Fairfax Financial Holdings Limited Q1 2023 Earnings Call
Good morning, and welcome to Fairfax is 2023 first quarter results conference call.
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For time sake, we ask that you limit your questions to one today.
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Your host for today's call is Prem Whatsapp with opening remarks from Mr. Derek U S.
Mr. Bula please begin.
Good morning, and welcome to our call to discuss Fairfax is 2023 first 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 risk factors. The most foreseeable of which are set out under risk factors.
In our base shelf prospectus, 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 from Watson. Thank you Derrick.
Good morning, ladies and gentlemen, welcome to Fairfax is 2023 first quarter conference call I plan to give you a couple of highlights and then pass the call to Peter Clark, President and Chief operating officer to comment on the quarter and Jen Allen, our Chief financial officer to provide some additional financial details.
Beginning January <unk>.
2023, we were required to adopt <unk> 17 accounting.
This has resulted in many changes to our financial statements. The most significant change being the discounting up on insurance liabilities and the provision of a specific risk margin for the uncertainty.
Wanted to stress that this new reporting requirements will not.
Change the way, we manage the business and we will continue to focus on underwriting profit on an undiscovered basis with strong with Xiaomi.
Continued to show a combined ratios and operating income on an undiscovered basis.
Preparing for this transition has been a massive amount of work over a multiple year.
For our accounting actuarial and finance teams all across the world.
And particularly like gene and Allen, our Chief Financial Officer, and a small team ex FX a big thank you to all.
The most important point I can make for you is to repeat what I said in our annual report and our recent.
Annual General meeting AGM for.
For the first time in our 37 year history.
I can say to you we expect.
No guarantees.
Operating income to be more than 3 billion annually.
For the next three years.
Operating income consists of one 5 billion from interest and dividend income.
1 billion plus from underwriting profit and a half a billion and some non insurance companies.
This works out to about $100, which after.
After interest expenses overhead and taxes.
First quarter is running at these levels.
Fluctuations in stocks and bond prices will be on top of that and this will really matter over the long term.
Our fixed income portfolios remains conservatively positioned with approximately 80% in government securities and only 14% and short dated corporate bonds, we have locked in interest and dividend income at over 1 billion. One 5 billion for the next three years.
We continue to do all we can for our Ukrainian employees, our whole company is behind all three outstanding Ukrainian residents as they look after our employees under extremely difficult conditions I will now pass the call to Peter Clark, Our President and Chief operating officer simplify the updates.
Yeah.
Thank you Pam.
We had net earnings of 1.25 billion for the first quarter of 2023, driven by strong performance across all sources of earnings.
As Prem highlighted we had record adjusted operating income of $843 million.
Generated through underwriting income of $314 million.
Interest and dividend income of $312 million from our insurance and reinsurance operations and.
And our share of profit of associates of $218 million.
Also leading to the strong first quarter, where net gains on investments of $771 million.
And the benefit of the effects of discounting and risk adjustment of $310 million.
Our combined ratio for the first quarter 2023 was 94% and included catastrophe losses of 192 million or three seven points on our combined ratio.
While our gross premium was up seven 2%.
We continue to see favorable market conditions in many of our major lines of business and.
And we will talk a little more about that in the within the underwriting results later.
Our investment return for the quarter was two 6%.
With strong interest and dividend income increased share of profits of associates and unrealized mark to market gains on our equities and bonds.
The net gain on our bond portfolio of $319 million in the first quarter consisted of realized losses of $332 million principally from the sale of short dated bonds and unrealized gains of $651 million primarily from government bonds.
Yeah.
The sales of the shorter term bonds were replaced with three to five year U S treasuries <unk>.
Extending our duration to approximately two and a half years.
Our net gains on our equity and equity related holdings, where $410 million in the quarter.
Driven by unrealized mark to market gains on our Fairfax, Trs Blackberry <unk> and four in mining.
