Fairfax Financial Holdings Limited

Good morning and welcome to Fairfax's 2026 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 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 Vigilis. Derek, you may begin.

Good morning, and welcome to our call to discuss Fairfax's 2026 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, and welcome to Fairfax's 2026 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 Hamlawasa, to comment on investments, and Amy Shirk, our Chief Financial Officer, to provide some additional financial details. We had a great start to 2026 with operating income from our insurance and reinsurance companies adjusted to an undiscounted basis and before risk margin of $1.2 billion in the first quarter of 2026, up from $686 million in the first quarter of 2025. All components of our operating income were strong and up significantly from the first quarter of 2025. Underwriting income was $382 million, interest and dividend income of $561 million, and our profits of associates were $271 million. In the quarter, we had net losses on investments of $386 million, primarily mark-to-mark losses on bonds. versus net gains on investments of $1.1 billion in the first quarter of 2025. That's the swing of almost $1.5 billion quarter over quarter. As we have always said, we expect investment gains to perform well over the long term, but will fluctuate quarter to quarter. Our net earnings for the first quarter of 2026 were $696 million, And all in, our book value per share at the end of the first quarter was $1,250, up half a percent from year-end 2025, adjusted for our $15 dividend. During the quarter, we purchased 375,000 shares for cancellation for $631 million. We expect to close two significant transactions in the second quarter of 2026, the sale of half our position in Poseidon for $1.9 billion, a pre-tax gain of approximately $837 million, and the sale of EuroLife Life Operations for approximately $935 million for a pre-tax gain of approximately $350 million. In February of 2026, the special committee of Kennedy Wilson accepted the $10.90 per share offer from Bill McMorrow and us to take the company private, a 46% premium to the price it traded prior to the offer. We are awaiting regulatory and shareholder approvals. We expect to close the transaction sometime in the second quarter. The conflict in Iran, unfortunately, members of the Fairfax family again find themselves in harm's way. GIG management is ensuring all employees in the Gulf region have the support that they need to stay safe, and this is our first priority. It is still uncertain how long this will last, but Gulf continues to operate as usual under these most difficult conditions, and losses related to this conflict have been minimal. Our thoughts and prayers are with all the employees at Gulf. I will now give you some additional detail on the components of our net earnings for the quarter. Our consolidated investment return was 0.8%, driven by interest and dividend income, strong profits of associates, offset by net losses on investments, again, primarily on mark-to-market losses on our bonds. Consolidated interest and dividend income of $662 million, was up 9% year-over-year, benefiting from our growing investment portfolio. Profits of associates of $371 million in the quarter was driven by Eurobank, the Waterus Energy Fund, and Poseidon. Our associate companies continue to post very solid, stable results. In the quarter, we had net losses on investments of $386 million, from mark-to-mark losses on our bond portfolio, primarily from U.S. Treasuries due to the increase in interest rates in the first quarter, and losses on equity exposures of $82 million, offset by other net gains of $60 million, primarily gains on foreign exchange, offset by mark-to-mark losses on our preferred shares and digits. The net loss of $82 million on our equity and equity-related holdings were driven by unrealized losses on Fairfax TRS of $342 million, offset by net gains on Orla and Strathcona. As I said earlier, 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 i mentioned in previous quarters our book value per share of 1250 does not include unrealized gains or losses in our equity accounted investments and our consolidated investments which are not marked a market at the end of the first quarter the fair value of these securities is in excess of carrying value by 3.9 billion an unrealized gain position or $190 per share on a pre-tax basis. This is a significant increase from a year ago at $67 per share and year-end 2025 at $150 per share. In the first quarter, net earnings included 184 million unrealized loss due to increasing interest rates in the quarter. This consisted of unrealized losses on our bonds of $364 million, as I previously mentioned, offset by the increase in discount under IFRS 17 on our insurance and reinsurance reserves of $180 million. For the first quarter of 2025, this number was a net gain of $120 million. Our insurance and reinsurance businesses wrote $8.7 billion of gross premium in the first quarter of 2026, up 4.1% versus the first quarter of 2025. Our North American insurance segment's gross premium was relatively flat year over year, decreasing $18 million, or less than 1%, from the first quarter of 2025 due to a softening insurance market. Crum Forster's premium was down 2.7%, driven by its surplus and specialty segment and Seneca's property business, offset by increases in its accident and health business. Northbridge's gross premium was down 4.8% in Canadian dollars, reflecting