Fairfax Financial Holdings Limited

Good morning, ladies and gentlemen, and welcome to Fairfax Financial Holdings Limited 2020 Annual General Meeting. At this time, your lines have been placed in a listening-only mode. After the presentation, we will conduct a question-and-answer session. Questions can be submitted by emailing them to fairfaxagm2020 at shareholderservices.ca. Your host for today's call is Prem Watsa. Mr. Watsa, please begin.

Thank you, Maud. Good morning, ladies and gentlemen. Welcome to our 35th annual meeting, 34 years since we began in 1985. I am Prem Watsa, chairman of Fairfax. This is the first time our AGM is conducted online, and hopefully it'll be the last time. A warm welcome to all our shareholders and employees across the world, and to all the people who support us. We will miss seeing you in person this year, but we will make up next year. After 13, about 13 years ago, under similar circumstances, I related this story to you at our annual meeting. Pastor Robert Shuler of Crystal Cathedral fame in California was giving a talk to some farmers in the United States. Midwest had gone through some very tough times. No rain, crop failures, many farms were being liquidated. And Pastor Shuler did not know what to say. Just as he walked onto the podium, the words came to him. Tough times don't last. Tough people do. Well, as I sit here speaking to you all, that's the theme of our annual meeting today. Tough times don't last. Tough people do. And that describes all of you, our shareholders and employees. We have just celebrated 34 years, and we have had some great years, and more recently, some tough years. As always, we wanted to discuss our company openly with you, and then open it up to Q&A, where we have Andy Bernard and I to answer your questions. I have always said, and to repeat, we are very blessed to have such a wonderful group of long-term shareholders. who have stood by us through the ups and downs of business life over a long period of time. And like you, I'm very disappointed in what the fear created by COVID-19 has done to our sacrifice. And I'm working hard to ensure we remain strong and thrive in these difficult times. We had a great 2019, and 2020 has begun in an unprecedented way with the coronavirus pandemic, which has caused the whole world to be locked down. I must say, our unique culture is a very valuable asset and something I've taught you in the past. It's not shown on our balance sheet, but the creation and preservation of that culture is the biggest achievement for us over the past 34 years and the continuing driver of our success. And as you know, it's protected for all time. It's fair and friendly culture, which is in our name, is why companies all over the world want to deal with us. It is our biggest advantage, and we got it fiercely. And in tough times like these, it comes to the fore. I wanted to take this opportunity to thank John Palmer who will be retiring from our board at this AGM after eight years on our board. John has been a strong supporter of Fairfax over all these years and we've benefited from his broad range of experience. We wish him and his wife, Tad, well in his retirement. Taking John's place on the board will be Bill Weldon. Bill was with Johnson & Johnson for over 40 years and was chairman and CEO from 2002 to 2012. Bill has been a consultant to Fairfax, giving us the benefits of his experience in running a large, decentralized, highly principled company. So Bill and Fairfax are already familiar with each other. One other board matter, Tony Griffiths would like to continue as a director, but not as a lead director. So I'm pleased to report that Bill McFarland has kindly agreed to assume the lead director role after this meeting. Now, I mentioned this in our annual report, but May 21st, 2019 was the saddest day in our 34 years as we learned of the sudden passing of David Bond, Dave was incredibly bright and disciplined as our CFO with a great sense of humor, quick wit, and caring nature. He was a great chief national officer, colleague, and friend, and we will all miss him greatly. As I also mentioned in our annual report, Paul Rivette told me recently, That for family reasons, he wanted to retire as president of Fairfax. It was with great sadness that I accepted his decision. For 17 years, Paul has given us all and has been instrumental in our success over that time period. He retires with our gratitude and best wishes to him, his wife Janice, and his children in his retirement. Paul has agreed to be involved in certain Fairfax investees, including Recipe and Fairfax Africa. He is, of course, chairman of Recipe, vice chairman of Fairfax Africa. I and other Fairfax executive officers will be assuming Paul's other responsibilities. Now, Ronald Scarking has been a Fairfax officer since 1989, and he will be retiring this year. Ronald has done a great job for us as a treasurer and several financial roles, most importantly in developing and overseeing our international financial operations. Ronald will be retiring as an officer at the end of 2020, although he will continue to be available to us as a consultant. We also wish him and his wife Lisa and his family the very best in his retirement. We were pleased to announce in August that Jen Allen was appointed CFO of Fairfax. Jen has been with Fairfax for over 13 years, more recently serving as Vice President of Fairfax and CFO of Fairfax India and Fairfax Africa. Jen has already done an outstanding job in our first year. At the same time, we were happy to announce that Amy Sherk, who's been with us for 16 years, was appointed CFO of Fairfax India and Fairfax Africa. Both Jen and Amy have demonstrated the qualities we admire as officers of Fairfax. We are so fortunate to have this executive depth within our group. With Paul retiring, I wanted to say that our Chief Operating Officer, Peter Clarke, has more than risen to the occasion, just doing an amazing job. All of us owe a huge thank you to Peter. Our shareholders and our employees, when you meet them, please give them a big thank you. Over a 34-year history, we have always operated at Fairfax with a small team, which, with great integrity, team spirit, and no egos, protects our company from unexpected downside risks and takes advantage of opportunities when they arise. Our outstanding team of officers at Fairfax and Hemingway Watsa is further strengthened by, of course, Andy Bernard, Jonathan Godown, and Bijan Ravshi. This group has worked together for a long time with trust and a long-term focus. So today, even though we're all coming together on the web, we will, as we have done for the past 34 annual meetings, quickly go through the formal meeting, give a short presentation, this time without slides, have a question and answer. You have sent your questions in, and you can still send them in to FairfaxATM2020 at shareholderservices.ca. Jeff Stacey, and Jeff Fenwick will moderate the question and answer. Andy Bernard and I look forward to answering your questions. Just a quick reminder that at 2 p.m. today, we will have the fourth Fairfax India Annual Meeting similarly underway. Just before moving on to the formal part of the meeting, I'll ask Rick Salzberg to make a statement followed by the formal meeting.

Thank you, Prem. Good morning. I'm Eric Salisbury, the Vice President of Corporate Affairs and Corporate Secretary of Fairfax Financial Holdings Limited. Welcome to Fairfax's 2020 Annual Shareholders Meeting, which, as Prem has said, will be followed by a presentation by him and a Q&A session. Forward-looking statements may be included during these proceedings. 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 settled under risk factors in our base shelf prospectus, which has been filed with Canadian securities regulators and is available on CDAR, and which now include the risk of adverse consequences to Fairfax's business, investments and personnel resulting from or related to the COVID-19 pandemic. Fairfax disclaims any intention or obligation to update or revise any forward-looking statements except as required by applicable securities law. I'll now ask Prem Watsa to begin the annual meeting.