As mentioned in previous quarters, our book value per share of 803 does not include unrealized gains or losses in our equity accounted investments and our consolidated investments, which are not mark to market.
At the end of the first quarter. The fair value of these securities is in excess of carrying value by $439 million.
An unrealized gain position.
Or $19 per share on a pre tax basis.
Under Ifr F 17, our net earnings are affected by the discounting of our insurance liabilities and the application of our risk margin.
In the first quarter of 2023, our net earnings benefited by $310 million pre tax.
The effects come from the discounting of losses occurring in the current year.
Changes in the risk margin.
Unwinding of the discount from previous years.
And changes in the discount on prior year insurance liabilities.
As interest rates fluctuate, we will see positive or negative effects on net earnings from discounting.
Jen Allen will provide further details.
Our insurance and reinsurance businesses continue to grow all over the world as we wrote seven 1 billion of gross premium in quarter one 2023.
Our gross premiums were up seven 2% this quarter versus the first quarter of 2022.
An increase of approximately $500 million.
This growth is driven by the strong margins that prevail in many of our markets and increased pricing on property business, especially catastrophe exposed.
Our global insurer and Reinsurer segment had the largest absolute premium growth at $233 million.
Up 6% this quarter versus the first quarter of 2022.
Allied World was up seven 5% in the quarter, while Odyssey was up six 5%.
Both driven by double digit premium growth in the reinsurance operations.
Written premium was relatively flat.
With premium up at key 36%, while premiums were down at brix other businesses largely due to reductions in its north American property Binder business.
Our North American insurance segment increased gross premiums of 149 million or eight 4%.
Both northbridge in chromium Forrester had double digit growth.
Northbridge was up almost 14% in Canadian dollars, driven by high customer retention and strong growth in new business.
While crum <unk> Forster premium grew 12% driven.
Driven again by its accident and health business.
The E&S premiums were flat year over year due to the competitive nature of the workers' compensation market.
The premium of our international operations was up the most of all segments on a percentage basis, increasing 12% in the first quarter versus the first quarter of 2022.
Growth was strong at Fairfax Asia up, 36%, driven by Singapore, REIT and Pacific insurance.
We also saw double digit growth at Fairfax, Brazil, Polish free and call insurance.
The international operations growth was muted in the U S. Dollar terms by the strengthening of the U S dollar against most currencies year over year.
On closing of our acquisition of an additional 46% of golf insurance.
We will begin consolidating their results, adding an approximately $2 7 billion in premium annually to our international business.
Over time, we believe our international operations will be a significant source of growth driven by Underpenetrated insurance markets and strong local economies.
Our company has continued to grow into favorable market conditions, although that growth has been slowing.
While we see rate increases reducing in some lines.
Public D&O and cyber for example.
Overall rate levels remain attractive.
With a very hard reinsurance market, especially for property business and other macro factors, we believe favorable market conditions will continue throughout 2023 or longer.
As previously mentioned, our combined ratio was 94% in the first quarter of 2023.
Producing underwriting profit of $314 million.
The combined ratio included catastrophe losses of $192 million, adding three seven combined ratio points about half of which was from the earthquake in Turkey.
This compares to a combined ratio of 93.1.
And catastrophe losses of two eight points in the first quarter of 2022.
As our premium base has expanded significantly and with the benefits of diversification, we have been able to absorb significant catastrophe losses within the underlying under under our underwriting profit.
Our global insurers and reinsurers posted a combined ratio of $93 five led by Brett who had a combined ratio of 98.
Benefiting from low catastrophe losses, and recent underwriting actions.
Allied World had another strong quarter at 91, 7%.
And Odyssey group was at 96, four which included 10 points four points of catastrophe losses.
Incurring the majority of our Turkey earthquake losses.
North American insurers had a combined ratio of $94 one led.
Led by North Bridge, who had a great quarter at 91.1.
Crum <unk> Forster continued to produce sub 95 combined ratios at $94 seven.
Well zenith had an elevated combined ratio posting a $99 three <unk>.
