Fairfax Financial Holdings Limited

Please. Welcome to Fairfax's second quarter results conference call. Your lines have 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 1 on your phone keypad. For time's sake, we ask that you limit your question to 1. Today's conference is being recorded. If you have any objections, you may disconnect at this time. Your host for today's call is Prem Wata. with opening remarks from Mr. Derek Bulis. Mr. Bulis, please begin.

Good morning and welcome to our call to discuss Fairfax's 2022 second 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 CDAR. Fairfax disclaims any intention or obligation to update or revise any forward-looking statements, except as required by applicable securities law. I'll now turn the call to our Chairman and CEO, Prem Watsa.

Thank you, Derek. Good morning, ladies and gentlemen. Welcome to Fairfax's 2022 second quarter conference call. I plan to give you a couple of highlights, pass the call on to Peter Clark, our president and chief operating officer, to comment on the quarter, and Jen Allen, our chief financial officer, to provide some additional financial details. Our company continued its excellent underwriting performance in the second quarter of 2022 with a combined ratio of 94.1%, while by growing gross written premiums by over 20%. Market conditions continue to be good, and our companies are taking advantage of that. Congratulations to all our presidents who continue to grow profitably in a strong rating environment. As you know, we have a very decentralized approach, and it works. Our book value per share decreased by 5%, adjusted for our dividend in the first six months as a result of unrealized losses on our investment portfolio of $1.5 billion in the second quarter. $874 million was from mark-to-market movements in our common stocks, principally Stelco, BlackBerry, Kennedy Wilson, reflecting the 16% drop in the S&P 500 in the quarter. and $413 million of mark-to-market losses in the quarter on our bond portfolio due to continued rising interest rates. Our book value drop of 5% in the first six months of 2022 is among the lowest among our competitors. This does not include mark-to-market losses from associates and consolidated investments. Peter will discuss this further. As in the past, we expect these mark-to-market unrealized losses to reverse over time and our long-term value investing approach to realize significant realized gains as time goes by. We benefited greatly by having such a low duration, 1.2 years on our fixed income portfolio. Our low duration on our $36 billion fixed income portfolio reduced the impact of rising interest rates on our bonds to a decrease of only 1.1% on the fixed income portfolio, significantly less than many of our peer companies. Notwithstanding our low duration, we had $965 million of unrealized bond losses that went through our income statement in the first six months of the year. We expect this will reverse over the next 12 to 18 months. In the meantime, we've been able to invest at higher rates, increasing our current normalized annual run rate for interest and dividend income to $950 million, up from an approximate run rate of $530 million at December 31, 2021. Operating income in the quarter and the first half rose to a record. amounts of $645 million in the quarter and $1.2 billion in the half. I should note that not recorded in our second quarter results is the previously announced sale of our pet insurance business to JAB, the sale of Resolute, which happened just after the June 30th quarter end, and the additional gain on digit insurance that will be taken upon regulatory approval for consolidation. Upon closing of these transactions, we expect approximate pre-tax gains of $1.9 billion. We expect all three to close in the next six months. I must add, we continue to do all we can for our Ukrainian employees. Our whole company is behind all three outstanding Ukrainian presidents of our companies as they look after our employees under extremely difficult conditions. Our prayers are very much with our Ukrainian employees. I will now pass the call to Peter Clark, our president and chief operating officer, for further updates. Peter.