Thank you very much, Rick. Ladies and gentlemen, welcome to the Fairfax annual shareholders meeting, the formal part. As I mentioned before, I'm Prem Watsa, chair and CEO of Fairfax, and I will act as chair of the meeting. The meeting will now come to order. I shall ask Rick Salzberg, the Secretary of Fairfax, to act as Secretary of the meeting, and Shirley Tom and David Cavison of Computershare Trust Company of Canada to act as scrutiners. I can report that as a result of reviewing an affidavit of mailing and a preliminary report of the scrutiners, I'm satisfied that notice of this meeting has been duly given, that a quorum is present, and that this meeting is therefore properly called and constituted. I propose to move quickly to the formal business. To that end, I announce that the minutes of the previous shareholders' meeting, held on April 11, 2019, are available for inspection upon request to Fairfax's corporate secretariat. As well, I now formally place before this meeting the annual report of the company for the year ended December 31st, 2019, which includes the company's financial statements for its fiscal years ended December 31st, 2019 and 2018, and the report of the auditor. and Vice Waterhouse Coopers on the 2019 statements. In addition, I declare that the total number of votes attached to shares represented at this meeting by proxy, which have been directed to be voted in favor of each matter to be considered at the meeting, is in each case not less than 95% of all votes that may be cast on such matters. I will now move directly to the election of directors and invite a nomination for director.

Yes, I'm Eric Salzberg, and I nominate as directors of the corporation for the ensuing year, Messrs. and Mesdames Anthony Griffiths, Robert Gunn, Karen Djurjevic, R. William McFarland, Christine McLean, Timothy Pratt, Lauren Templeton, Benjamin Watsa, Prem Watsa, and William Wilden.

Thank you, Rick. As no other nominations for directors have been received, and as the number of directors nominated is exactly the number to be elected, I instruct the Secretary to cast a single ballot for election of the nominees as directors and declare those 11 nominees elected as directors of the corporation. I now invite a resolution regarding the appointment of an auditor.

I am John Vernell, Vice President Fairfax, and I move that PricewaterhouseCoopers LLP be appointed as auditor of the corporation to hold office until the next annual meeting. I'm Eric Salzberg, and I second that motion.

Thank you, John. Thank you, Rick. I will assume that the attendees are voting in favor of this motion, except to the extent that any attendees now indicate otherwise. I declare this motion carried and Brideswater House Coopers appointed as auditors. I propose now to terminate this meeting. After that, I would like to talk to you about our operations and then our moderators will present your questions. I now invite a motion for termination.

I'm Eric Salisbury and I move that this meeting be terminated.

I am John Barnell and I second the motion.

