth quarter and the full year, our consolidated share of profit of associates of $256 million in the fourth quarter of 2022.
<unk> continued strong results from our associates and was principally comprised of share of profits of $78 million from Atlas Corp.
$41 million from golf insurance.
$39 million from Exco resources, and $33 million from Euro Bank and.
And that compared to share of profits of only $55 million in the fourth quarter of 2021 that was comprised of share of profits of $62 million from Atlas Corp, 20 million from Euro Bank and that was partially offset offset by our share of loss of $31 million from resolute.
Similarly for the full year of 2022, the consolidated profit of share of associates of just over $1 billion reflected strong results from our investments with share of profits of $263 million from Eurobank.
$58 million from Atlas Corp, $159 million from resolute and $82 million for Mexico resources.
That was significantly higher compared to the share of profit of associates at 402 million that we reported for the full year of 2021.
If we turn now for a couple of comments on the key transactions in the quarter.
A few key transactions that were closed in the fourth quarter of 2022 with first on October 31, 22, we sold our interest in the Crum <unk> Forster Pet insurance group in Pet health that included all of their worldwide operations to the independents pet group and certain of its affiliates, which are majority owned by J a.
Holding company for $1 4 billion paid as cash.
At 1.15 billion in cash and $250 million of debentures.
As a result of that sale the company recorded a pretax gain of just over 1.2 billion net after tax gain of $934 million and we consolidated the assets and liabilities with carrying values of $149 million and $32 million respectively.
Secondly on October 28, 2022, the company acquired all of the multiple voting shares and subordinate voting shares in the capital of recipe.
Other than the shares that were owned by the company and approximately $9 four.
4 million multiple voting shares that were owned by Kara holding company at a cash purchase price of Canadian $20.73 per share or U S $342 million in aggregate.
That was comprised of cash consideration of 243 million and an increase in borrowings by recipe of $100 million.
As a result of that transaction the company recorded a loss in retained earnings of $66 million and a decrease in noncontrolling interest at $276 million at December 31, 2022, and we had an equity ownership and recipe of 84% inclusive of the recipe shares that are held in the.
A b L N that we entered into with whoever start Riverstone Barbados.
Recipe was done subsequently delisted from the Toronto stock exchange.
Subsequent to December 31, 2022, we announced the sale of Enbridge Bye Brett.
As noted by Prem in his opening remarks on January seven 2023, Britt entered into agreement to sell the Enbridge group, It's managing underwriter operations turned into group the.
The company will receive approximately $400 million closing.
And an additional 100 million maybe receivable based on 2023 performance targets are banbridge.
Closing of this transaction is subject to customary closing conditions, including regulatory approvals and is expected to occur in the next few months.
Upon closing that transaction, we expect to record a pretax gain of approximately $275 million and that's prior to ascribing any fair value to that issue additional receivable.
Before I close with commentary on the company's financial condition I wanted to provide an update on the adoption of the new accounting standard for insurance contracts I, FRS 17, which the company adopted on January one 2023.
I have first 17 will first be presented in the company's consolidated financial report and the first quarter of 2023 with all comparative periods restated in compliance with ire for 17.
<unk> 17 brings considerable changes to the measurement presentation and disclosure of the company's insurance and reinsurance operations.
It will not however affect the company's underwriting strategy, it's prudent reserving management's use of traditional performance metrics such as gross premiums written net premiums written and combined ratios or the companys cash flows.
The company anticipates recording on transition and adjustment that will increase opening common shareholders equity as at January one 2022 that will not exceed two 5% of the common shareholders' equity at December 31 2021.
There also be an increase to opening common shareholders' equity reflected for the full year 2022.
Due to the discounting that the claims reserves under <unk> 17.
We anticipate recording a material benefit to the restated consolidated statement of earnings for the full year 'twenty, two and to the common shareholders equity as at December 31, 2022.
This is in relation to the introductions primarily of the discounting of claim reserves under the new standard.
In closing a few comments on our financial condition.
The liquidity position of the company remained strong with our cash and investments at the holding company at 1.346 billion at December 31, 2020 Q.
That's principally held in cash and short dated investments and our access to our 2 billion unsecured revolving credit facility.
