Fairfax Financial Holdings Limited

Good morning and welcome to Fairfax 2024 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, if you'd like to ask a question, press star 1 on your phone keypad. For time's sake, we ask that you limit your questions 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 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 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 over to our president and COO, Peter Clark.

Thank you, Derek. Good morning and welcome to Fairfax's 2024 second 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 Hamblo-Otsa, to comment on investments, and Jen Allen, our Chief Financial Officer, to provide some additional financial details. In the second quarter of 2024, we had net earnings of $915 million, with strong operating income from our insurance and reinsurance operations adjusted to an undiscounted basis and before risk margin of $1.1 billion. This is up 23%, or it's approximately 200 million from the second quarter of 2023. Driving this result was underwriting income from our property and casualty insurance and reinsurance companies of 370 million in the quarter and a combined ratio of 93.9. Consolidated interest and dividend income was 614 million in the quarter, up from 465 million in the second quarter of 2023, Benefiting from an increased investment portfolio, now approximately $66 billion, increasing rates over the last number of years, and from our mortgage portfolio. Consolidated share of profits of associates in the second quarter was $221 million. This is down from $269 million in the second quarter of 2023, primarily relating to associate income of golf insurance, which is now consolidated, and Fairfax Insurance, India's IIFL finance, now mark-to-market accounting, and losses at Fairfax India's Sandmar Chemicals. Our two most significant associate investments, Eurobank and Poseidon, continue to perform very well and make up a significant amount of our associate earnings. Net gains on investments of $242 million in the quarter comprised realized and mark-to-market gains on equity exposures of $377 million, net losses on bonds of $191 million due to increasing interest rates, and other gains of $55 million, primarily preferred shares. The net gains on investments do not include the expected pre-tax gain of $390 million on the sale of Stelco that was announced in July. and is subject to shareholder and regulatory approvals and other customary closing conditions. We have said many times in the past, net gains or losses of investments only make sense over the long term and will fluctuate quarter to quarter, and for that matter, year to year. As mentioned in previous quarters, our book value per share of $980 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 second quarter, the fair value of these securities is an excess of carrying value by $1.5 billion, an unrealized gain position, or $68 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 second quarter of 2024, our net earnings benefited by 230 million pre-tax from the effects of discounting losses occurring in the quarter, changes in the risk margin, the unwinding of the 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 benefit in the second quarter of 2024 on discounting includes a gain of $161 million from the effect of changes in interest rates. We benefited from increasing rates. This partially offsets the mark-to-market losses on our bond portfolio of $191 million, which is included in our net gains on investments. Our book value per share at June 30th, 2024 was $980 compared to 940 per share at December 31, 2023. An increase of 6% 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 we've 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 interest and dividend income, $1.25 billion plus from underwriting profit with normalized catastrophe 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. In the second quarter, we announced Gobi Athepin has been appointed chairman and chief executive officer of Fairfax Asia. Gobi has done an outstanding job over his 23 years with Fairfax and Fairfax Asia. Over this time period, Gobi has been the chief executive officer of each of Fairfax's Falcon Insurance in Hong Kong and Pacific Insurance in Malaysia and has been the vice chairman of Fairfax Asia since 2015. Also in the quarter, we were pleased to announce that effective January 1st, 2025, Davidson Patith will become President and Chief Executive Officer of Zenith Insurance, and Kari Van Gundy will move to Executive Chair. Over the last 20 years, Davidson has held increasing broader leadership roles at Zenith, most recently as President, and has helped build Zenith into the great company it is today. Kari, who has done an outstanding job leading Zenith over the past 10 years, will remain as executive chair. As mentioned last quarter with the internal succession at Odyssey Group, these are all great examples of the internal succession we want to achieve at all our companies. Moving on to our insurance and reinsurance operations. Our insurance and reinsurance business wrote $8.9 billion of gross premium in the second quarter of 2024, up 10.8% versus the second quarter of 2024. The growth was driven by the consolidation of golf insurance, whose operating results were consolidated into our results beginning January 1, 2024. Excluding golf's premium of $816 million, gross premium was up approximately 1%. Our North American insurance segment increased gross premiums by $122 million in the second quarter of 2024, or 5.5%. Crum Forster grew 7.8%. Northbridge was up 5.1% in Canadian dollars, while Zenas gross premiums were down 3.3% in the second