So thank you, Rick and John. I declare the meeting terminated. So this ends the formal meeting, and this is usually when I have a slight presentation for you all, followed by a Q&A. But in lieu of that, I'm going to say a few words about 2019 and about the first quarter 2020 and the coronavirus pandemic. So we have no slides this year, but we're looking forward to answering your questions. 2019 completed 34 years since we began in September 1985. If you look at all the companies listed on the New York Stock Exchange, American Stock Exchange, and NASDAQ, at the end of 1985, there were 6,100 companies. This is at the end of 1985, 6,100 companies. At the end of 2019, there were only 677 still trading on these three exchanges. That is to say, only one-tenth survived, i.e. almost 90% have either gone bankrupt, been taken over, merged, or something like that. So we are very blessed to be in the category that have survived, because only 10% have survived. out of those 6,000-odd companies. If you then ask how many have thrived, i.e., made more than 15% return over that 34-year time period, it's only 1%, or about 67 companies. Fairfax's 17.8% compounded rate of return would, of course, put us in that 1%. So you can see we have been blessed mightily. I am really grateful for that long-term record. But I do know many of our most recent shareholders have not benefited from these long-term returns. And I want you to all know, I want all of our more recent shareholders to know that we are working hard to remedy that. Our insurance companies had another outstanding year in 2019. We had gross premiums of $17 billion, up 10%, with a consolidated combined ratio of 96.9%, with great preserving. As I mentioned in our annual report, we're growing again. After we get past COVID-19, we expect to grow again. If you include our equity-accounted insurance companies, Gulf Insurance, EuroLife and Digit Insurance, we have a total of $19 billion in gross premiums from all over the world. A first-class collection of the best insurance companies in the world run by our very talented presidents who have been with us on average for 13 years with Fairfax, almost 20 years on average in their individual companies, some of them, of course, 25 years plus. This stability in management is a very huge strength for us and always has been. In 2019, we had an excellent year in our investment portfolio as we earned 6.9% on our portfolio, as shown on page 8 in the annual report. Our equity investments went up significantly in 2019, $1.6 billion, which, as you will see, we mostly gave up in the first quarter of 2020 due to the coronavirus crash in the stock market. We like the stock and bond investments in our investment portfolio of $39 billion, and we will be happy to answer any questions you have on them. We provide a lot of detail in our annual report, so I didn't want to spend too much time on it other than say that we're very happy to answer your questions. The combination of a 97% combined ratio and a 6.9% return on our investment portfolio led to a 14.8% growth in book value in 2019. On page 9 of our annual report, we discuss our investments in India. They're significant. and we are excited about that potential long term. Many of you have asked the question and I wanted to emphasize we continue to be committed to buying back our shares over time at attractive prices. But rest assured that we will not buy back shares at the expense of our financial position or at the expense of taking advantage of a hard market and insurance. This is a balancing act. But even so, in the last 27 months, ending December 2019, we have purchased approximately 1.3 million shares for cancellation and to provide long-term share incentives for our executives. As you know, we plan to grow organically in the next decade and our excess capital will be used to retire shares outstanding, of course, only at attractive prices. We ended 2019 with a very strong financial position. We had no significant bond maturities for the next three years because we refinanced them. A cash and marketable securities portfolio at the holding company of $1.1 billion. and an unused four-year bank line of credit of $2 billion. Which brings us to 2020. Wow. The first black swan was the coronavirus impacting China, Asia, Europe and then North America. The second was the collapse in oil prices. and most importantly, the lockdowns that closed down the world's economy. This was unprecedented and totally unexpected. Extreme uncertainty, in my experience, leads to panic. And this is what happened as the US stock market dropped by 36% in 21 days, the fastest decline since October 1929. Have you experienced this before? By definition, no, as otherwise it would not have been unprecedented. But over my career, three events come to mind that were also unprecedented and created great uncertainty that led to panic in the financial markets. The most recent was the great financial crisis in 2008-2009. Financial institutions were falling down like tenpins. Bear Stearns, Lehman Brothers, AIG, Citibank, and many, many more financial institutions met the dust. And then GM, Chrysler, went bankrupt. General Electric, GE, could not roll over its short-term commercial paper. Depression was in the air. The stock markets dropped approximately 50%. The US government and the Fed responded that Dow Jones made a low in March 2009, and we have never seen it again. The second event that comes to mind for me was September 11, 2001. All of you will remember the two planes crashing into the World Trade Center, making them collapse within two hours in front of our eyes on TV, followed by the collapse of four more buildings. A third plane crashing into the Pentagon and a fourth plane taken down in Pennsylvania. New York City felt like it would never be safe again. Stock markets closed for a week. No planes were allowed to land in the United States for a week. Insurance for large buildings like the Sears Building in Chicago was no longer available. Fear was palpable. Extreme uncertainty led to panic. Again, stock prices went down approximately 30% from its 2000 high over the next year. We learned about security for stadiums, buildings, and the stock market bottomed out in 2002 and never saw that level again other than briefly in 2009. The last event for me was long ago in 1974. President Nixon was being impeached and resigned. and OPEC was trying to flex its muscles by raising oil prices from $2 per barrel to $10 per barrel, a five-fold increase. And the increased stock prices were down approximately 50% again from the 1972 high, and depression was in the air. all prices were used by every country and oil was used by every country in the world and the five-fold increase was affecting every country. The Dow Jones low of 577 in December 1974 was never seen again. All of this is to say that extreme uncertainty causes panic but it also creates great opportunity. The lesson from the past is that this too shall pass. So no complacency as we go through this trying period. But there is the other side of the coronavirus. Social distancing is working. The curve is being flattened. We will get even faster testing, which is now at five minutes. We will have medicine to fight and prevent the spread of COVID-19, and we will get a vaccine. The US and world economy will get restarted again and normalcy will return. We don't know when, but it will happen. In this environment, we thought it prudent to draw on our four-year credit line of $2 billion, for which we have paid standby fees of 34 basis points annually. and we invested this draw from the bank line at a positive spread. So there was no cost to us. Including our draw from our credit line of 1.8 billion, 600 million from the sale of Riverstone UK, and after providing approximately $400 million of capital support to our insurance companies and paying $300 million in dividends, we have $2.5 billion in cash and marketable securities in our holding company. On top of that, we have approximately $500 billion in our consolidated and associate investments, which can be used if necessary at our insurance companies. We disclose in our press release of Tuesday, April 14th, based on preliminary indications and current estimates, we anticipate that the drop in stock prices and strengthening of the U.S. dollar will result in our book value dropping approximately 12% in the first quarter of 2020. And we anticipate a first quarter loss of approximately $1.4 billion because of mark-to-market losses in our portfolio. We have mentioned at our past annual meetings and in our annual reports and quarterly calls with IFRS accounting where stocks and bonds are recorded at market and subject to mark-to-market gains or losses, quarterly and annual income will fluctuate and investment results will only make sense over the longer term. Our insurance companies are in great shape with combined ratios below 100% in the first quarter, very good reserving, and growth in premiums on a consolidated basis of 12%. We expect that growth to slow down until the U.S. economy and the world economy recovers. Now, we have never reached for yield in our bond portfolios. The significant opening up in investment grade spreads in the last six weeks has allowed us to sell some of our treasuries. We have many billion dollars in treasuries. and short-dated bonds and by 2.9 billion in high quality large company corporate bonds and some municipal bonds with an average yield of approximately four and a quarter percent in an average term of four years. We also added some high quality common stocks like Exxon at a 10% yield to our portfolios. Our operating income Underwriting profit and interest and dividend income remained solid in the first quarter. So yes, this has been a trying period for all of us at PrepFax, as it has been for individuals and businesses all over the world. But make no mistake, we expect to successfully navigate this time period and with some of the best insurance companies in the world and great investment talent. and 2.5 billion in cash and marketable securities in our holding company we expect to do very well in the years to come. So this comes to the end of my prepared remarks and we will now move to the question and answer session with Jeff Stacey and Jeff Fenwick. Jeff Stacey has been a shareholder of ours almost from inception, and many of you know him. And Jeff Fenwick is an analyst at Comarch, followed Fairfax for a long time, much in excess of 10 years. And a big thank you to them for being the moderators today.

So with that, can I pass it over to you, Jeff Stacey? Thank you, Prem. Good morning and a warm welcome to everyone who's participating in today's annual meeting webcast. Before we get started with questions, I just want to remind everyone one last time that it is still possible to submit questions by sending them to fairfaxagm2020 at shareholderservices.ca. That link is also available in the press release announcing the annual meeting webcast details on the Fairfax Financial website. We will be monitoring this email during the meeting and we will do our best to get any questions that come in. As you would expect, we've received many questions over the last week. Jeff Fenwick and I reviewed all of the questions and have grouped them into common themes and topics to avoid duplication. And I would just also add that we got a lot of questions about Fairfax, India, which won't be covered in this meeting and we'll leave them to the meeting this afternoon for discussing Fairfax, India. And then finally, just before we get started, Jeff and I thought it was appropriate that we acknowledge Fairfax's press release from Monday announcing a $2 million U.S. dollar donation to food banks in communities where Fairfax operates throughout Canada and the United States. Clearly the COVID-19 pandemic is creating hardship and stress for many, many people. We've been told repeatedly by political, community and public health leaders that we are all in this together. So Prem, Jeff and I just wanted to say congratulations to you and everyone at Fairfax for making a difference in these difficult times. So with that, let's get to the questions and it's my pleasure to turn it over to Jeff Fenwick to get things started.

Okay, thank you Jeff. Good morning, everyone. Prem, for the first question, the first one is somewhat high level, and the question is, in this current environment, do you think that it impairs Fairfax's ability to operate right now? Or, on the other hand, perhaps it creates an opportunity to expand the business if Fairfax is positioned better than its peers?

Good question, Jeff. Thank you very much. No, it does not impair our ability. In fact, we plan to take full advantage of the potential expansion in the insurance business. Our business has already grown at 12%, as you know, in the first quarter. In the fourth quarter last year, it grew at about 17%. So that momentum continues. We've got a very good, decentralized group of businesses, and we plan to take full advantage of the opportunities in the insurance business for us. Thank you for that question, Jeff. I'll pass it on now to Jeff Stacey. And I'll remind you, we have Andy Bernard on the line also, and whenever appropriate, I'll pass it on to Andy Bernard.

