Fairfax Financial Holdings Limited

Good morning and welcome to Fairfax's 2024 first 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 and today's conference is being recorded. If you have any objections, you may disconnect at this time. Your host for today's call is Peter Clark with opening remarks from Mr. Derek Bulis. Mr. Bulis, please begin.

Good morning and welcome to our call to discuss Fairfax's 2024 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 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 over to our president and COO, Peter Clark.

Thank you, Derek. Good morning, everyone, and welcome to Fairfax's 2024 first quarter conference call. I plan to give you some highlights and then pass the call to Wade Burton, our President and Chief Investment Officer of Hamblawatsa, to comment on investments, and Jen Allen, our Chief Financial Officer, to provide some additional financial details. We had a strong start to 2024 with net earnings of $777 million in the first quarter of 2024 and strong operating income from our insurance and reinsurance operations adjusted to an undiscounted basis and before risk margin of $977 million. This is up from $843 million in the first quarter of 2023. Driving this result was underwriting income from our property and casualty insurance and reinsurance companies of $373 million in the quarter, with a combined ratio of 93.6. I will speak more on the underwriting results later. Consolidated interest and dividend income was $590 million in the quarter, up from $382 million in the first quarter of 2023, benefiting from an increased investment portfolio, now approximately $65 billion, and actions taken last year locking in higher rates on our fixed income portfolio. As we said at our annual meeting, we can see this base of interest and dividend income for the next three to four years. Consolidated share of profits of associates in the first quarter was $128 million. This is down from $334 million in the first quarter of 2023, primarily relating to associated income of golf insurance, which is now consolidated, and IFL finance, which is now to mark-to-market accounting. and other one-off items. The two most significant associate investments, Eurobank and Poseidon, continue to perform very well and make up a significant amount of our associate earnings. Our consolidated investment return for the first quarter was 1%. Investment income was driven by interest and dividend income, as I said, of $590 million. Our share of profits of associates of $128 million, offset by $59 million of net losses on investments. The net losses on investments of $59 million comprised mark-to-mark losses on bonds of $319 million due to increasing interest rates, offset by mark-to-market gains on common stocks of $275 million. We have said many times in the past, net gains or losses on investments only make sense over the long term and will fluctuate quarter to quarter, and for that matter, many times year to year. Also mentioned in previous quarters, our book value per share of 945 does not include unrealized gains or losses in our associate 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 $1.2 billion, an unrealized gain position for approximately $52 per share on a pre-tax basis. Under IFRS 17, our net earnings are affected by the discounting of our insurance liabilities and the application of a risk adjustment. In the first quarter of 2024, Our net earnings benefited by $273 million pre-tax from the effects of discounting losses occurring in the year, changes in the risk margin, the unwinding of discount from previous years, and changes in the discount rate on prior year insurance liabilities. As interest rates move up and down, we will see positive or negative effects on net earnings from discounting. The gain in the first quarter of 2024 on discounting includes a gain of $192 million from the effect of changes in interest rates benefiting from increasing rates. This partially offsets the mark-to-market losses on our bond portfolio of $319 million. Our book value per share at March 31, 2024 was $945 million. compared to 940 per share at December 31, 2023. An increase of 2.3% adjusted for the $15 dividend paid in the first quarter. As we said for the last number of quarters, the most important point we can make for you is to repeat what has been said in the past. For the first time in our 38-year history, we can say to you we expect, of course no guarantees, sustainable operating income of $4 billion, operating income consisting of $2 billion plus from our interest and dividend income, $1.25 billion plus from underwriting profit with normalized cap losses, and $750 million from associates and non-insurance companies. Fluctuations in stock and bond prices will be on top of that, and this only really matters over the long term. Yesterday, we were very excited to announce some leadership changes that further builds on Odyssey Group succession plans that were first put in place in February 2023. Carl Overy, who is currently the CEO of Odyssey Reinsurance Company, will succeed Brian Young as CEO of Odyssey Group, effective January 1st, 2025. Carl will be responsible for Odyssey Group's global operations overseeing its three franchises, Odyssey Re, Hudson Insurance, and New Line Group. Carl has been with Odyssey Group for over 20 years, most recently as CEO of Odyssey Re, and prior to that, 15 years as CEO of Odyssey Group's London Market Division. Carl has had an outstanding track record. With this appointment, Brian Young, beginning January 1st, 2025, will join Fairfax on a full-time basis as president of Fairfax Insurance Group and work alongside Andy Bernard, who will assume the role of chairman. We are very happy with this seamless internal succession within Odyssey Group and having Brian, with his extensive knowledge and experience of the insurance industry, join Fairfax. Moving on to our insurance and reinsurance operations results, our insurance and reinsurance businesses wrote $8 billion of gross premium in the first quarter of 2024, up 12.8% versus the first quarter of 2023. The growth was driven by the consolidation of golf insurance, which was consolidated into our results for the first