As discussed on previous calls that holding company cash and investments is to meet any and every contingency that Fairfax me face and we are not making any long term investments with this cash other than to support the company's decentralized structure of our insurance and reinsurance companies.
In closing a few marks total debt to total cap ratio and excluding the investments in our consolidated non insurance companies.
The ratio was 26, 2% at December 31, 2022, an increase compared to the 24, 1% at December 31 2021.
Primarily result of the increase in total debt from our issuance of $750 million of our senior notes in August 2022.
And a decrease in the Noncontrolling interest that reflected the company's acquisition of the additional shares.
Allied World from Noncontrolling interest in the third quarter of 2022.
At December 31, 2020 to common shareholders' equity increased by $291 million.
That reflected the net in earnings.
Earnings attributed to shareholders of Fairfax, a 1.147 billion.
And that was partially offset by other comprehensive income losses of 383 million that reflected unrealized foreign currency losses net of our hedges.
We had common preferred and share of dividends paid in 2022 with $295 million.
And purchased for cancellation of approximately 388000 and subordinate voting shares under the normal course issuer bid for a cost of 200 million at an average cost per share of U S $515.
And finally, just to note the company's annual 2022 annual report, which will include the chairman's letter to shareholders. We posted on the Companys website. After five P. M on March 10th 2023.
And that concludes my remarks for the quarter and the full year 2022, I will turn the call back over to Prem.
Thank you very much and we now look forward to answering your questions. Please give US you had made major company name and try to limit your questions there'll be one so that it's fair to all of the call.
Okay, Joe we are ready for the questions.
Thank you Mr Watch at this time, please press star one and record your name and company name to be introduced to ask your question. Our first question will come from Nik Priebe with CIBC capital markets. Your line is open.
Okay. Thanks for the question.
In your prepared remarks, you discussed a firming market conditions in the reinsurance space and your belief that hard market conditions could be extended here.
You participate across many different lines and geographies, which are probably difficult to paint with a broad brush, but given.
Given where we might be in the insurance cycle. How do you believe the magnitude of rate increases that you're achieving compares to a projected loss cost trend like it you know as you.
Look forward would you expect to be building additional margins from here.
We picked up relatively speaking a few basis points that we operate in different segments different parts of the world.
Broadly speaking rate increases will exceed.
Loss cost, but Peter you want to add to that Peter.
Sure Prem Yeah. No you are up for 2022, you know on average.
We got it.
Maybe around 7% price increase so we still think that that that's greater than our you know our our loss costs in the businesses that we operate in we operate in over 200 profit centers around the world. So it's very it's very difficult you know to put up.
A broad number on it but and then at one one you know the the reinsurance market was extremely hard, especially on the property cat side.
We are the business that we wrote on a risk adjusted basis was up anywhere in the neighborhood of 40% to 50% that's on a risk adjusted basis. So as that flows through to the insurance companies. We think that would be a major factor that you know keep.
The hard market going for 2023, and we'll see how the market is the reinsurance market.
It goes for the rest of the year.
Okay. That's good color, but that's my question. Thank you. Thank.
Thank you very much till next question. Our next question is from Tom Mackinnon with BMO. Your line is open.
Morning, John .
Yeah morning Prep question with respect to.
Gross premium written increases in net premium.
Written increases in the fourth quarter.
With respect to Odyssey in particular seem to the trends seem to be slowing a little bit not sure.
<unk>.
What would be driving that is there any kind of change in your participation in any kind of quota share arrangements.
With a.
Renewables has been like et cetera.
Odyssey.
If you have noticed our fourth quarter 2021, with a very significant fourth quarter for them.
The B I had them increase as you can see of a whether the increase in <unk>.
Honestly was about 18% right.
And which is phenomenal.
We live in we take a long term view Tom So what's happened in the last five years is the premiums have gone from 13 6 billion to 27 billion up a 100% 27 billion puts us among the top 2025 companies in the world that's in the World.
And our combined ratio during that five years was 96% with excellent was having very conservative reserving.
And so that's how we look at it and the impact of this new recognized it now, but which has been designed for.
For the longest time, we didn't reach for yield and so well.
At the end of 2020 women.