So, Prem, we had a number of questions come in about the company's capital position and the balance sheet. So there's some speculation that Fairfax will be downgraded due to the equities portfolio being marked significantly lower. Will the Q1 loss require Fairfax to raise additional equity to maintain its credit ratings? Could you please comment on the conversations you are having with rating agencies and the ramifications if you are downgraded?

Yeah, no, thank you very much. No, there's no discussions on being downgraded. These fluctuations we reported fully, but that's what they are. And so there's no ramifications on our rating agencies, all the big rating agencies. We've talked to them and shared all of these results for them, with them. And, Jeff, we're focused on taking advantage of the opportunities. We took down the credit line. because we felt that $2.5 billion of cash and Markable Securities is the best way to go through this time period. We have a ton of opportunity in front of us. We have access to the bond markets all over the world. The premiums will be, because of the slowdown, premiums will be flat in this next few quarters. But we have many, many opportunities. Thank you for that, Jeff Stacey. Because both of them are Jeffs, I'm going to say Jeff Stacey and then pass it on to Jeff Fenwick.

Thank you, Prem. Perhaps a brief follow-on to that question that we've received, specifically asking you about debt covenants. Is there anything there that we as shareholders should be concerned about?

So the debt covenants on our bonds, they're all investment-grade bonds, Jeff. So there's no debt covenants. They're all, you know, pay your interest, pay your principal. On the Thank you for joining us. Thank you, Jeff. We pass it on to Jeff Safey.

So Prem had a lot of questions about the insurance operations specifically come in. You have alluded at different times over the last year about the hardening market. And so we had a lot of questions around, could you please discuss whether the current environment has specifically changed The Hardening Market, and do you think that hard market conditions can continue for insurance?

It's a very good question. As you know, it continued. That 12% was mainly rate increases that we had. We had 12% growth in the consolidated insurance premiums, gross premiums. But to put a little more color, why not pass that on to Andy Bernard. Andy?

Good morning, everyone. The hard market conditions that we have been experiencing through 2019 and into the first quarter of 2020 will continue. As Prem mentioned, we experienced very strong growth in the first quarter. We are seeing continued very strong rate action, rate improvement in our major companies. Allied World and Northbridge in the first quarter had rate increases in the double-digit category across their portfolios. Odyssey, Crum, and Northbridge had high single-digit rate increases. So we are of the view that rates will continue moving in a positive direction. Clearly, the impact of the coronavirus and the shutdown of the economy is another major variable, and we will see how that plays out. But as we look at our business today, things are continuing to look very strong in terms of market conditions. Thank you, Andy.

Pass it on to Jeff Fenwick.

Okay, perhaps one more question here on insurance. We've had a lot of questions about the potential exposure that Fairfax has to some lines being impacted by this COVID-19 crisis. Specifically, could you speak to Fairfax's exposure to areas such as business interruption risk or workers' compensation or other lines that could be potentially impacted here?

That's a good question, Jeff Manwick. I'll pass that on to Andy Barak.

Thanks, Bram. This, of course, is the headline issue, I would say, with the insurance industry today. How is business interruption going to impact our losses, our experience? In general, it's our view, and certainly the view of the industry, that business interruption requires there to be physical damage to property in order to be triggered. That is the standard coverage in the industry for business interruption, and that is the coverage that our companies in general provide. And it would therefore require an overturning of the contracts in order to open them up to provide broad-based business interruption coverage for losses arising from COVID-19. There are isolated exceptions to that general approach. In Fairfax, those are very isolated and limited and are not a source of major concern for us. So we will monitor, we are monitoring, we're involved in some of the industry groups that are engaged in this debate going on in the United States. But our view, our feeling is that we are on very strong ground with the position that this is not covered under the general business interruption coverages that are sold in the marketplace.

And Andy, just to add to that, of course, in the United States with lawyers and and governors are trying to overturn this and say you have to pay irrespective. As Andy says, we feel very comfortable in saying to you that it's highly unlikely that we'd have to pay any significant amounts of money. But if the governors try to change this, some of them are, Retroactively, this will go to, we think, eventually to the Supreme Court, and contract law is very specific. Contracts in the United States are sacred, and we think just like it is in the U.K., that it's highly unlikely they'd be broken. But it is an item that is being discussed in the property and casualty industry, Jeff.

Jeff, Stacey, next question. Prem, this question just came in a few minutes ago. As a shareholder since 1990, I've been proud to support a company that I believe has the highest levels of integrity. My question is about Fairfax's latest partnership through Dextera with Horizon North. Could you comment on what the plan is for that partnership?

Yeah, so this is, you know, this is a part of the monetization that we told you in our annual report. Dexterra is a very good company. It went through some problems in the previous incarnation as Carillion, and we changed the name. We've acquired it, and we are John McCoose Wants It. and basically Horizon North and Dexterra. Horizon North is in a very similar business. They also do modular housing, particularly in the West. Their service businesses are in the West. And so it's a great combination. And with a little bit of good fortune, we think by May, it'll get approved. It goes to shareholder approval. And, you know, you've got a company that have come out with a press release saying that between Horizon North and Dexterra, We've got a company that in the next few years could have a billion dollars. At the moment, they might have $700 to $800 million of the premium of $700 to $800 million of revenue. But in a few years, they expect that to be a billion. They have said publicly. And their EBITDA free cash flow would be close to $100 million. So it establishes a very significant Canadian company. It's all in Canada, across the country. And, you know, we have Bill McFarland, who's also the chairman of that company. John McCroosh, the CEO, will be the CEO going forward. And we're very excited about this merger. And they have confirmed that they're going to pay $0.08 in dividends. and so the stock is selling at a very reasonable price right now. We think it's only a question of time before it goes up. But that's an indication of monetization. I mentioned the name before. This Horizon North Dexterra is going to be a very successful company, we believe, over the long term. It's going to be a Canadian company and Fairfax will be 49% shareholders in that company. So Jeff Fenwick, next question.

Okay, thank you, Prem. The next one is going to touch on investments. And the question is, you mentioned in your letter to shareholders that value investing has been out of favor the past few years. Would you say that this has not changed considering the current market? And are you confident to say that rather than having a negative impact on Fairfax, this might allow the company to take advantage of opportunities and that Fairfax is well positioned to do so?