time this quarter. Excluding golf's premium of $649 million, Gross premium was up approximately 3.6%. Our North American insurance segment increased gross premiums by $152 million in the quarter, or 7.9%. Crum & Forster had double-digit growth at 12%, driven by its accident and health business, surplus and specialty lines, and Seneca Insurance. Northbridge was up 4% in Canadian dollars, Reflecting excellent customer retention, rate increases offset by decrease in new business. Venus gross premiums were down 2.6% in the first quarter of 2024 compared to the first quarter of 2023 due to the continued competitive workers' compensation market. Our global insurer and reinsurer segment increased modestly with gross premiums written of $4.3 billion in the quarter, up 1.4% versus the first quarter of 2023. Allied World was up 6.4% in the quarter, led by its reinsurance segment, which had double-digit growth, while its insurance segment was up approximately 3%. Brits Premium was up 2% to $913 million in the quarter, with growth in its direct book, primarily property, largely offset by contractions and reinsurance and discontinued lines, while Key continued to grow and was up approximately 5%. Odyssey's gross premiums written were down 5.2%, with its insurance business up 4.8%, principally at Hudson and in their London market division. offset by a decrease in the reinsurance business, which was down 10.7%. The reinsurance business was impacted by the previously disclosed non-renewal of a large quota share in the fourth quarter of 2023. Excluding the quota share contract, Odyssey's reinsurance business was up 3% in the first quarter of 2024. Our international operations gross premium was up significantly in the first quarter of 2024 versus the first quarter of 2023 with gross written premium of $1.6 billion, up 78% or $694 million. The growth was primarily the result of the consolidation of golf insurance that added $649 million of gross premium in our international operations. Including Gulf, our international operations gross premiums were up 5%. Growth was strong at Colonnade Insurance, Polish Re, Eurolife, and our Ukrainian operations, offset by Fairfax Asia. With the closing in the fourth quarter of 2023 of our acquisition of an additional 46% interest in Gulf Insurance and an additional 7% in April 2024, Approximately 20% of our consolidated gross premium is now coming from our international operations. With the addition of golf insurance, our consolidated results, it provides further diversification and scale within our insurance and reinsurance operations. As we said in the past, the long-term prospects of our international operations are excellent and will be a significant source of growth over time. driven by excellent management teams, underpenetrated insurance markets, and strong local economies. Our combined ratio was 93.6 in the first quarter of 2024, producing an underwriting profit of $373 million. The combined ratio included catastrophe losses of $101 million, adding 1.7 combined ratio points, primarily from attritional catastrophe losses. This compares to a combined ratio of 94% in catastrophe losses of 3.7 points in the first quarter of 2023. Our global insurers and reinsurers posted a combined ratio of 91.6 in the first quarter. BRIT had a great start to the year with a combined ratio of 89.7 and 75 million of underwriting profit, reflecting the positive underwriting actions taken the last number of years. Allied World produced the largest underwriting income in the group at $100 million and a combined ratio of 91.5, with strong results in both its global insurance segment and reinsurance segments. Odyssey Group produced a combined ratio of 92.8, including an 87.3 combined ratio in its reinsurance business. Our North American insurers had a combined ratio of 94.7 in the first quarter of 2024 and an underwriting profit of $90 million, led by Northbridge with another strong quarter at a 91 combined ratio. Kerman Forster had a combined ratio of 95.9, while Zenith had a combined ratio of 99.1 with the benefit of favorable reserve developments. Our international operations delivered a combined ratio of 98.5 in the first quarter. Fairfax Asia had another good quarter with a combined ratio of 93.8, and our Latin American operations came in at 94.2, with our Central and Eastern European operations producing a solid 94.8. Gulf Insurance had an elevated combined ratio in the quarter of 103.4 compared to the past, that reflected seasonality in its medical book, losses in Turkey, and purchase price adjustments on the acquisition. We expect over the course of the year, golf will continue to boast combined ratios similar to previous years. On a consolidated basis, our international operations produced underwriting profit of $14 million, or $27 million excluding golf insurance. Our insurance and reinsurance companies continue to manage their business, and performance continues to be measured on underwriting profit on an undiscounted basis. For disclosure purposes, we have provided in our press release and interim report the discounted combined ratio. For the first quarter, the discounted combined ratio was 82.9 compared to the undiscounted combined ratio of 93.6. For the quarter, our insurance and reinsurance company's prior year development was relatively flat with reserve development of $30 million with favorable reserve development of $30 million or a benefit of half a combined ratio point. This is the same as the first quarter of 2023 with a slightly higher benefit on the combined ratio of 0.6 combined ratio points due to lower premium volume. Typically, there's not a lot of movement on reserves in the first quarter, as full actuarial reserve reviews are done in the fourth quarter of the year. Our reserves remain strong. Through our decentralized operations, our insurance and reinsurance companies continue to thrive, consistently producing solid underwriting profit and led by exceptional management teams. Our companies are positioned very well to continue capitalizing on their opportunities in their respective markets in 2024. I will now pass the call to Wade Burton to provide some additional comments on our investments.