Benefiting less than prior quarters from favorable reserve development.
Our international operations had a combined ratio for the quarter of $96 four.
Fairfax Asia had a very good quarter with a combined ratio of $92 nine our Latin American operations came in at 94 four.
Despite some despite some difficult economic conditions in our eastern European operations were at $96 one.
Bright in South Africa had a difficult start to the year with a combined ratio of $102 six.
From elevated losses on their auto book and dealing with the higher cost of reinsurance.
Bright are taking the necessary underwriting actions to get back to profitability.
While not benefiting from the hard market experienced in North America or international companies continue to perform very well while growing profitably.
For the quarter, our insurance and reinsurance companies recorded favorable reserve development of $30 million or the benefit of <unk> six points on our combined ratio.
This compared to $22 million or the benefit of half a point in 2020 to.
The prior year reserve movements tend to be much less in the first quarter given the extensive actuarial reserve reviews performed in the fourth quarter of 2022.
Our expense ratio continues to benefit with our earned premium volume outpacing expenses.
Our overall underwriting expense ratio was 20 basis points lower year over year with the underwriting expense ratio decreasing at essentially all our insurance and reinsurance operations.
We had a great start to the year on all fronts and expect that to continue throughout 2023.
Our insurance and reinsurance operations have never been stronger led by very strong management teams. The companies 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 non insurance companies.
Performance overall financial position and recent transactions.
Peter I'll begin my remarks with a few comments on the company's adoption of the new accounting standard for insurance contracts I for 17.
First I would also like to express my gratitude to the teams involved at each of our global insurance and reinsurance operating companies.
Or a county tax actuarial internal audit and I T teams collaborated to ensure this project was a success.
Additionally, our auditors pwc external consultants and in particular, a special thank you to our small head office team, who ensured the significant input implementation was a resounding success you should all be extremely proud of your complement accomplishment and again a huge thank you.
This is the first time, we are reporting our financial results under the new iPhone 17 insurance contract standard.
And accordingly, our comparative periods had to be restated and presented under <unk> 17.
Our Q1 2023 interim report therefore includes restated comparable reporting periods for our Q1 2022 consolidated statement of earnings.
Comprehensive income cash flows and change in equity.
And the consolidated balance sheet as of December 31, 2022, and then January one 2022.
So all of the periods presented are on the same measurement basis now under Ias 17.
We've included a reconciliation of the restated Q1, 'twenty two comparative period consolidated statement of earnings.
And the restated consolidated balance sheets within that was previously issued under IRS for <unk>.
Starting on page 58 of our MD&A.
I would like to provide a few comments on the benefit that the transition had on the companys common shareholder equity and book value per share at December 31, 22.
Which was disclosed on page 36, and 59 of our interim report.
Looking at the cumulative benefit at December 31, 2022 for adopting <unk> 17, we reported an increase in our common shareholder equity at $2 4 billion, which was an increase in book value per share of approximately $105 to $762 a share.
The $2 4 billion adjustment, which principally comprised of the introduction of discounting that claim reserves that reflects your time value of money for a benefit of $4 7 billion.
That was partially offset by a risk adjustment of $1 6 billion for the uncertainty related to the timing and the amount of cash flows.
That corresponded into a consolidated competence level at December 31, 22 of 84% and.
And the tax effect on those measurement changes and other adjustments like NCI for an aggregate of <unk> 7 billion.
I would like to refer you to note four in the interim report traditional details on the primary yield curves that were used to discount the cash flows and more commentary on the risk adjustment.
Now turning to the first quarter of 2023, and our press release on page two in our MD&A on page 38, we disclosed in a table the insurance service results under <unk> 17 for property and casualty insurance and reinsurance operations.
Where it's reconciled to underwriting profit.
As Prem said, a key performance measure that will continue to be used by the company and more broadly in the property and casualty industry in which we operate to evaluate and manage the business.