Yeah, so value investing, you know, surprisingly, has not been in favor for the better part of 10 years. Like, unbelievable. If you had told me 10 years ago that value investing would be out of favor and growth-oriented companies, and I listed the big technology companies, and they've done exceptionally well. They also sell at very high prices, high price-earnings ratios, and So value investing over the long term, 50, 60, 70 years has done exceptionally well. It's gone through periods like this. This is perhaps one of the longer time periods when it hasn't performed. And some of the companies that we've selected have not done well, as I mentioned in our earlier report. But I do remember 1999 to 2002, the last time you had the dot-com boom and companies with, you know, unlike companies today, those days there were no earnings, no sales, and they had gone up, you know, very significantly. and it ended in 2000 and by 99, 2002, which encompassed September 11th, of course, as I said earlier, the markets dropped 50%. Our stock portfolios went up about 100%. So, you know, value investing in our mind always works. You know, there are periods when it doesn't, like right now. There are periods when we've, and we, I'm talking Fairfax now, Hamlin Watsa, have not made good selections, first to admit that. But the stock position that we have today, we think over the next few years will do very well. They're good companies, and in the main, selling at very exceptionally low prices. So when you have panic, people sell panic. You know, they sell stocks that they hold, and then no buyers. Buyers pull away. And so stocks go down significantly. And what we've seen in the month of March is quite amazing. I told you about Exxon. We bought, you know, the most financially sound oil company, like a 100-year track record, with a 10% yield. And the CEO came on board. on television, CNBC, and said that he has no intention of cutting the dividend. That doesn't mean that if these conditions continue for a couple of years that he'll still not cut the dividend, but he came out and said he's going to do a lot of things like cut capital expenditures and cut costs, but not cut the dividend. And so I'm just amazed at the values that were available, and we were able to pick away at a few. that over time we will disclose it to you. But I use Exxon just as an example of a company that basically dropped 50-60%, that's 50-60% in a few months of this year. And so you have these opportunities and I think value investing over time will work and will work to our favor.

Is that a question that goes to Jeff Stacey? Prem, a follow-up question that dovetails on to Jeff Fenwick's last question. A shareholder asks, There's been huge volatility in asset prices and this will create opportunities. But they're asking practically, what is the organizational process for practically reviewing new opportunities given the current crisis? And if so, how is this work organized with all employees working from home? And so I thought this was maybe a dovetail on to Jeff's question that you can give us some insight into how the investment team is working remotely.

This is a very good question, and let me first begin with our insurance companies. We have insurance operations worldwide, and pretty well 100%, almost 100% of our employees are working from home. So safety is very important for us and for our employees. We want to make sure that they're safe. And I can tell you, they've been working from home. And, you know, here we are on the 16th of April, and we were able to get you our results for our insurance companies, combined ratios. We know all the combined ratios. We just didn't want to... provide all the details yet because it, you know, it goes through checking and stuff, but we know it'll be below 100%. We know the growth will be 12%. And all our companies, Jen Allen said to me, you know, they all came, we have a reporting day of the 12th day following the end of the quarter. All our companies report that. She said pretty well every one of them met that deadline. And particularly because we wanted to report on the press release on Tuesday. So insurance companies are doing really well. We've got a tremendous group of presidents, as I mentioned to you, and it's decentralized, and it's run by our presidents, so it's not like we set rules for them. They're empowered, and we have a call, Andy and I, and Peter, every Friday, and we get an update, and I must say I'm very impressed with our presidents. In our insurance companies, we have a call every day because, first of all, the spreads. We haven't reached for yield. For years, we said we haven't reached for yield. The spreads were too narrow. And so then after this coronavirus and the effect on the economy became obvious, the spreads ballooned. So, you know, Disney, for example, just to pick a name, 50 basis points spread before on, say, five-year treasuries, 50 basis points before the coronavirus came in, after they had to pay 250 basis points. and for five-year bonds. And so we've been very careful. We don't want to buy bonds with the maturity more than five years. And we got, you know, three and a quarter, I think, something like that for five years. The spread went from 50 to 250. So Brian Bradstreet who leads our charge here with our traders, so our Kleven and Enza, you know, with Wade Burton, Lawrence Sheard, Roger Lace. We all get on a call at about 9.15 every day. And so if there's a new issue that comes in or a new secondary that comes in, Wade and Lawrence jump on it so that they can analyze it and get back to Brian and Kleven with their views so that they can react right that time. That's how we were able to buy almost $3 billion in and many more. So we're not taking a term risk because we think interest rates in the total perspective of life is still very low, but the spreads widened significantly. And so high quality bonds, we extended the term But we all work together as a team. It's just amazing for me to see how the team came together. And so Wade Burton, who's our chief investment officer, he has a regular call with international operations. This is in Singapore. This is for the people in London who run our operations. Investments for Brett and for Europe and for Latin America. So he's looking at all of them on a regular basis, and then he lets me know if there's something we should do. So I mentioned in our annual report the way we've delegated the authorities for investments, and I must say it's working really well. So Lawrence and Wade have at least a billion and a half and perhaps more now that they manage. And then the Latin American portfolios, the Asian portfolios all have portfolio managers. They work with Wade. And so it's very decentralized also. And they're looking for opportunity and taking advantage of it. and Wade monitors it and makes sure it's fine. And then we all look at it, Roger, Brian, myself. We all look at it, you know, perhaps once every... and many more. You know, I've introduced Wendy in the past. She's in New York, and she was Wilbur Ross's right-hand person for 20 years, and we benefit greatly from having her. And so we have a very, very good group that I've identified for you in the annual report, which helps us to take advantage of these opportunities. So, can we go on Jeff Fenwick to the next question?

Okay, this one pertains to buybacks, and the question is, given the recent share price performance, would it make sense for the company to aggressively buy back stock when Fairfax appears to be trading at such a large discount to its book value? And does the current environment and market price tilt the balancing act that you discussed in the shareholder letter in favor of significant share repurchases?

Yeah, so our shares are selling at, you know, like other companies' stock prices in the marketplace. Our shares are selling at ridiculous prices. When we talk about Fairfax India this afternoon, I'll talk about how Fairfax India is selling at ridiculous prices. and that'll change. There's a fear still at the marketplace and it'll change. In our taking advantage of it, I said to you the financial position is very important. We've got the opportunity to expand in our insurance business doesn't come often. It comes in, you know, once in 10 years, once in eight years. So our capital is very much oriented towards supporting our insurance companies, and then taking advantage of stock prices when we see fit. So that's the order of what we want to do. And, you know, we won't telegraph when we're going to buy and how much we're going to buy. But, you know, suffice to say that our stock prices are selling at very low prices today. I just wanted to, on Dextera and Horizon North, I just wanted to add a correction there that once the merger takes place, John McCoosh will be from Dexterra, will be co-CEO with Rod Graham, who is this CEO of Horizon North. So there'll be two co-CEOs reporting to Dexterra. and Bill McFarland. And I apologize, Rod, I didn't mention that properly. But yeah, so Rod and John will be co-CEOs of the company when it closes in May. And it's supposed to close in May. So thank you, Jeff.

