Toronto-based Fairfax Financial Holdings Limited had a net loss of $318.1 million in the fourth quarter of 2005 and $497.9 million for the 2005 year.
The falls come after absorbing losses from Hurricanes Katrina, Rita and Wilma during the fourth quarter and the 2005 year of $249.5 million and $715.5 million, respectively, and after recording pre-tax charges resulting from actions taken in runoff during the fourth quarter and the 2005 year aggregating $249.9 million and $465.5 million, respectively.
Fairfax’s insurance and reinsurance operations continued to generate strong underwriting results prior to giving effect to these hurricane losses. The combined ratios of Fairfax’s ongoing insurance and reinsurance operations were 112.7% and 107.6% for the fourth quarter and full year of 2005, respectively, and prior to giving effect to the hurricane losses were 92.0% and 93.7%, respectively.
Notwithstanding some general softening in the insurance and reinsurance markets, as anticipated for 2005, which caused combined ratios excluding hurricane losses to deteriorate modestly relative to combined ratios excluding hurricane losses achieved in 2004, each Fairfax operating company produced a combined ratio excluding hurricane losses below (and in most cases well below) 100%. Fairfax’s ongoing insurance and reinsurance operations incurred an underwriting loss of $330.6 million in 2005, and prior to giving effect to the hurricane losses would have generated an underwriting profit of $279.3 million.
The strength of Fairfax’s underlying underwriting results, coupled with increased investment income and the company’s $300 million equity issue completed in October 2005, allowed Fairfax, despite the hurricane losses, to maintain its strong financial position. Holding company liquidity remained strong, as Fairfax ended 2005 with $559.0 million of cash and marketable securities, virtually unchanged from $566.8 million at the end of 2004. Holding company debt decreased slightly during the year, and Fairfax’s debt maturity profile remained unchanged, with no significant debt maturities until 2012.
Prem Watsa, chairman and CEO, commented, “During 2005, the insurance industry experienced the largest catastrophe losses in its history, including from Hurricanes Katrina, Rita and Wilma. Our results were significantly affected by these losses, but our financial strength and the capital base of our insurance and reinsurance companies permitted us to absorb them. It is very encouraging to note that if the effect of the hurricane losses were removed, we would have produced excellent combined ratios in 2005. We enter 2006 with very sound operations at our ongoing insurance and reinsurance companies and with a good prospect of approaching breakeven at our runoff operation.”
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