The primary reconciling adjustments presented in those tables are first readjust to include the other insurance expenses.
Presented on the consolidated statement of earnings outside of insurance service service results and.
And secondly, adjust for the effects of discounting of risk adjustment, which are presented in the insurance service expense and recoveries of insurance service expense lines in the consolidated statement of earnings.
Our traditional measures of underwriting profit and combined ratios were on and I'm discounted basis as Peter as discussed by Peter So let.
Let me comment on the impact of buyer for 17 on the quarter results.
The total effective discounting of risk adjustment or an aggregate benefit of $310 million that was recognized in the consolidated statement of earnings in the first quarter of 'twenty three within key financial statement lines for.
First was the benefit of discounting the loss in seed is lost on claims and change in risk adjustment that was recorded in the period with $473 million.
That's included in your insurance service results in our consolidated statement of earnings.
That was partially offset by the second component that's presented in a separate line in the consolidated statement of earnings in net finance expense for $163 million.
And that $163 million was comprised of your interest accretion of $254 million, which is you're unwinding of the effects of discounting on your previous net claims recognized during the higher rate environment in 2022.
And that was partially offset by a benefit in your increase in the discount rates during the period of $90 million.
That compared to an aggregate benefit of 639 million reported in the first quarter of 'twenty Q that comprised the same components mentioned previously which were namely the benefit of discounting.
<unk> recorded in the period for $220 million in your insurance service revenue.
Current service result.
Net finance income of $419 million that was a benefit of an increase in discount rates in the period of $458 million as a result of the change in the interest rate environment be more pronounced in the first quarter of 'twenty two compared to the first quarter of 'twenty three and that was partially offset by your interest.
Accretion of 39 million relating to the unwind of the discount.
Please refer to note four in our interim report for additional details on the discount rates applied in those respective periods.
A few comments on our non insurance company. The operating income the non insurance company reporting segment decreased to an operating loss of <unk> 6 million in the first quarter of 'twenty three compared to operating income at 727 million in the first quarter of 'twenty two.
Excluding noncash charges and adjustments and an operating loss at par value to hospitality.
Of $74 7 million in aggregate reported in the first quarter 'twenty three.
Operating income for the non insurance company increased by 47 million to $74 1 million and reflected increased operating income at Fairfax, India. As a result of higher share of profits of associates, principally from its equity accounted investment in Bangalore Airport.
And interest and dividend income at Fairfax, India.
Also there was improvement in the other operating segment, where the adjusted operating income of $1 3 million compared to an operating loss of 19 million in the prior period in.
And principally reflected higher business volumes at a J T.
Looking at our investment performance from our investments in associates in the first quarter, we reported very strong profits from our investment in associates with the share of profit of associates, increasing to $334 million from 181 million in the comparative period.
The increase reflected the company's increased share of profits from Euro bank, which contributed $94 6 million in the quarter compared to $31 million.
<unk> coal resources contributed $69 million compared to 38 in the prior period and Gulf insurance was $28 7 million compared to $1 3 million million in the prior year.
We also reported continued strong performance by Poseidon, which was formerly known as Atlas at $50 million compared to an even $50 million in the prior period.
And also to note there was no share profit reported from resolute as a result of our disposition of that investment on March 1st 23, whereas the first quarter 'twenty two included $12 million a share of profit.
Your comments on the transactions we.
We didn't have any significant acquisitions or divestitures that closed in the first quarter of 'twenty, three but I would like to highlight the following key transactions that closed subsequent to the quarter were anticipated to close in 'twenty three.
The impact not yet reflected in our book value per share.
First was that on May 10th 2023 brick completed the sale of Ambridge.
Managing general underwriter operations to minted group.
In the second quarter of 'twenty, three Britt will consolidate those assets and liabilities of Ambridge and is expected to record a pretax gain of approximately $255 million net.
And that's prior to ascribing any fair value to an additional receivable.