And we'll take it to Jeff Stacey again. Prem, an investment question for you. Are you finished the process of monetizing some of the legacy investments or is there more to come?

Yeah, there is a lot more to come, Jeff. So we have done the ICICI at Lombard, as you know, and we have done APR, which C-SPAN took, now called Atlas, acquired it. So we've done two. And then Dexterra, we just talked about. But when I look at the portfolios with Peter, we have remaining at least a billion dollars and perhaps more that over time, once we come out of this coronavirus situation, we'd be looking at monetizing. At least a billion dollars that we'd be looking at. I think some of the things that we've talked about in the past, but yeah so we've got a lot more that we can monetize over time we don't expect to be monetizing it at any particular time but you know we've got many opportunities these are good companies and there's all sorts of possibilities and we know how to work that next question Jeff Henrich

Prem, in your opening comments, you mentioned the retirement of Paul Rivette. We've had questions around what are the plans for replacing Paul, given his recent retirement, and have they been acted upon already?

So that's a very good question, Jeff. I mentioned this in my opening remarks. We are very saddened by Paul retiring after 17 years. He did a fantastic job for us. And Paul will continue, as I mentioned, chairman of Recipe and vice chairman of Fairfax Africa, which we just had yesterday. He was on the call. and he helps us of course with Toys R Us and other of our retail investments. So he's pretty much involved with us and but his responsibilities other than that have basically taken over and in terms of the monetization and those things working with Paul and working with other Fairfax officers. So we've spread a lot of the and Peter Clarke. and he's very calm, he doesn't get overly excited and he's a terrific guy to have at the helm. So with Peter, Jen Allen has risen to the occasion. You know, she's just been CFO for not even a year and the coronavirus situation has come on and she's reacted beautifully, taken it over fully. And so we've got a very small group of officers who have worked together for years and years and years. And it's terrific to behold how it all works together. And it's our culture. It's the fair, friendly culture. No egos, working together and solving problems together, not caring who gets the credit. We're all about that, not caring about who gets the credit. Make sure the right decision is made for the company so that it can go forward. Jeff Stacey.

Prem, a question that just came in while the meeting was going on. Going forward, does the change in the way we work more remotely using technology more far-reaching and being embraced by those who are now forced to use it. Will that change your view of the FANG stocks and growth and innovation stocks going forward? And then the questioner makes the comment that even Warren Buffett has changed his views and now is the largest shareholder of Apple.

Yeah, no, that's right. I'll tell you this. I mean, I've never used Teams, Microsoft Teams. I'm using that for the investment guys every day, working day. And our calls are on Zoom for the, you know, for our executive committee and for our... and calls with our presidents. And so I can see, I mean, you know, I was looking at Zoom and they said their calls went from 10 million last year to 200 billion calls. Just like unbelievable. What I'm surprised though, Jeff, is that the monetization of all of that If you look at Uber and you look at Netflix, terrific companies, terrific products that they produce. But if you look at when they make money or not, you don't see a lot of profits there. And it might be that in a few years that will happen. But on the other hand, Apple, Microsoft, as I've shown you, Amazon. I was quite surprised at how profitable Amazon was. And in this downturn, by the way, Jeff. You know, I must say we took advantage of buying some Google and Alphabet, as they call themselves, and it's had a terrific track record. We followed it for a long time, and with really good work from Wade and Lawrence, we took advantage of that. But yeah, we look for profitability. and look for fair prices and we haven't seen that yet but we keep looking.

Jeff Fenwick. Okay, I guess perhaps continuing on the technology theme here, BlackBerry is a significant portfolio investment for Fairfax and we've had some investors just asking if you could provide an update on the operations there and what your outlook for that investment is.

Yeah, so BlackBerry, as we've been a shareholder for some time, they have now, as you know, their year-ended was just at the end of February. They had a conference call, and John Chen made the point that their revenue base is a little above a billion, sort of going at about 20% each year. They've got Silance now and Cybersecurity. and they are profitable. John's done a tremendous job in terms of making it profitable, free cash flow. A billion dollars in cash, but he's still working on growing that one billion in revenue over time. And he's got a billion in cash. Now, the debentures that we have, they're convertible at $10. We have about 500 of them, 500 million, and then another 100, so 600 million. They're due in November. and we just, you know, we just think very highly of John and support him. The stock, unfortunately, hasn't done well, like many stocks in this time period. Now, it's gone down a little longer, but it's gone down to some very low levels recently. But we are very supportive of John Jeff.

Jeff Stacey? So another investment question. You alluded to Atlas Corp earlier and the former C-SPAN, if you will. Just a question from a shareholder asking if you could explain the potential strengths and resiliency of Atlas Corp based on its current situation and business and assets.

Yeah, the thing about C-SPAN, Atlas Corp is David Sokol. You've got a CEO, a chairman, not executive chairman, maybe executive chairman, really, and Bing Chen, who's the CEO. But you've got David Sokol, who's had a 20-year record at MidAmerican, Berkshire Hathaway Energy now, I think it's called, who grew earnings, revenues, any number you want to look at, at 20%. We've studied it carefully. David's got a tremendous track record. and now he's taken over C-SPAN. C-SPAN's got these container ships that it leases and finances and make a spread. It's got like five years of revenue that's already leased for at least five years of revenue that they can see. Most companies can't see that far ahead. And then they bought APR Energy which is like a temporary power when you have a Thank you for joining us. He knows about that business very well. And so, you know, we're just excited about participating with Dave. Very sound company, financially very sound. Revenues that you can see ahead. And we think it's going to do extremely well. The track record is David Sokol. And with the management team now, Bing Cheng has been terrific. With that management team, we just think over time, C-SPAN slash Atlas will be a very good company.

Will be a very good company and very good stock returns over time.

So can I move to Jeff Fenwick?

Your next question has to do with Fairfax's target of achieving 15% annualized growth in book value over time. The investor feels that the insurance companies are well positioned right now to do their part contributing, perhaps more concerned about getting the investment returns higher. And does that require you to significantly change your approach or change the mix of investments that you have in order to reach that target?