a competitive marketplace. In U.S. dollars, its premium was down only 0.4%. due to the strengthening of the Canadian dollar. Venus premiums were up 10% for the first quarter of 2026, due to earned rate increases and new business in workers' compensation. Our global insurer and reinsurer segment was up 2.5%, with gross premiums of $4.8 billion in the first quarter of 2026. over the first quarter of 2025. Ally World's premium was up 3.7% in the quarter, with gross premiums of $2.2 billion. The reinsurance segment was up 10.4% from new and renewal business, most notably crop, while its global insurance premium was down 2.6%, primarily from its North American insurance segment, offset by growth in its global market segment. Odyssey's premiums were down 1.2% in the first quarter of 2026, with gross premium written of $1.5 billion. Its U.S. reinsurance business was the driver of the decrease, primarily due to property treaty reflecting reinstatement premiums from the first quarter of 2025 on the California wildfire losses that did not reoccur in 2026. Its insurance business at Hudson and New Line was relatively flat. Brits gross premium was $810 million, up 3.8% in the first quarter of 2026 versus the first quarter of 2025. Excluding California wildfire reinstatement premium, in the first quarter, gross premium was up 6.8% Over half the growth came from the recent expansion of its BRITRE platform in Bermuda. Key, the algorithmic follow-on Lloyd Syndicate developed within BRIT, is in its second year operating as a standalone business. Key's gross premiums was up 11.7% in the first quarter of 2026, driven by property treaty, casualty business, offset by open market North American property. Key announced in the first quarter it is adding a fifth capacity partner to its platform that will begin in the second quarter of 2026. Our international insurance and reinsurance operations gross premiums were $1.7 billion, up 16.4% in the first quarter of 2026 versus the first quarter of 2025. benefiting from high single-digit underlying growth and favorable movements of foreign exchange. Gulf was up 30% in the quarter, Bright up 28%, Fairfax-Latam 9%, and Fairfax Central and Eastern Europe up 17%. Fairfax Asia gross premiums was up 3% year-over-year, and on a net basis was up 31%, with reduced sessions due to a new reinsurance program implemented in 2026. International operations currently account for about 20% of our overall gross premiums. Looking ahead, these operations offer strong long-term potential for sustained growth, thanks to skilled management teams, emerging insurance markets, and robust local economies. Our combined ratio was 94.1 in the first quarter with underwriting income of $382 million compared to 98.5 combined ratio and underwriting income of $97 million in the first quarter of 2025. The big driver of the difference year over year was lower catastrophe losses in the first quarter of 2026 with approximately 1.8 combined ratio points versus 12.7 points on the combined ratio in the first quarter of 2025, primarily from the California wildfire losses. This was offset by lower prior year favorable development in the quarter over last year. Our global insurers and reinsurers posted a combined ratio of 92.5. Odyssey Group led the way with a combined ratio of 91.1. Brits combined ratio was 93. Allied World had a combined ratio of 93.4. And Keys combined ratio was 94.7. That included 3.8 points of separation costs. Our North American insurers had a combined ratio of 96% for the quarter. Northbridge had a combined ratio of 94.1. Crum and Forster had underwriting income of $52 million for a combined ratio of 95.5, while Zenith, our workers' compensation specialist, who are dealing with the effects of multiple years of price decreases in the workers' compensation space, although this is reversing, had an elevated combined ratio of 103.7, trending down from the first quarter of 2025 of 106.3. Our international operations delivered a combined ratio of 95.8 for the quarter, with underwriting income of 46 million, with all our international segments producing underwriting income. Colonnade in Eastern Europe had an excellent combined ratio of 89.8. Bright continues to produce strong results with a combined ratio of 94.9. And Fairfax Asia had a combined ratio of 96.3. led by Singapore Re at 85. Golf Insurance, the largest company in our international operations, got off to a good start in 2026 with a combined ratio of 95.9 in the first quarter, notwithstanding the difficult conditions from the war in Iran. In the first quarter, our insurance and reinsurance companies recorded favorable reserve development of 86 million, or a benefit of 1.3 points on our combined ratio. Each of our major segments recorded favorable reserve development. We are focused on setting our ongoing reserves at conservative levels, especially on long tail lines. Through our decentralized operations, our insurance and reinsurance companies continue to produce strong results, writing annualized gross premium of over 33 billion with underlying margins remaining attractive in the main, in spite of softening rates. In certain lines, it is becoming more competitive, but we benefit from our size and scale, and more importantly, we have exceptional long-term management teams that are all focused on the bottom line and have the experience to manage the typical nature of the insurance business. I will now pass the call to Wade Burton, our President and Chief Investment Officer of HamlaWASA, to comment on our investments.