Interest and dividend income of 500 million 530 million to be exact.
The percentage of loans.
Portfolios.
Cash and short term, earning six basis points, nothing, but we take a long term view and then 2022 our interest and dividend income went up significantly and running today at $1 $5 billion.
And we are slowly increasing duration.
<unk>, which means that.
Between $1 5 billion 20, full $1 5 billion.
That's that's probably more than we've ever had in the past interest and dividend income of that amount underwriting profit without business.
As you've seen $1 1 billion last Q.
$1 billion, we think is.
I'm not it's conservative.
And.
And associates, which agenda highlighted buddy.
Sales associates and non insurance.
Income.
On a conservative basis as a heart failure.
So you add that up one of the.
$1 billion of underwriting profit off a billion $3 billion.
Operating income, which works out to about $100 a share.
Paul.
Satisfied shareholders. This would be the first time that we can make that comment that we've got a $100.
Earnings per share for the next couple of years and then on top of that historically, we've made a lot of games and as you know value investing is now it's coming back nicely.
So that's how we see our company not enough quarter by quarter basis, but over time, we built our company over the long term that's quite transformational going from $13 6 billion to 27 6 billion now that's all in U S dollars and with.
Operating income on a conservative basis of $100 a share.
And that's on top of that we expect to make games as we have for 37 years. We've just completed 37 years.
So we just wanted to put that in perspective for you John .
John .
Yeah, Thanks, and if I could just squeeze one more in the transition time for our 17 Jan one 2022 at most 2.5%.
But then you talk about when you state the full year 2022, theres going to be an additional benefit. So does that mean, if we look at the transition on the book at Jan One 2023 that it could be greater than 2.5%.
Whether the agenda answer that and perhaps Peter you can add to it too but jen.
Your comments on <unk> 17.
Sure. Thanks, Tom I think maybe I'll, just give a little bit more color on Io for 17, Tom the biggest takeaway is your net reserves will now be discounted under ifr at 17. So you have to do that retrospectively. So as you indicated we would have to have a starting point, which is Jan 122, that's the.
Comment that it will not be in excess of the 2.5% of book value per share, but then in accordance with the standard we have to restate all of the periods in 2022, which we're currently undergoing but just to put it in context, given the current interest rate environment in 2022 were significant.
Interest rate increases you can kind of look at the comparison to our bond portfolio duration, which was about 1.2% up to one six by year end.
That cost us about 1 billion of Mark to market losses, if you translate that into a net reserve position that's larger.
Adam you know year end 'twenty, one we had net reserves of $25 5 billion that kind of gives you a sense of why we're claiming that it will be material because of the bond portfolio was less than that that reserve position.
But youre correct that a Jan one 2023, it will be the cumulative opening plus the change in 'twenty two the only other comment I want to make is in the financial statements. We will do the ire for 17 basis and along with the notes.
Where we're going to try to maintain the key metrics at the company evaluates performance on such as the combined ratio gross premiums written net premiums written that will be done in the MD&A bridging you between the ire for 17 and the old kind of management performance metrics with the biggest difference is.
Taking out that impact of the discounting on the claims.
Okay. Thanks for that.
Jeff Thank you.
Any comments to add to that.
So I think the only thing I would stress is what Jim said on the that the way, we're going to manage our insurance and reinsurance operations will not change we will look at our reserves on a discount are on discounted basis Theres a lot of uncertainty in the reserves and.
And again, we'll look at our combined ratios on a on a discounted basis, but otherwise gen summed it up quite nicely.
So that's a very important point to make to all our shareholders on the line. This discounting is a very dangerous.
L. I F 17, its something that the accounting profession, that's come on we don't have a choice.
But as Peter said in Gen says, we're going to.
Not manager fares on a discounted basis, we're going to mitigate the effects of the Cisco and use as much as possible because it's just noting our long tail liabilities half a percent, 1% can change things very dramatically.
Dramatically so all our companies that decentralized.
On the same basis that we've learned in the past.
No change on that Jim next question.
Thank you. Our next question is from Mark Dwelley with RBC capital markets. Your line is open.
Yeah good morning.
Just a small numbers question first then in the in the Britain, even if there was a small amount of adverse reserve development could you talk a little bit about what that might have involved.