Yeah, so let me answer that, and I'll tell Andy to give you a little sense for the companies that we have. You know, this is a company in 1985 had $10 million of insurance premiums. We write the better part of $19 billion. Our float when we began, you know, the insurance company float, was about $13 million. Now it's about $22.5 billion. $22.5, that's like $834 a share. used to be like $2.5 a share. That money, that float, we get, last 10 years, we didn't have to pay a cent for that money. We had that at an underwriting profit, so we got that at a one. So we had $22.5 billion, and people paid us 1%. It's like negative interest rates in Europe. In 2019, it was 2%. So they paid us 2% for the $22.5 billion. So this insurance company, when you think of how we make 15%, and I'll talk about the investment side, but I want you to understand when I say that we've got some fantastic insurance companies that have taken a long time to develop. Andy has been crucial in that because he built Odyssey and passed it on to Brian Young and Brian's done a fabulous job. And Andy, all of the insurance companies work with Andy Bernard now. And I just want Andy to give you a flavor for the businesses that we have, the insurance business. I mean, you're talking size, you're talking like 19, almost $20 billion of insurance premium diversified all over the world. and one with the president who's been with us, as I said, for the longest time. And, you know, we just had a wonderful ability to retain them. But, Andy, just a sense for, you know, Northridge and Odyssey, just a little sense for what we have.

Sure, Prem. As we mentioned earlier, all of our companies, or I should say out of our top six companies, five of them are experiencing very favorable sort of forward momentum. That is due to their market position and the hardening conditions that we have in the marketplace. So just to quickly run through the top six companies at Fairfax, which collectively represent close to 90% of the premium that we report. So they're the ones that moved the needle. But starting with Odyssey, Odyssey in the first quarter will grow approximately 8%, you'll see. Odyssey, you know, between its reinsurance division and its Hudson and New Line insurance units, all of which are overseen and led by Brian Young and his management team. has a very diversified focus of business around the world. On the reinsurance side, they're seeing significant new deals that are attractive in today's environment that are helping to drive the growth. And in the specialty areas that Hudson and New Line focus on, conditions are favorable. And we are seeing some impressive growth taking place there as well. We moved to Allied World, led by Lou Iglesias, John Bender, and Wes DuPont. Allied World, out of all our companies, is experiencing the most powerful rate increases. And their growth in the first quarter, you'll see, will be not quite 15% in terms of gross written premium. Allied is primarily a casualty writer, and areas such as their D&O business, their excess casualty lines, are recording impressive growth in today's marketplace. We've always felt Allied would be at the leading edge of our companies in terms of benefiting from a hard market, and we see that coming to fruition now. Moving on to Britt, where Matthew Wilson has been leading the efforts for some time. Matthew, of course, has been with Britt for decades. Britt, you know, has a very strong underwriting culture, very diverse portfolio of business written at Lloyd's. In fact, Britt has outperformed the Lloyd's market over the last five years by an average of four combined ratio points. which we take great comfort in. Brit's on very solid footing as we move forward and we think there's good reason for optimism for Brit to continue producing strong results. Crum & Forrester, under Mark 80's leadership for the last five years, has continued its strategy of building out its specialty lines, expanding its footprint. Crum has a very impressive market presence in the accident and health field. It has a very strong division in the excess and surplus lines. and more. It's been growing in surety business. Crumb is going to grow over 20%, you will see in the first quarter when we report. So once again, very strong forward momentum at Crumb. In Canada, Northbridge under Sylvie Wright and her team, their growth in the first quarter was over 20%. Northbridge is one of the companies where, again, we continue to see accelerating rate improvement Thank you for joining us. And so once again, we're very, very happy with what we see coming out of the Northbridge Group. Our sixth company, Zenith, which is, as you know, a specialist in the workers' compensation field, is... Ironically, perhaps, they will have the best combined ratio in the first quarter of 2020. But Zenith, as a workers' compensation specialist, which has been experiencing declining rates over the last 18, 20 years, for months in the workers' compensation field is also going to be faced with more direct pressures from the COVID-19 because their premiums are generated off of payroll. And obviously, in the United States, the payroll numbers will decline significantly, at least in the short term, due to the massive unemployment. And so Zenith will have its challenges as it navigates through the current conditions. However, you know, Zenith has been in business over four decades. It has been honing its craft in the workers' compensation space for years and years and years. We don't think there is anyone else in that field in the United States that is at the level of Zenith's expertise. Under Kari Van Gundy and her management team, we couldn't be more comfortable and confident that they will be able to navigate through the challenges that we are now faced with. and, you know, Zenith, again, remains one of our very prized possessions in the portfolio of insurance companies that we have. So, Prem, maybe I'll stop it there unless there's anything more that you would like me to... No, that's terrific, Andy.

And, of course, we have an international business which is Mr. Atapan in Asia, Peter Chakwari in Eastern Europe, and of course, you know, in Latin America and in Brazil with Bruno and Fabricio in Latin America. They're all growing from small bases. And as Andy said, most of our business is in North America and with Brett. But as time goes by, we have planted these seeds and our experiences over time become very significant. So that's very good, Andy. Now, so the question, Jeff, was the returns. As you said, our insurance businesses are terrific. They create a big float, no cost float. And in the investment area, your question is, how are you going to make a 15% return? So first of all, first of all, I want to say, right, I began by saying that only 1% of the 6,000 companies that existed in 1985. Small companies like us, only 1% made more than 15%, right? So it's a tough objective. But we figure that's what we want to do over time, not in any year, but over time. But if I take you back to our annual report, page 20, I just wanted to make this observation that our total return on our investment portfolios over that 34-year time period is 8%. But if you look at 2011 to 2016, it was only 2.3%. And then if you just look across the line, you'll see the net gains losses was a loss of $85 million. So we had only investment income, where we never reached for yield, as you know. But that was the only period, other than perhaps right in the beginning, where we never made any money on our stock and bond portfolios, no gains. In total, we had... 13.8 billion, which exceeded the interest and dividends of 12.6 billion over that time period. But in that one time period, we didn't. Now, we had edging losses, as you remember, and some investments that were not the best, selections. So we had all of those problems. And going forward, though, You've got a terrific team led by Wade Burton and Lawrence Chen. So that's big. And all of the portfolio managers that I talked about underneath them. And all of these people have been with us for a long time. And then you have Roger, Brian, myself helping. And we can invest worldwide. We can invest, you know, in any country in the world. We have a big investment in a company in France. A bank, perhaps the best bank that we've come across, called CIB Bank in Egypt. Tremendous track record. Selling now at about, you know, less than eight times earnings. 25, 30 percent return on equity for as long as you can see. And very, very sound. And so we invest worldwide. We have, you know, Brian Bradstreet looking after our bonds. So we've got a $40 billion portfolio approximately, maybe 41. and you've got 75% of that is in fixed income, which Brian looks after and does a fantastic job on it and that protects us and then when the opportunity comes like it has in the last six weeks, we've reacted to it. We can invest in real estate, which we have very good partners, and Cary Wilson. We've made nothing but money with them, and Reid works with Cary Wilson. So you have a very diversified set of potential in our investment portfolios. But the biggest plus, I must tell you, that after years being in this business, is that people want to deal with us. They trust us. They know that we are fair. That's a massive, massive plus. In Greece, in many, many parts of the world that we do business, people trust us. And that's been a big, big plus. And so when you combine those, we have to make about 6.5%, 7% on our $40 billion of investment portfolio. and less than what we've done in the past, caps in this low interest rate environment. But now and then you get opportunities like we just did with the 4.4%, you know, $3 billion in very high quality corporate bonds. You get possibilities in the stock market and we're experienced enough to take advantage of it. and so that's how that combination is why I love the property cashier business. That's why we got into the business and we expect to make a return for you over time and we continue to be focused on that. Thank you for that question, Jeff Fenwick.

