Fairfax Financial Holdings Limited

Good morning and welcome to Fairfax's 2025 Third 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 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 Derek Bulis. Derek, please begin.

Good morning and welcome to our call to discuss Fairfax's 2025 third 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 2025 third 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 Amy Shirk, our Chief Financial Officer, to provide some additional financial details. We had an excellent third quarter with net earnings of $1.2 billion, up from $1 billion in the third quarter of 2024. This gives us net earnings of $3.5 billion for the first nine months of 2025. Operating income from our insurance and reinsurance companies adjusted to an undiscounted basis and before risk margin was $1.3 billion in the third quarter, up from $1.1 billion in the third quarter of 2024. Our interest and dividend income was $655 million Underwriting income was very strong in the quarter at $540 million, while our share of profits and associates was $305 million. We had strong operating income from our non-insurance consolidated companies at $211 million, and net gains on investments in the quarter were again very healthy at $426 million. All in, our book value per share increased to $1,204 up 15.1% for the first nine months of the year, adjusted for our $15 dividend. Now some additional comments on our insurance operations. Underwriting results in the quarter, as I said before, were very strong, with a combined ratio of 92%, producing an underwriting profit of $540 million. We've only had two quarters with a higher underwriting profit, and those were the fourth quarters in both the last two years, both of which we benefited from reserve releases following the full reviews conducted in the fourth quarter. All our insurance segments continued to produce underwriting profit. We benefited from a lower level of catastrophe losses in the quarter, with the third quarter historically being a more volatile quarter from catastrophes. our global insurers and reinsurers had a combined ratio of 91.3, an underwriting profit of $326 million in the quarter. Allied World had an excellent quarter with a combined ratio of 88.9%. Odyssey Group, 91.2%. BRIT's combined ratio was 92.1%. And Key had an elevated combined ratio in the quarter of 105.4%, primarily due to costs from the separation from Brit. As we previously mentioned, in 2025, Key began operating as its own separate company. Excluding separation costs, Key's combined ratio year-to-date is 95%. After a difficult first quarter due to the significant catastrophe losses from the California wildfires, our global insurers and reinsurers have produced underwriting profit of $606 million year-to-date. Our North American insurers had a combined ratio of 93% for the third quarter, led by Northbridge with a very strong combined ratio of 86.9%. Crum Forster had underwriting income of $60 million, or a combined ratio of 94.8%. While Zenith, our workers' compensation specialist, after a number of quarters with a combined ratio above 100, came in at 99.7%. 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 very good quarter with a combined ratio of 92.4%. 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 93.8%. Latin America posted a combined ratio of 94%. Central and Eastern Europe was at 94.5 percent, and Fairfax Asia posted a 94.5 percent combined ratio as well. EuroLife General Insurance had a great quarter at 91.2 percent, benefiting from favorable reserve development. And Gulf Insurance, the largest company in our international operations, had an excellent combined ratio of 90.5 percent, also benefiting from favorable reserve development. Gulf's combined ratio has been trending positively after being elevated in 2024, normalizing to its historical combined ratio level. The strong results of our insurance operations have not gone unnoticed by the rating agencies. In the second quarter, Standard & Poor's upgraded the financial strength rating of our core operating companies to double A-minus. AMBEST also upgraded Allied World, Crum & Forrester, and Northbridge's financial strength ratings to A-plus. Odyssey was already at the A-plus level. In the third quarter, we wrote $8.2 billion of gross premium, down slightly from the third quarter of 2024 If you exclude golf insurance, our premiums were up 3.1%. Our global insurer and reinsurer segment was up 3.2%, with gross premiums of $4.2 billion in the third quarter, reflecting growth across all our companies in this segment. BRIT's gross premium was $720 million in the quarter, up 4% year-over-year, with growth in its programs and facilities business as well on the reinsurance side through its Bermuda reinsurer, Britt Reid. In the third quarter, 2025, he wrote $226 million of premium, up 15% from the third quarter of 2024, principally in property, treaty, marine, and energy lines of business. Odyssey Group's premiums were up 3% in the quarter, with gross premium written of $1.6 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's premium increased 1.7% in the quarter, with gross premiums of $1.7 billion. Insurance was up 1.6%, driven by their global markets division, and their reinsurance segment was up 2.3%. Our North American insurance segment wrote gross premiums of $2.4 billion in the third quarter, approximately flat over the third quarter of 2024. Xena's premium was up 10%, reflecting new workers' comp business and price increases in its agribusiness book. Crumlin Forster premium was 1.4%, driven by its accident and health business and surplus and specialty segment, offset by credit insurance. And Northbridge's gross premium was down 4% in Canadian dollar terms compared to the third quarter of 2024. The decrease at Northbridge reflects moderating rates for commercial lines in Canada. The international insurance and reinsurance operations gross premiums were $1.5 billion, down 11.6 in the third quarter of 2025 versus the third quarter of 2024. Excluding golf insurance, the international premium was up 10%. Bright in South Africa had strong growth across its distribution channels, with premium of 128 million in the quarter, up 20%. Our Central and Eastern European business, led by Colonnade, continues to grow profitably, writing $200 million of premium in the quarter, up 11.7%. Fairfax Asia was up 13% with strong growth across all its companies. And in Latin America, premium was up 6.1%. As I mentioned earlier, offsetting the growth in our international segment was Gulf Insurance, whose net premium was down 13%. principally due to timing. This will normalize in the fourth quarter. Our international operations now make up 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. In