quarter of 2024 compared to the second quarter of 2023. due to the continued competitive workers' compensation market. Our global insurer and reinsurer segment decreased modestly with gross premiums written at $4.8 billion in the quarter, down 2.1% versus the second quarter of 2023. Odyssey's gross premiums were down 9.5% due to lower premium volume in its crop business and the impact of the previously disclosed non-renewal of a large quota share in the fourth quarter of 2023. Excluding the quarter share contract, Odyssey's reinsurance business was up 13% in the second quarter of 2024. BRIT's premium was down 6.5%, or $72 million in the quarter, through the trimming of positions in financial lines, cyber and casualty business, and property at key. While Ally World was up 8%, led by its reinsurance segment, which had double-digit quotes. Our international insurance and reinsurance operations gross premium was up significantly in the second quarter of 2024, with gross written premium of $1.8 billion, up over 90%, or $844 million. The growth was primarily the result of the consolidation of golf insurance that added $816 million of gross premium in our international operations. Excluding golf insurance, our international operations gross premiums were up 3%. With the closing in the fourth quarter of 2023 of our acquisition of an additional 46% in golf insurance and an additional 7% we bought in April of 2024, approximately 20% of our consolidated gross premium is now coming from our international operations. The addition of golf insurance in our consolidated results provides further diversification and scale within our insurance and reinsurance operations. We continue to be very excited about the long-term prospects of our international operations, and we expect they will be a significant source of growth over time. Led by excellent management teams, we have a strong footprint in Asia, the Middle East, Eastern Europe, South Africa, and Latin America. Our combined ratio was 93.9 in the second quarter of 2024, producing underwriting profit of $370 million. The combined ratio included catastrophe losses of 164 million, adding 2.7 combined ratio points, with the Dubai floods costing 58 million and the remaining primarily from attritional catastrophe losses. This compares to the same combined ratio of 93.9 in the second quarter of 2023, which included catastrophe losses of 2.4 points. Our global insurers and reinsurers posted a combined ratio of 93% and an underwriting profit of $231 million in the second quarter. BRIT had another good quarter with a combined ratio of 92.7 and $45 million of underwriting profit, reflecting the positive underwriting actions taken the last number of years. Odyssey Group produced the largest underwriting profit in our group, with underwriting profit of $101 million in the quarter and a combined ratio of 93.1, led by a strong performance again from its reinsurance business, while Allied World also had a strong quarter with a combined ratio of 93.2 and underwriting profit of $84 million. Our North American insurers had a combined ratio of 93.9 in the second quarter of 2024 and underwriting profit of $108 million. Northbridge had an outstanding quarter with underwriting income of $62 million and a combined ratio of 88.5, benefiting from strong margins and below average large losses in the quarter. Crum Forster had a combined ratio of 95.8 and underwriting profit of $44 million, while Zenith had a combined ratio of 98.9 with the benefit of favorable reserve development. Our international operations delivered a combined ratio of 96.6 and an underwriting profit of 32 million. Colonnade Insurance in Eastern Europe had another excellent quarter with a combined ratio of 91.7 and our Latin American operations continue to post strong underwriting results with a combined ratio of 94.6. Fairfax Asia and Bright both contributed to our underwriting profit with a combined ratio of 95.6 and 97.3, respectively. EuroLife's non-life business had a difficult quarter, with an underwriting loss of $2 million, driven by losses in its motor book. And Golf Insurance had an elevated combined ratio in the quarter of 100.2, reflecting purchase price adjustments from the acquisition, higher losses on their Gig Kuwait medical program, a motor business in Saudi Arabia, and hyperinflation accounting in Turkey. Excluding the PPA adjustments, golf combined ratio was approximately 98%. We expect over the course of the year, golf will continue to post normalized combined ratios similar to previous years. 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 second quarter, the discounted combined ratio was 82.2 compared to the undiscounted combined ratio of 93.9. In the quarter, our insurance and reinsurance companies had prior year favorable development of 132 million or a benefit of 2.2 points on our combined ratio. This compares to $72 million in the second quarter of 2023, or 1.3 points on the combined ratio. Typically, there is not a lot of movement on reserves in the first half of the year, as full actuarial reserve reviews are done in the fourth quarter. Our overall reserves remain very strong. The performance of our insurance and reinsurance operations have not gone unnoticed by the rating agencies. In the quarter, our financial strength ratings and debt ratings were upgraded to A-plus and triple B-plus by S&P with a positive outlook. Allied World's A financial strength rating and Fairfax's triple B-plus debt rating were put on positive outlook by AMS, and Fitch revised the outlook on their triple B rating for Fairfax debt to positive. 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.