Thank you, Peter, and good morning. March 31st, 2026 ends another good quarter on the investment side. Performance continues to be excellent. Equities are up 2.9% on the quarter, 28.9% to the last 12 months, and 20.5% through three years. Similarly, our bonds have outperformed, up 0.3% on the quarter, 5.6% for the last 12 months, and 4.9% through three years. Our fixed income portfolio is safe and earning strong interest income, and our public equities, associates, and consolidated non-insurance investments continue to perform well. We ended the quarter with $49.8 billion in fixed income investments and $26.6 billion in equity and equity-exposed investments. The fixed income portfolio includes $5.6 billion in mortgages, $6 billion in corporates, all very short-term, mainly investment-grade, and no, I'll repeat, zero traditional private credit exposure, and $38.2 billion in government bonds and treasuries. Duration is 2.2 years, average maturity is three years, and our yield is approximately 5%. A lot of safety and flexibility is built into the fixed income portfolio, which is our response to the playing field as it sits. The economic and interest environment has many conflicting factors, so we're playing it safe, keeping lots of flexibility, and making a good return as we wait. As I said, we have $26.6 billion invested in common shares, equity and associates, consolidated non-insurance equity investments, and preferred shares, all doing well, especially the bigger investments. Peter already discussed the Poseidon sale. Otherwise, it was a quiet quarter, so I thought it would be a good quarter to give a discussion about how we look at investments in publicly traded common stocks versus investing in private companies. The underlying process is the same. We work to uncover true economic profits and or profit capacity. We think about where those profits are going. We focus on balance sheet and balance sheet flexibility. Then we think about the price we pay for those profits. The same underlying process for both public and for private. In both cases, we know management is a key factor. As Buffett pointed out, a great manager can't save a leaky boat, but what we have learned is that they make a huge difference paddling boats that do float. The advantages of buying public common stocks is, one, the ability to capitalize on the moves of the stock market, and two, liquidity. The ability to enter and exit an investment quickly is a good thing. The advantages of making direct investments in private companies is we control the profits. That is, we can choose to reinvest the profits in the businesses we've invested in, or we can take the profits out and invest them elsewhere. In general, the flexibility to invest in either public or private companies is a huge advantage for us. It allows us to be opportunistic, agnostic, and truly seek the best possible investments. For example, today, With the Shiller PE at all-time highs, you would not expect we'd find a lot of $0.50 in the stock market, and we aren't. But we have been able to make outstanding acquisitions on the private side, including Meadow, Peak, and Sleep Country. We have the advantage of a history of being terrific long-term partners. Forty years of fair and friendly transactions with a long, long line of very happy partners, along with permanent no-call capital, makes us an attractive home for many companies. To do all of this well takes a skilled and focused investment team, and I'm so proud of the team we've built over the last 10 or 15 years. Our people are decision makers. They are analysts and value investors. We have skilled defensive players and skilled offensive players. All have experience in public and private investments. And, you know, having the independence to make decisions is so important, and they're all doing it. We call them in where we need them on the bigger investments, and with that, it is amazing to watch them come together as a group. And having this team in place is especially important now, given how big and globally spread out we are, and how big we hope and plan to be in the next 50 years. I will now turn the call over to Amy Shirk, our CFO.

