Fairfax Financial Holdings Limited

Good morning and welcome to Fairfax's 2025 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 one on your phone keypad. For time's sake, we ask that you limit your question to one. Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now, your host for today's call is Peter Clark with opening remarks from Mr. Derek Bulis. Derek, please begin.

Good morning, and welcome to our call to discuss Fairfax's 2025 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, everyone, and welcome to Fairfax's 2025 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 Hambla-Watsa to comment on investments, and then Amy Shirk, our Chief Financial Officer, to provide some additional financial details. We had an excellent second quarter with net earnings of $1.4 billion, up from $915 million in the second quarter of 2024. This gives us net earnings of $2.4 billion for the first half of 2025. Operating income from our insurance and reinsurance companies adjusted to an undiscounted basis and before risk margin was $1.1 billion in the second quarter of 2025. This is relatively flat from the second quarter of 2024. Underwriting income was strong in the quarter at $427 million. Our interest and dividend income was $666 million. up from $614 million in the second quarter of 2024. While our share of profits of associates was $131 million, down $221 million the previous year. Net gains on investments in the quarter were again very healthy at $952 million. All in, our book value per share increased to $1,158 in the second quarter up 10.8% in the first half of the year, adjusted for our $15 dividend. Our insurance and reinsurance companies are in great shape, rating over $33 billion of annualized premium worldwide. We benefit greatly from our scale and diversification and the exceptional talent and experience of our long-serving presidents and the teams that run our insurance and reinsurance operations. I will now give you some additional detail on the components of our net earnings for the quarter. Our consolidated investment return was solid, with a return of 2.6%, driven by increased interest and dividend income, strong net gains on investments, partially offset by the lower profits of associates. Consolidated interest and dividend income of $666 million was up 8.5% year over year, benefiting from a growing investment portfolio and increased dividend income in the quarter. Profits of Associates was $131 million, down by $90 million compared to the second quarter of 2024. Profits of Associates continues to be driven by Eurobank and Poseidon Corp, offset this quarter by losses on the Wateras Fund from mark-to-market unrealized losses in its portfolio. The reduction from last year also reflects peak achievements for Bauer now being accounted for as a consolidated investment and no longer an associate. In the quarter, we had net gains on investments of 952 million, driven by gains on our equity exposures of 800 million, gains on our bond portfolio at 75 million, primarily from government bonds due to the decrease in interest rates in the second quarter and gains on investments of 77 million, primarily reflecting unrealized gains on our preferred shares in digit of 358 million, offset by losses of 251 million, primarily on foreign exchange contracts used as an economic hedge against our investments in foreign currencies. I should note that the losses on these contracts went through our net earnings, while many of our foreign exchange gains on investments, those investments consolidated or treated as associates, are reflected in other comprehensive income and make up a significant amount of the $334 million OCI gain in the quarter. At the end of the day, both are captured in our book values. The net gains of $800 million in our equity and equity-related holdings were driven principally by unrealized gains on our Fairfax TRS, Metlin Energy and Metals, and Fairfax India's investment in IIFL Finance. We have always said, and please remember, our net gains or losses on investments only make sense over the long term and will fluctuate from quarter to quarter, or for that matter, year to year. More on investments from Wade. As mentioned in previous quarters, our book value per share of $1,158 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 second quarter, the fair value of these securities is in excess of carrying value by $2.4 billion, an unrealized gain position, or $110 per share on a pre-tax basis, an increase of approximately $900 million for the year. As I said before, our insurance and reinsurance businesses had an outstanding quarter, riding $9.1 billion of gross premium in the second quarter of 2025, up 2.6% versus the second quarter of 2024. Our global insurer and reinsurer segment was up 3.7%, with gross premiums of $4.9 billion in the second quarter of 2025. BRIT's gross premium was $902 million in the quarter, up 9.3% year over year, capitalizing on new business opportunities in its FinPro, Cyber, and Property and Specialty lines of business. as well on the reinsurance side through its Bermuda reinsurer, Britt Lee. In the second quarter of 2025, Key wrote $230 million of premium, up 6.4% from the second quarter of 2024, driven by its casualty in cyber business. Odyssey's