Sure Peter.
I'm trying to think through that and in total they had favorable development I think they they did strengthen.
A little bit of the casualty reserves you know the 2016 to 2018 years.
Nothing significant there reserves are still in a in a very strong position. It's just with claims inflation all our companies are actually trying to be prudent and maybe not releasing.
As many AR reserves on those years, and and taking a wait and see approach so nothing nothing significant.
So I appreciate the important point that for you.
Reserve releases.
I think Peter said agenda said, who are very much less this year.
After last year, and that's just being conservative like other shelf position. We think is in excellent shape, because we've expanded in a hard market. In 2000 2002 2001. It was the HUD market began at the end of the year because of September 11th 2002, three and four we doubled our premiums.
And then we saw indications of Odyssey for example reserve redundancies for the next you know almost a decade.
And at that time, we had reserve deficiencies coming from.
And so it says net.
Net it off.
But this time of course, we have our companies.
Very good position and should we expect a reserve redundancies expect most of this by the way the two last for some time and our reserve position as Peter said.
As you know.
<unk> and 'twenty two.
Paul.
I appreciate the color premise theres not a lot to pick on in these numbers. So I have to find at least something to take.
Take a poke at it.
But [laughter].
The other question that I had just wanted to continue the dialogue you've been you've been doing share buybacks fairly steadily over the last several years the.
The fourth quarter was a little lower than some of the recent quarters, but maybe just update your thinking on how you're thinking about buybacks. The stock price has come up quite a bit which is which is good.
I'll take I'll take a crack on this month and then pass it on the beta so share buybacks. We just think of the right way to do go forward for our shareholders, we bought 2 million shares.
In 2021, and we continued to buy in a normal course issuer bid.
And so.
Number one I've said, many times financial position financial strength, we're not going to buy back stock at the expense of our financial position you would expect me to say that because I'm a long term basis, you have to have financial discipline and we have that.
Number two is our insurance business I mean, we've explained the non insurance business is huge.
Dumbledore premium and become one of the world's largest insurance company property casualty companies with.
Excellent underwriting and excellent reserving.
And and <unk>.
Diversified base. So that you have one $3 billion of cat losses, and you said that the 96%.
Combined ratio of 95% combined ratio last year.
As I've said earlier.
Small of themselves redundancies taken.
So that's a very good position to be in.
But I assume that's a.
<unk> cycled changes and flattens out some veto.
Yeah, No just to add you know if we look back over the last three years.
As Prem said, we've grown significantly and we've generally funded the capital required to grow through internal means through our operating earnings.
And you know there'll be a time when when growth will slow and the expectation is when growth slows and you know our earnings will then produce dividends to Fairfax.
And then we can we can look at all the options available in buying back our own shares, especially at these prices would be something.
What would be of great interest to us.
So when you get the color Mark.
Looking at <unk> why are we buying back stock you might say and so if.
If you feel comfortable with what I said earlier about $100 a share and I stopped concerning a 650 U S. You have to look out of the new evidence and U S knowledge and so we're looking at it.
Track record and what would be both.
Six months after that learnings, we think it's a terrific.
Approaches for all our shareholders. Our book value is going up our intrinsic value and I've said this many times and repeating myself the intrinsic value is much much higher than where the book value is so the focus is that but not at the expense of our financial position not at the expense of allowing.
Insurance companies to expand and take advantage of it.
Good luck.
Yes.
Thanks, Thanks, very much for the color I appreciate it.
Thank you Mark next question Jeff.
Our next question is from Craig champion with Leucadia. Your line is open.
Okay.
Hello, I have a few questions for Jennifer in India, how much exposure how much exposure do we have to the Danny group debt.
What are the current plans for the Bangalore Airport in 'twenty two 'twenty three.
And lastly are you going to get caught up in the <unk>.
What would I have Donny political alliance.
Situation, yes, three things we have no exposure to the Adani group point number one point number two on Bangalore International Airport.
We said in our press release and the avian flu vaccine do you.
First release that.
The Bangalore International Airport is coming back in Spades is a wonderful at borders.
Seven when it's a moody openness.
And and it is perhaps one of the best samples you'll ever see if you go there.