Thank you, Wade. I'll begin my comments by discussing some of our key transactions. On March 9th, 2026, AGT completed a Canadian $450 million offering of its common shares at 23 Canadian per share. Immediately prior to closing of the offering, Fairfax exercised its AGT equity warrants at 2250 Canadian per common share for aggregate consideration of 340 million Canadian in exchange for settlement of a $340 million loan receivable from AGT. Concurrent with closing, the company also acquired 200 Canadian and AGT common shares in a private placement for $23 per share. The company's ownership in AGT was diluted from 66% to 56% as a result of these transactions, and we therefore continue to control AGT. The following three transactions were already discussed by Peter, so I will just provide some additional details. On March 10, 2026, the company announced that it entered into agreements to sell an aggregate equity interest of approximately 23.1% of Poseidon for aggregate proceeds of approximately $1.9 billion. Following the sales, Fairfax will retain an equity ownership of approximately 22.2% of Poseidon. The pre-tax gain on closing is estimated to be $837 million, and the company expects to continue to apply the equity method of accounting to its investment in the common shares of Poseidon following the sale. On October 13, 2025, the company announced that it had entered into a term sheet with Eurobank, pursuant to which Eurobank will acquire the company's 80% equity interest in the life insurance operations of Eurolife, for cash consideration of approximately 935 million or 813 million euros. The estimated pre-tax gain on closing is approximately 350 million. Accordingly, the company continues to classify assets of 3.3 billion and liabilities of 3.5 billion related to EuroLife Life Operations as held for sale at March 31, 2026. On February 16th, 2026, the company and Kennedy Wilson entered into a definitive merger agreement pursuant to which Kennedy Wilson will be acquired in an all-cash transaction by a consortium led by certain senior executives of Kennedy Wilson together with the company. The consortium will acquire all outstanding common shares of Kennedy Wilson not already owned for $10.90 per share in cash. and the company has committed to providing the consortium with funding of up to $1.65 billion, principally to fund the transaction's cash purchase price. These transactions are expected to close in the second quarter of 2026. A few comments on our non-insurance company results in the first quarter of 2026. Non-insurance companies reported operating income of $37 million in the first quarter of 2026 compared to an operating loss of $41 million in the first quarter of 2025, primarily reflecting strong share of profit of associates at Fairfax, India, partially offset by non-recurring expenses at AGT related to its initial public offering in the first quarter of 2026. Our non-insurance companies, including Sleep Country, Recipe, Dextera, Meadows, and Peak continued to perform well in the first quarter of 2026. Looking at our share of profit from investments in associates, we reported increased consolidated share of profit of associates of $372 million in the first quarter of 2026 compared to $129 million in the first quarter of 2025. Share of profit in the first quarter of 2026 Principally reflected share of profit of 129 million from Eurobank, 117 million from the Wateris Energy Fund III, and 77 million from Poseidon. I will close with a few comments on our financial condition. Maintaining an emphasis on financial soundness, at March 31, 2026, the company held $2.5 billion of cash and investments at the holding company, had only $300 million drawn from its $2 billion unsecured revolving credit facility and an additional $2.1 billion at fair value of investments in associates and market-traded consolidated non-insurance companies owned by the holding company. Holding company cash and investments support the company's decentralized structure and enable the company to deploy capital efficiently to its insurance and reinsurance companies, At March 31, 2026, the excess of fair value over carrying value of investments in non-insurance associates and market-traded consolidated non-insurance subsidiaries was $3.9 billion compared to $3.1 billion at December 31, 2025, with the increase principally related to the announced sale of 23.1% of the company's investment in Poseidon, which we have already talked about. The pre-tax excess of $3.9 billion is not reflected in the company's book value per share, but is regularly reviewed by management as an indicator of investment performance. The company's consolidated total debt to total capital ratio, excluding non-insurance companies, increased to 27.8% at March 31, 2026, compared to 26.2% at December 31, 2025, reflecting increased total debt principally due to the issuances of unsecured senior notes of $476.6 million, or Canadian $650 million, in February 2026 and decreased common shareholders' equity. Subsequent to March 31, 2026, on April 15, the company redeemed at maturity $91.8 million principal amount of its 8.3% unsecured senior notes. And on April 29th, 2026, the company announced its intention to redeem on May 29th, 2026, all of its outstanding 450 million Canadian principal amounts of 4.7% unsecured senior notes, which are due on December 16th, 2026. Common shareholders' equity decreased to $25.8 billion at March 31, 2026, from $26.3 billion at December 31, 2025, primarily reflecting purchases of about 375,000 subordinate voting shares for cancellation for cash consideration of $631 million, or $1,684 per share, payment of common share dividends of $329 million, and other comprehensive loss of $227 million primarily related to unrealized foreign currency translation losses net of hedges due to the strengthening of the U.S. dollar against various currencies. The company does view these unrealized foreign currency movements as market fluctuations, similar to our unrealized gains and losses on its equity and fixed income portfolios. This is all partially offset by our net earnings attributable to shareholders of Fairfax of 696 million. Lastly, book value per share was 1250.14 at March 31st, 2026, compared to 1260.19 at December 31st, 2025, representing an increase per basic share in the first quarter of 2026 of half a percent, adjusted to include the $15 per common share dividend paid in the first quarter. That concludes my remarks for the first quarter of 2026, and I'll turn it back to Peter.