the third quarter, our insurance and reinsurance companies recorded favorable reserve development of $111 million or a benefit of 1.6 combined ratio points on our combined ratio. Each of our major segments recorded favorable reserve development with releases coming primarily on short tail lines of business. Our companies performed full actuarial reserve reviews in the fourth quarter and are in that process now. In the fourth quarter of 2024, we benefited from reserve releases of $301 million. Our overall reserve position remains strong. Through our decentralized operations, our insurance and reinsurance companies continue to produce outstanding results, writing over $33 billion in annualized gross premium with healthy underlying margins. While the general trends in the market are softening, we do not believe we are yet in a soft market. The wide variety of markets and segments our companies participate in allow us to grow in more attractive areas while curtailing our activity in less attractive ones. We also benefit greatly from our team of long-standing presidents running our companies. Our experienced teams have managed effectively through the insurance cycles in the past, both hard and soft. As the market turns, we will maintain underwriting discipline through quality risk selection and price adequacy with a laser focus on the bottom line. The company's robust capital position, strong reserve base, margins in our existing business, and the scale and diversification of our operations will allow us to be patient for opportunities to arise. I will now give you some additional detail on our investment earnings for the quarter. Our consolidated investment return was solid in the third quarter with the quarterly return of 1.9 percent. Consolidated interest and dividend income of $655 million was up 7.5 percent year over year. benefiting from a growing investment portfolio and increased dividend income in the quarter. Profits of associates was strong at $305 million, up by $45 million compared to the third quarter of 2024. Profits of associates continue to be driven by Eurobank and Poseidon Corp. In the quarter, we had net gains on investments of $426 million, driven by gains on our equity exposures of $525 million, offset by losses on our bond portfolio of $44 million, primarily from government bonds, and losses on other investments of $54 million, primarily reflecting unrealized losses on our preferred shares in digit insurance. Net gains of $525 million on our equity and equity-related holdings were driven principally by unrealized gains on Orla Mining, Commercial International Bank, and Forem. 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 1,204 does not include unrealized gains or losses in our equity account investments and our consolidated investments, which are not mark-to-market. At the end of the third quarter, the fair value of these securities is in excess of carrying value by $2.5 billion, an unrealized gain position, or $117 per share on a pre-tax basis. an increase of approximately $1 billion for the year, primarily driven by Eurobank. In October, we announced an agreement to sell our 80% interest in Eurolife's life insurance operations for approximately $940 million to Eurobank. At the same time, Fairfax will purchase a 45% interest in Eurobank's property and casualty company in Cyprus, ERB insurance for approximately 68 million. We are pleased to be able to maintain focus of our insurance operations on property and casualty insurance and reinsurance while still benefiting from the continued success of EuroLife's life business through our ownership stake in the bank. We wish the very best to Nikos, Delandes, and the entire team that will be moving under the ownership of Eurobank. We expect a pre-tax gain of approximately 250 million on the transaction. That will be trued up and accounted for on closing of the transaction, which is expected in the first quarter of 2026. We are also happy to announce that Alex Cerrigiorgio The current CEO of EuroLife will transition to become executive chairman of EuroLife's general P&C insurance operation and chairman of our new Cypress company. Vassilis Nikiforakis, currently CFO of EuroLife, will become managing director and CEO of the general insurance business. Vassilis has been with EuroLife for 18 years, and is another great example of the internal transactions that we like to make within our organization. Earlier this week, Fairfax and Bill McMorrow, Chairman and CEO of Kennedy Wilson, issued a take private offer to the Board of Directors of Kennedy Wilson for $10.25 per share, a premium of approximately 38% of the closing stock that day. their board has formed a special committee to evaluate the proposal and its options. We do not plan to provide any updates unless and until we enter into a definitive agreement regarding the proposed transaction. There has been some questions recently regarding share ownership of our executives. I wanted to highlight that all our senior executives receive a significant amount of their annual compensation in Fairfax shares with the shares vesting over time. It is not often, but there are times when some executives may sell shares for personal reasons, such as estate planning or general tax purposes. We don't generally comment on the specific personal circumstances of any reporting insider, but we can say that it's important to us that all members of our executive team maintain meaningful, significant proportions of their personal wealth in Fairfax shares. which is the case today, especially due to the long-term tenor of our officers and executives. As an insider and Hambla Watsi executive, it was reported in the quarter that Wade Burton had sold some Fairfax shares for family and estate planning. After the sale, he continues to hold 80% of his original position. Fairfax bought the shares sold by Wade in the open market And as we mentioned in our press release, Fairfax continued to buy back shares in the third quarter and in the fourth quarter as well under our share buyback plan. We view this as a great long-term investment for the company. We continue to benefit from a stable base of annual operating income of approximately $5 billion. And we expect, of course, no guarantees it is sustainable for the next three to four years, with $2.5 billion from interest and dividend income, $1.5 billion from underwriting profit with normalized catastrophe losses, and $1 billion from associates and non-insurance companies. Fluctuations in stock and bond prices will be on top of that, but this only really matters over the long term. I will now pass the call to Wade Burton, our President and Chief Investment Officer of HamlaWATSA, to comment on our investments.