It's also anticipated in the second quarter of 'twenty, three that Britt will pay a special dividend of approximately 275 million to the holding company as a result of the net proceeds received from this sale.
The second transaction was our announcement of acquiring the additional equity interest in Gulf insurance.
On April 19th 2023, we entered into an agreement to acquire all of the shares of golf insurance under the control of KEPCO and certain of its affiliates.
That represents a 46 three of the equity in golf insurance.
On closing of this transaction, which is expected to close in the second half of 2023, we anticipate we will consolidate the asset and liabilities and golf insurance, increasing our equity interest for 43, 7% to a controlling interest of 90% and.
And we expect to record a pretax gain of approximately $300 billion with changes in the companys carrying value of its equity accounted investment in golf insurance up until the date of closing potentially impacting that pretax gain.
In aggregate the benefit of those two transactions anticipated to be booked during 2023.
Of the expected pretax gain of $555 million translates to a pre tax book value per share benefit of approximately $24 a share yet to be recognized.
In closing a few comments on our financial condition the.
The liquidity position of the company remains strong with our cash and investments at the holding company of just under 1 billion at March 31 2023.
With Brit paying a special dividend of approximately $275 million, that's not reflecting in our closing position at March 31, as the transaction closed subsequent to the quarter end.
Looking to our total debt and cap ratio and common shareholder equity excluding the investments of our consolidated non insurance companies.
Our total debt to total cap ratio was 22, 9% at March 31 2023.
Which is an improvement compared to the 23, 7% at December 31, 2022, with the improvement in the ratio principally reflecting the strong net earnings reported in the quarter of $1 2 billion that included the underwriting profit on an undisputed basis of $314 million.
Interest and dividend income of 382 million and chair profit of associates of $334 million.
The holding company has no significant holding company debt maturities until August 2024.
And our common shareholder equity increased by $884 million in the quarter to $18 six 6 billion at March 31, 2023 up.
Up from the $17 78 billion reported at December 31, 2022.
And that reflected the net earnings of 1.25 billion that was partially offset by our common and preferred dividends of $257 million and purchases we made in the quarter of $156 7000.
Thousands of subordinate voting shares for cancellation for cash consideration of $100 million.
That concludes my remarks, I will now turn the call back over to Prem. Thank.
Thank you Jed.
We now look forward to answering your questions. Please give us your name your company name and try to limit your questions to only one so that it's fair to all of the gold.
Christine we're ready for the questions.
Thank you again as a reminder, please press star one on your phone keypad one moment.
Okay.
Our first question comes from Tom Mackinnon of BMO.
BMO capital.
Your line is open.
Yeah, Thanks, very much and good morning, I'm just chocolate questions here Prem did I hear you. When you said it correctly. When you said you extended duration in your bond portfolio I think it was pretty short before and you extended it out to about two to three years. Now is is that it is yeah did you mention.
That or was there anything.
With respect to your bond portfolio, Yes, I think we said that two and a half or so.
Tom.
Okay and in the end is that what portion is that the entire portfolio duration has moved from one six to two and a half and is that a is that what happened on the bond portfolio right. It's all good about it.
Yeah, and the important point that that is all along.
80%.
Of our bond portfolio is government treasuries made me, but government wherever we operate.
Canada Canadian governments and in other countries.
And.
And oney 20.
14% I think was that we said was a corporate or something like that then and that's all a very short term that's coming due relatively soon.
And what do you have done Tom.
Is because these are coming due in the next three months six months, we like the rates.
And.
The first quarter. So we are locked in three 7%, 375% of our U S government treasuries for a three years. So we locked it in ahead of the maturity.
You know we are happy with $3 75 could go to a four and a quarter four and a half I don't know it could go to two and a half $3 75 was good we locked it in and that's ahead of the maturities and.
The next three months six months.
That's great.
And.
Thank you. Our next question comes from Mark Dwelle, Lee of RBC capital markets. Sir Your line is open.
Yeah, I have a couple of questions actually good morning.