premiums were up 2.4% in the quarter, with gross written premium of $1.7 billion. Its insurance business was the driver of the growth at both New Line and Hudson, while its reinsurance business was relatively flat. Allied World Premium increased 2.3% in the quarter, with gross premiums of almost $2.1 billion. Their North American insurance segment was up 2.4% from new business and rate increases primarily on its casualty business. The global market segment was up 4.1%, driven by property business, and their reinsurance segment was flat year over year. Our North American insurance segment wrote gross premiums of $2.3 billion in the second quarter of 2025, down 1% over the second quarter of 2024. Xena's premium was up 7.3% in the quarter, reflecting new workers' comp business, and price increases in its agribusiness book. Crum Forster's premium remained flat and Northbridge's gross premium was down 2.9% in Canadian dollar terms. The decrease at Northbridge reflects moderating rates for commercial lines in Canada. The International Insurance and reinsurance operations gross premiums were $1.8 billion, up 4.2% in the second quarter of 2025 versus the second quarter of 2024. Our Central and Eastern European business, led by Colonnade and Polish Re, continues to grow profitably, writing $220 million in premium in the quarter, up 38%. Bright in South Africa grew premium 20%, And Fairfax Asia grew 9.4%, with strong growth across all its companies, with the exception of Falcon Hong Kong. Offsetting the growth was Fairfax Latin America, down 7.2%, driven by foreign exchange movements in Argentina and at Fairfax Brazil. And Gulf Insurances Premium decreased 1.3%, principally due to the loss of a significant insurance contract that was non-renewed in the third quarter of 2024. Our international operations now make up approximately 20% of our total gross premiums, and 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 that are more and more collaborating among themselves and leveraging the strengths of the group within our decentralized structure. Underwriting results in the quarter were very strong with a combined ratio of 93.3, producing underwriting profit of $427 million. All but one of our insurance and reinsurance operations posted an underwriting profit in the quarter. Our global insurers and reinsurers had a combined ratio of 91.7, an underwriting profit of $293 million. Allied World had a combined ratio of 91.1, Odyssey 91.9, Brits combined ratio was 92.2, and Key was 93.4. An outstanding result, especially after a difficult first quarter due to the significant catastrophe losses from the California wildfires. Our North American insurers had a combined ratio of 95.2 for the second quarter, led by Northbridge with a combined ratio of 92. Crum Forster had underwriting income of $52 million, or a combined ratio of 95.4, while Zenith, our workers' compensation specialist, had an elevated combined ratio of 103.3, representing an underwriting loss of $6 million. Zenith has been dealing with multiple years of rate decreases in the workers' compensation space. but we're happy to say rates have now begun to stabilize and Zenith are pleased to see some premium increases coming its way. Our international operations delivered a solid quarter with a combined ratio of 95.5. Fairfax Asia had a very strong quarter with a combined ratio of 89.5, driven by an outstanding performance at Singapore Re, posting a combined ratio in the low 80s. Bright, who has been taking underwriting actions the last number of years, are seeing it come through in their results. They had a combined ratio of 92.8. Latin America posted a combined ratio of 95.1, and Central and Eastern Europe was at 95.3. Golf Insurance, the largest company in our international operations, had a combined ratio of 97.9 in the second quarter, negatively affected by elevated loss ratios on its health business and the expense drag from the loss of the large contract in its Kuwaiti operation. Gulf's combined ratio continues to improve, and we're confident they will return to their historical sub-95 underwriting results. In the second quarter, our insurance and reinsurance companies recorded favorable reserve development of $163 million, or a benefit of 2.5 points on our combined ratio. Each of our major segments recorded favorable reserve development with releases coming primarily on short-tailed property business. Through our decentralized operations, our insurance and reinsurance companies continue to thrive, riding over $33 billion in annualized gross premiums with healthy underlying margins and led by our exceptional management teams. The strong results of our insurance operations have not gone unnoticed by the rating agency. In the second quarter, Standard & Poor's upgraded the financial strength ratings of our core operating companies to AA-, and our debt rating to A-. Also in the quarter, AMBEST upgraded Allied World's rating to A+, and Fairfax's debt rating to A-. Our companies are positioned very well to continue capitalizing on their opportunities in their respective markets in the second half of 2025. I will now pass the call to Wade Burton, our President and Chief Investment Officer of Hambla Watson, to comment on our investments.