Thank you, Amy. And Denise, we are now happy to take any questions that you might have.

Thank you. At this time, we will start the Q&A session. If you would like to ask a question, please press star 1 on your phone. If you need to withdraw your question, it is star 2. The first question today does come from Steven Boland with Raymond James. Your line is open.

Oh, good morning. Peter, I guess this is for you. I know you addressed this at the annual meeting and some of the events around that, but just want to talk a little bit about softness. When I look at the premium that was reported between the North American and international this quarter, flat for North America, a little bit up in international. Is that the dynamic we're seeing, and what is the messaging going to the subsidiaries from head office, or is it just intuitive that the subsidiaries, you know, are beginning to avoid, you know, where, you know, price, you know, pricing that just isn't profitable down the line? Is there any messaging coming from the head office on that, or, you know, you let the subsidiaries decide? do what they do?

No, that's a good question. And I think just to start off, there really doesn't have to be any messaging to our companies. They're very, you know, the presidents are very experienced and they've managed through cycles before. And it's very clear we're all on the same page that underwriting profit is the focus and underwriting discipline. So there's no, you know, If you need to reduce your premium and pricing is inadequate, that's totally fine from us. And we take a long-term approach, long-term view. We're building the company over the long term. And so, again, I think, you know, the company, the presidents all do the right thing. All are focused on underwriting profit. And that message is very, very clear from Fairfax as well. So thank you, Steven. Next question, please. Thank you.

The next question comes from Tom McKinnon with BMO Capital Markets. Your line is open.

Yeah, thanks very much and good morning. Just a question with respect to golf. Net premiums written in 2020 were, in fact, flat to modestly down versus 2024. Yeah, we got a spike up here in the first quarter of 2026. Is there any more color you can share with us? And I noticed that you've been increasing retention with respect to golf as well. You know, are there any concerns here about increasing retention in an area where there's, you know, heightened risk as well? So if you can provide any kind of more color on that, I'd appreciate it. Thanks.