The first day, you went through it within the the non insurance subsidiaries in the other segment.
Jim could you go through again.
And I guess had a 74 million aggregate loss and I was just you you'd made some mention of it in your comments I just wanted to make sure I understood what elements were comprising that total.
Yeah, So mark so in there we readjusted for things like Reveille of hospitality that was not in the prior reporting periods. It was on a comparable basis and then we had some other noncash charges.
And within the other reporting segment that.
That aggregated up to the $74 million.
Okay.
Second question that I had related to.
Within the reinsurance segment, there was a small amount of adverse development, which was fairly unusual so I thought I'd ask like why would what gave rise to a small amount of adverse development there.
Peter.
Yeah, sure and really what that related to is if you remember late in 2022 there was the winter storm Elliot.
And the last one or a couple of days of the year, and that's where our especially on the reinsurance side. We had some development just for late reported claims so true IV and are and some of that was offset by favorable development on hurricane Ian but that's what that a small amount of development relate.
Two.
Okay, that's kind of what I was thinking but I just wanted to be double sure a lot of others have reported the same thing.
One last question just any update related to to go do drip and where things stand there.
Yeah go did did the digital George we're looking at.
Said publicly that they're looking at the potential of going.
Going public Mark and they're in the process of you know them.
Going to bed they need some approvals from.
From the department of insurance or not but the FCC of India is called SEBI. So they need all those approvals before they can now.
Look it going public it's always subject to the market of course.
Sure.
Okay. Thank you those are my questions.
Thank you very much Mark our next question Christy.
Thank you. Our next question is again from Tom Mackinnon Your line is reopened Sir.
Oh, great. Thanks, Yeah. Jan I was just wondering is it the things that really impact our for our 17 are the change in the risk adjustment the unwind of the discount the build of the discount and the change in the discount rate. So if we kind of had a flat.
Interest rate environment, and a pretty well steady state with with respect to your growth.
With all of this noise be pretty minimal like what kind of conditions would make this newly show up more to the positive or actually show up more to the negative.
Yes, sure. It's a good question to them. So the way I think if you're in a steady state if your underlying net reserves from a risk profile duration does not change then as you unwind you're discounting that you won't have a change in your discount rate it should really be offset in and really don't.
See a huge impact the other side of it is your risk adjustment would be steady state you would be releasing your risk adjustment on your old book, but you would also be setting up the same risk adjustment on your new book. So it's only when you book grows. So if your net reserve starts to grow you'll start to get that net benefit through again, if it shrinks it would.
Be a negative impact to your total portfolio.
And then on the change in the discount rate is that just generally if we have a flat interest rate environment than a we wouldn't get that noise as well I assume.
Correct.
Okay. One point that you should know is that we are gen was saying we benefited to the tune of $2 4 billion net.
And for the year 2022.
We had a bond loss in 22 of about $1 billion if fever matched.
We'd have a $2 4 billion dollar loss and you'd have that are discounting of two point fall and into the <unk>.
Went to about any benefit the fact that we weren't matched the fact that we had you know we didn't reach for yield.
And what's the reason why we benefited to the tune of $2 4 billion.
That's a good benefit and I just wanted to put that in perspective for you.
Are you more match now Prem with 80% government treasuries because they hadn't.
Still not a ton because we had a room you know two and a half years I think a beta or a liability that would be used for USA.
Full plus.
And what we are thinking tell them is that we've got government securities bond guys, Brian Bradstreet flatbed of locked in.
You know.
Close to 4% plus or minus.
Our full our bond portfolio and treasuries like I said, 80% the short term.
Corporates will mature but when.
When you have you know when you have a recession, we don't know if there's going to be a recession.
But in the next three years, if you have a recession, if the spreads which happened.
Widened and I experience over a long period of time is when you have a recession the spreads widen.
When the spreads widen we think will go into very high quality corporates as upset at the AGM.
345 years and now Tom.
Tom as opposed to duration and then lock in those rates very high quality rates and hopefully.