A number of passengers has come back to the pre COVID-19 levels domestically and I think we've said something like 80, 588% for international travel.
T to what's going on but I can tell the numbers already operating domestically and anyone of goals.
It's just the base that what this is how this is being built in four years, including two years of Poland and India.
So it's quite a miracle and it's how do you feel are the Guy who is the president and Chief Executive Officer, who has done that.
In terms of.
Adani and and I know, he's one of them, but one of the company.
One of the companies in India, and as you've seen in the United States or Canada or elsewhere. You have these instances and so I think India will continue to do extremely well, we're very excited about India, all the possibilities of India.
Notwithstanding the adani.
Event that took place recently.
Okay that sounds like good news.
Any plans on the airport for this year.
Planting Watkins.
About the IPO or the sale of our stake Oh, Yeah, sorry, yeah, the anchorage as.
<unk>.
And as a company, but we're putting in our in person.
And finally international airport and at our infrastructure development the company more airports for infrastructure, and we've got an application improves us and them and and and when that pool.
Our application is approved.
And when the opportunities when we look at doing an IPO.
Okay. Thanks for the info just to reiterate I think I've spoken before about this say preferred to have an increase in the dividend instead of buybacks to benefit the long term shareholders.
And thank you for that.
We bought a lot of shares and B.
We think it's the best thing we can do.
For shareholders Fairfax, India has one 3 million shares I think approximately last year at about $12 a share.
Both the same place at 19 million shares.
Okay.
Longer periods of time, but please consider would you say are we look at all of those dividends voices.
Buyback and Hum.
Would you say as we go forward.
Okay. Thanks, Brian .
Thank you very much our next question Jim.
Our next question comes from Ruby Lockheed with Red Rock Your line is open.
Hello, Thank you Prem and team its Ruby Lockheed Johnny.
Thank you very much for your stewardship.
The value in Fairfax are.
Many of US are very happy shareholders overtime as you say, it's about the long term.
My question is about both current and forward looking you you said in the conference call about the potential for growth and profit in North America in the international markets and looking forward to that growth in the future, but I've got some questions about your African.
Estimates both on your insurance in South Africa, with the combined ratio being 100, and eat and there just seems to be so much.
Uncertainty and challenges ahead.
And you know both in the insurance and in your investment in Helios Fairfax as well as you know is it time in the operating companies in your insurance operations to reallocate some of those resources from where the potential isn't as great like as an exam.
And in Poland Africa, how are as an example, which is shifting investments from something like Blackberry into more a G. T where there is much more long term potential. So again. Thank you for your stewardship and I look forward to your comments.
Thank you very much for your question.
Africa, we've got a terrific launch.
Ask Peter to talk about right South African operation, but done on.
Helios a Fairfax company.
One by <unk> and Barbara <unk>.
Excellent.
It's out of the company from scratch in 15 20 years of track record in Africa.
In all bunch of Africa, and and Shannon.
Shareholders with them, we support them and.
Thanks.
Actually I'm, sorry, just say didn't have.
But success in Africa, and so we decided to merge as you know with the Helios and now you've got a you know perhaps the best you know using Blackstone you brought up a Blackstone of up Africa focused on Africa and we've.
We've decided to go with them and invest with them for the long term.
<unk> begun its maybe a year year and a half, but we've begun and digesting some of these old Fairfax Africa.
So Africa is not particularly good.
In Vogue right now but.
But it wouldn't be as there's lots of opportunity there and.
Two gentlemen, Toby and Bubba Noah Kohl's, So that's on Helios Fairfax Africa.
On Blackberry HGT, Yeah, we look at that all the time and.
I have some comments in the annual report about that.
Southern Africa right.
Peter.
Yeah, all I'd add there is you know.
Right, Brian has had a couple of tough years, and it's mainly driven from a from a catastrophe type losses, you know they had significant losses from Covid.
Which were really unexpected and then this the last couple of years Theres been a significant floods in South Africa.
And that's affected their results. So that you know they've had two years now with the combined ratio above far above 100, but.
One of the biggest strengths of Fairfax is we take a long term approach.
And we think.
Over the long term bright will produce strong underwriting results. That's the focus of the team there and you know, they're putting through a significant rate increases, especially on property.