Sure. For golf, yeah, 2025 premiums were... were down um i think we uh disclosed that they lost a large um health contract in kuwait at the end of 24 which affected their premiums uh in 2025 and um that treaty in particular they did seed a lot of business you know they only retained a portion of the business so that affected um you know their net retention so coming into 2026 off a lower base They are expanding again in the accident and health business, and it's coming off a lower base. So that's why you'll see the bounce back in the premiums and is partly responsible for the net retention increasing. So it's really driven by that one large contract that wasn't renewed in late 2024. Next question, please.

The next question comes from Bart Zarsky with RBC Capital Markets. Your line is open.

Great, thanks, and good morning, everyone. I wanted to ask around the Poseidon transaction, so congrats on the announcement there, and just hoping you can give us some more color in terms of, you know, why now, why sell a portion and not the whole stake, and then what you expect to do with the proceeds once the transaction closes. Thanks.

No, thanks for the question, Bart. Poseidon, it has been an excellent investment for us. I think we first invested around 2018, and our compounded annual return was 25% per year. Our cost was about $9.50, $10, and we carried it at $15.50, I believe. So we sold half the position for $28.30. had a very nice gain, 837 million, and we're very happy to hold the remaining 22%. Our partner, O&E, that took it private last year was wanting to increase its ownership, so we were fine selling about half of our position. Next question, please.

The next question is from Jamie Gloin with National Bank Capital Markets. Your line is open.

Yeah, thanks. Good morning. Just want to quickly touch on the reserves and development this quarter. It looks like a little bit of a step down from this time last year and sort of the pacing that we've been seeing. Can you talk about a little bit more detail on perhaps what's driving that? Is there a shift in how you're looking at the portfolio? And just want to sort of understand that trajectory, if it's at these levels or if this is sort of a little bit of a one-off.

Jamie, I think when we look at reserves, first quarter is not really a big quarter for us to move reserves. In the fourth quarter, we do a thorough reserve analysis, actuarial review of all our reserves. So most of the actions are taken in the fourth quarter. So in the first quarter, it's usually a lower movement on the reserves than others. I think maybe last year the favorable development was higher than normally expected. So, you know, quarter to quarter, especially in the first half of the year, I wouldn't really put any real focus on that number. Next question, please.

That comes from Tom McKinnon with BMO Capital Markets. Your line is open.

Okay, thanks. Peter, you note a bit of a shift here in terms of more premium growth coming out of international, I guess, than the North American and the global insurers and reinsurers. And now, obviously, the international running at around a 96 combined and the rest of the North American and global reinsurers reinsurers running around 93 so as you kind of shift more business into the 96 combined and versus the 93 combined how do you feel about this one and a half billion dollar outlook for underwriting profit going forward no that's you're right there has been a you know in this quarter at least and uh

there's been a shift between the mix of business between you know our larger companies which are primarily you know a large portion of their business comes from North America and that's really where we're seeing the softening of rates and it's much more competitive so as you said we don't see as much growth there they were about one and a half percent for that The larger companies, they were up 1.5% in the first quarter. And then our international operations, where they're not seeing the price decreases as much, more attractive business, we would hope that the combined ratio will drop over time. Golf, for example, they're still running a little bit above 95, but historically they've run below 95, low 90s. So I think we'll see that combined ratio for the international group continue to go down as well, helping the overall mix of business. We write about $33 billion now, and we benefit from that greatly. Like I said, 80% is still with our larger companies, but that 20% of international business is about $6.5 billion of premium, and that's quite significant, and, you know, it gives us – the scale and diversity to manage these cycles. Next question, please.

Thank you. We currently have no questions. If you would like to ask a question, please press star 1.

Well, Denise, if there are no further questions, thank you for joining us on our first quarter conference call. Thank you very much.

Thank you. That does conclude today's conference. We appreciate your participation. You may disconnect and have a great rest of your day.