We'll make some money, perhaps somehow treasuries, but but at respective we'd look at those rates and that could be pretty significant you know when the spread widens, but that's just speculating in terms of what's what potentially possible.
Great. Thank you.
Thank you good job My next question Christie. Thank you.
Our next question comes from Ashwin more Johnny of Edward Jones. Your line is open.
Hi, Congrats on the continued strong performance.
Looking ahead to a year.
Looking ahead, a year or two.
What would you have to see to cause you to pull back from insurance and send more to the Holdco and this could and could this cause additional theatres in cash that's gonna be invested at the holdco level to generate more earnings per share when the insurance cycle eventually turns thanks.
Yeah sure.
I guess first of all just to say that we are you know as long as the as the margins are good and we're getting good rate at our insurance companies. We always want to grow we want to grow into a hard market. We want to take advantage of that and we have for the past three years, you know growing gross premiums by about 18%.
Sent per year for the last three years.
So.
We wouldn't cut back in in a market.
Like today, but over time, you're exactly right that our premiums will flatten out when rates started coming down its a cyclical market and when that occurs there will be significant a dividend ability to dividend up money to the holding company and then that gives us a lot of flexibility what.
To what to do with that.
That's helpful. Thank you.
Thank you Ashwin Christy next question.
Thank you. Our next question comes from Howard Linker of Winter and company. Your line is open.
The first is do.
Do I understand correctly that.
The forward purchase of your own stock.
Mark to market in the income statement up or down.
And not just the equity account.
That's correct yes.
Okay, Alright and second.
On page 184 of the annual report you describe your increase in ownership of Allied I think from 71% to 82% for about $775 million.
And you wrote down your retained earnings by.
Yeah, that's just how the accounting works Howard, but Eh Jen would you Oh I'm so that Oh.
So whatever you buy the minority interest.
You know so we had a I forget exactly at 25, 30% then I'm all for a light wall that was owned by two.
<unk> plans, we bought a maybe a window of what did we buy about a third of it yeah about 10%.
But 10% though.
<unk>, we bought we've retired that and the way the accounting works the minority interest is reduced Oh highway.
And that's just how it is even though we think it's a you know the company went from 3 billion three 9 billion to $6 billion. We thought it was worth a lot more right but.
Accounting as a county desire for 17 is a oh.
Wanda, but a lot of you will spend a lot of time trying to understand it.
I don't want to add any more we would never do something like this.
Okay. Thank you I'll circle back for my next question.
Okay terrific.
Christie next question.
Thank you as a reminder, if you would like to ask a question. Please press star one on your phone. Our next question comes from Giovanni.
D Julia.
Private investor morning Giovanni.
Good morning, and thank you for taking my question bleeding you handle the board and.
Thank you.
One year of normalized earnings.
Yes.
The old coal.
And I was wondering.
Given the growth.
They could be.
Earnings.
Should we expect.
The higher level of.
With gas going forward.
And second if I may all much of cash and short term investment.
That's right.
He's available for investment.
Going forward. Thank you.
Yes. Thank you Giovanni Peter you want to take like a best Yeah sure no yes.
Yeah for the better part of 10 15 years, we've kept in excess of $1 billion in cash and marketable securities and the holding company and.
And we're constantly reviewing that and as we said before that that cash as there is for insurance companies its not for acquisitions, it's not for investments and it's really you know for us to.
To ensure that our companies insurance companies can grow when market conditions exist or if any problems exist and that's exactly what we've done over the last three years. So we haven't built that up because we've been using some to support the insurance operations.
As we I said, a little earlier that I think you know when when premiums flatten off.
The companies will build excess capital and then that dividend will flow back up to Fairfax, and we'll build that cash balance are you.
Exactly right, we're a bigger company now we should.
The plan would be to hold a little bit more cash at the holding company.
Thank you that was helpful.
Okay.
Thank you very much our next question Christine.