Cat exposed business and I think over time, it will be we'll be very fine.
And just to add to what Peter said, we love It we have no intention of.
Selling right.
Talk about allocation of capital no.
No intention of selling them a bright we've got no intention of selling any of our companies we have a very good team there.
We are happy with the team that we have there and we expect them to perform.
No.
Jill next question Jill.
Thank you. Our next question is from James <unk> with National Bank Financial Your line is open.
Yeah. Thanks.
A little late joining that Matt just wanted to dig deeper on the top line growth of 7% in the quarter from a gross premiums written perspective.
Little lighter than maybe what we had and maybe a little bit lighter than than trend given the hard market conditions. We're in so I'm just curious if there's any at any one time factors of note anything you're intentionally pulling back on in certain markets or types of risks or geography or something along those lines.
Some are some lanes so JV of.
D&O for public companies the pricing has come down some.
But as Peter said bluntly speaking you have though.
You have a HUD market reinsurance suites at one one.
Significantly we.
The reinsurance business, we benefit from that but like you said reinsurance costs will have to be passed on by insurance companies.
And so there'll be a mitigating effect on pricing sometime.
<unk>.
Come down flatten out that's come down we don't know when that will be we don't expect them to be in 2023.
But we are very excited about the fact as I said in an earlier question.
But in this current market.
<unk> has grown to be one of the largest companies in the business.
And has terrific management, we've done it internally.
For example, the last acquisition was online as you know.
And about $3 billion in premium and that we have them go through can bring them in.
It's running at six 5 billion and 90% combined ratio.
Sandeep correct quite good.
All over the world similar to Odyssey.
But all companies are doing very well and and expense ratios have come down the reserving is excellent.
And but we do see growth in the <unk>.
Future, we do see growth and they've slowed down as it was sometimes than we expect as Peter said too.
To look at continuing to buyback stock.
A significant amount.
Yeah.
Okay. So if I if I understand I guess the view near term is that that growth rate will will reaccelerate. Our there's a there's a view that it should that should reaccelerate.
And that Youll youll sort of maintained and if it doesn't reaccelerate youll maintain underwriting leverage to.
Through share buybacks is that.
That does definitely wait until.
So full pathway, we don't forecast, we take it as it comes and it's a very decentralized operations.
We can tell you that the a rating environment is good but I can't tell you really expand at 15% or 10% didn't tell you last year and tell you two years ago, we just looked at what.
Companies face.
Do the right thing for our shareholders long term.
Okay, great. Thanks, Tom.
Thank you Jimmy.
Joe maybe last question Jill.
It will come from Tom Mackinnon with BMO. Your line is open.
Yeah, Thanks, very much I'm, just trying to get.
I think you mentioned restaurants and retail other within respect to.
Some of your.
And your non insurance are pre.
Pre tax operating earnings I don't know did you mentioned Thomas Cook, India, I'm, just trying to get the things that sum up to the $61 million that you put yes, yes, Tim.
A lot of that will be put in a ready to report, but agenda did mentioned that agenda.
Comment on the Thomas Cook.
Yeah. So Tom there are youre looking at the quarter or the YTD number.
For the quarter.
The quarter of $61 million, yeah. So the way we look at it if you if you adjust for the goodwill impairment and farmers edge and the Fairfax, India, you've got a 94 million compared to 63.
And most of that is driven by the restaurant and retail left we will give more details on that in the annual report, but it's approximately up maybe $10 million in that segment.
And then Thomas Cook, India, you know appreciate last year, they were in restrictions and Covid Lockdown, so negative impact in 'twenty, one that's flipped to a profit in 2022 for the quarters. Okay.
So we'll just have to wait to the to get the details of this 61 that you've provided just wait till we get the annual report I assume then right.
Right well disclose we will disclose all of that would be a record.
And so.
Well, yes.
US through the 930 odd time thank.
Thank you very much for joining us on this call and we look forward to seeing you all on at our annual General meeting in Toronto.
On April 20th and Joe. Thank you very much for the call.
Thank you Mr. Walter This does conclude today's conference call. We thank you all for participating you may now disconnect and have a great rest of your day.