Thank you. Our next question comes from Howard Tinker Thinker and company. Your line is open.
Hi, again.
This is a.
A question of a bigger picture Prem.
Yeah.
The bond market has been favorable or had been favorable for about 40 years, let's say 1980 in 2020 or maybe 2016.
And it looks like we're headed into a period when the bond market is going to go the wrong way for a long period of time.
And to add to that we've seen some banking troubles.
If.
The.
Environment for interest rate changes.
What would be beneficial for Fairfax to begin to do you see as your long term debt or pay it off so that when the opportunities arise.
When some film silly.
Finance companies.
Have customers or business is up for sale.
You can take advantage. It's also defensive so it's kind of a big picture question I wanted to know your thoughts Prem.
Well first of all.
Your comment is well taken 40 years that interest rates have been coming down, but we're used to that people have forgotten 40 years prior to that as rates went up and up.
And so you're exactly right Howard we could be we don't know we could be in an environment where rates of inflation is going up and interest rates up.
Oh.
Could go up also.
And so we just thought that's why we're keeping it for three years.
And debated.
But but in terms of our debt, we just thank god debt position debt.
As you know where you are where you don't have any bank debt.
We have hum.
We have bonds that we have issued and and and Ah and the bonds are you know our debt to capital debt to what the company is what is still very small we take but you know I've made the point that we'd never do this.
Just because they're so decentralized we can take one of our companies a large company in and sell it we'd be debt free and so we don't think we'd look at you know buying back on that but we got a deal of that but Peter you want to add to that too.
No I think the way we look at our our debt to total cap has been dropping nicely. The last number of years and you know we're in the low twenties, now and and as our equity base expands that ratio will come down even further.
That would give us excess capacity and in an environment.
Where were we were looking to raise that but we're comfortable where we are and and I think you'll see that ratio decreases.
As the equity base gets bigger and that's let me rephrase it.
And I mentioned this our operating income is $100 a share. That's like you know you have three years to that that's that's pretty significant right.
And we're focused on.
The pressures on interest rates, maybe from credit maybe not from inflation as the pressures from interest rates rise.
Would it be advantageous to build up more cash now so you're ready for something like that to happen.
Well yeah, no. That's a that's a good point you just saw us by a pretty big company.
And you know without issuing any stock. This is the one in the middle East G. I G.
We paid a 446% we paid $860 billion, we structured it in a way that you know, perhaps a lot of it will come from the company itself dividends from the company.
So this is what we've done in the past but.
As Peter was saying that focus on our financial soundness always cash at the holding company. The bank lines. The things that you know and then be a focus on the back of your insurance companies, but once we do those two things are that would be showing up even in the first quarter buying back our stock and we think our stock.
You know I've said that for some time and our stock is a still a very cheap when you consider all the things that have happened and gone all way so a rhythm.
Don't buy our shares at the expense of our financial soundness, we won't buy our stock at the expense of not backing our insurance companies, but after that we'd be looking at buying our shares.
Thanks, guys.
Thank you very much Howard.
Any other questions Crissy.
Thank you. Our next question comes from Josh Dornfeld, a private Investor Your line is open Sir.
Thank you guys.
Hi are there any investment themes that you find interesting right now in terms of opportunities that are equity wanted to thank you.
Yeah. Thank you Josh no we look at the equity we've got a hold of bachman.
Our partners in the investment area that we look at our you know weight button.
And Lawrence Chin run our investment.
The department and less of a group and so we're looking at it all the time and and we never talk about the ones that they're going to buy because of course and a marketplace that doesn't make any sense right but.
But yeah. So we keep looking at opportunities all the time.
Thank you for your question, Josh <unk> any more questions Christy.
Thank you as a reminder, if you would like to ask a question. Please press star one on your phone.
One moment.
So there are no further questions Christy. Thank you very much for all of you for joining us on this call and thank you Christy.
Thank you at this time. This does conclude today's conference you may disconnect. At this time. Thank you for your participation.