Over to you, Jeff Stacey. Prem, if you'll permit me, I'm going to lump two questions into one about insurance because I suspect Andy will not want to answer the first question because it's akin to asking which of your children do you like best. But which of the insurance units are best positioned to perform well going forward? And then the second question is related to Scott Carmelani's new role within the Fairfax insurance operations. Just can you discuss that and particularly how do you envision what does success look like in that new role?

So that's terrific. I'll take the second one with Scott. Give Andy a little chance to think about which one he's going to name as his favorite charge. You know, Scott has done a wonderful job at Allied, as you know, built the company over the last 20 years, tremendous track record, was a key reason that we bought Allied. And then last year, sometime in May, I think, so about three years ago, Scott said that he really wants to help run Allied. really wants to help us at the Fairfax level, at the corporate level. And he's recommended, since he came, Lou Iglesias to take his place. And Lou's been there seven or eight years, I think, maybe even longer. And he was comfortable with that, and I was comfortable with that. So we said, Lou, you become the CEO with John Bender and Wes DuPont. working together as a team. And Scott's helping us in Fairfax, and he's helping us in different areas. He knows the distribution brokerage business really well, and he's working with our presidents and developing a business with them. So we've got about $17 billion in premium, right? And we've got another $2 billion. Now the question is, how do we And Scott's helping with that whole process, working closely with Andy and working with me. But that's Scott's role, and we're very excited about Scott helping us in that way. With that, let me pass it on to Andy, and I want to hear what he says about which companies he likes the most.

Well, I may disappoint you, Prem, because I think Jeff sort of let me off the hook there at the outset. and I wouldn't want to identify one company. I think from my earlier comments, I did say, for example, that we've always felt Allied World, given the nature of its portfolio, could be our leading edge in terms of taking advantage of a hard market. where we might see some of the most significant rate action and then that has been the case so far. But, you know, that's not to diminish the prospects of any of our other companies by comparison. Obviously, Odyssey has had an extraordinary track record for Fairfax under Brian Young, has been an incredible generator of underwriting profits in markets that were Perhaps not quite as exciting as the market we're heading into now. And so you would have to look at Odyssey as one of the companies that we expect very good things from in the hard market. and you know on down the list I think all of our companies are very well positioned in terms of their markets and they have a lot of wind at their backs and so you know we would absent extraordinary events and of course the COVID-19 we have to consider it's an extraordinary event whose Impact on the underwriting performance is very unclear at this point, but I think all of our companies, again, seeing as having some unique challenges that may restrain its performance over the near term, all of our companies are very well positioned to produce rewarding results for Fairfax.

Very well said, Andy, and I'd echo the same. Those six companies are exceptional. The people running them are exceptional. They fit into our culture, and it really is a pleasure to work with all of them. But then, as I emphasized, some of the companies in Asia, they're small, huge growth opportunity there. In Latin America, huge opportunity there. Eastern Europe, Thank you for joining us. with four years now of underwriting profit, started from scratch. And so we've got a fine group of companies with us, Jeff Stacey, and that's our big plus.

Jeff Fenwick? Okay, the next question has to do with concerns about global deflation taking hold on the back of this event that we're going through right now. And the question relates to the CPI-linked deflation contracts that Fairfax continues to hold. And what's your view there, and what do you think needs to happen before those contracts begin to come back into the mind for you?

So, that's a good question, Jeff. So, I mentioned to you that we think You know, like other times of great uncertainty that we're going to come through, that's going to be testing. Just today Amazon said they're going to test all their employees. Thank you very much. And so, Jeff, I lost the thread. Just repeat that question for me for a second.

Sure. I think the question is the CPI-linked contracts that you have have a bit of time left on them. So could they turn into something that could be a big win for Fairfax?

Yeah, so that's what I was saying. I was saying that there are things that are taking place that we can't tell right now, but the things that are taking place that would mean that we'd get through this with, you know, that we look a year from now and we might say it was just like all the other type of events that we've gone through. Now, there's a possibility, because this is a big shock, It's a small possibility, but you can't underestimate that. It's that we're in a spiral that you could go way down. And the economy, huge unemployment, and the rebound might be very slow, more unemployment. I don't think that's the case. I don't think that's a high probability event, but it's a possibility. In that type of event, if you have the economy shrinking significantly and if deflation is in the air, these deflation contracts could be valuable. Now, they've got three years to go. On average, they're about 9 percent out of the money. But some contracts are 5% of the money. And, you know, so we've got about $87 billion in these contracts. And, you know, I really hope that we don't make any money on that because that would be a pretty dire scenario right now. with this COVID-19 virus. But it does provide some protection. And I must say, what we always try to do is look at these low probability events and see if we can protect ourselves. Fairfax is all, you know, we did CDS a long time ago. for a very little amount of money we protected ourselves. And so we're looking at the possibility of protecting ourselves from low probability events and paying an insurance premium, small premium for that. And so we continue to look at that, Jeff. Could I pass that on to Jeff Stacey, I think?

Prem, we had a question come in while the meeting was on and we haven't touched on this at all. So the question is about Fairfax Ventures generally and specifically about a telehealth startup that Fairfax Ventures backed. It seems timely maybe to discuss that in light of the COVID-19 pandemic. So just anything you would choose to discuss about Fairfax Ventures?

Fairfax Ventures has got a lot of... Small investments there, Jeff, in technology. You know, we haven't put a lot of money, but a few millions of dollars. And they're a good group that's worked with Paul particularly. And Paul, of course, has kept me abreast of all of those. And now we've done well on some of them already. And the telehealth, I'm not 100% sure that, you know, it will be a problem. A small investment that we've made, and a lot of these companies are doing well, Jeff, but they're at a very early stage, and it's not a lot of money that we have invested in it. Can I ask Jeff and Rick a last question?

Okay, I've also had another one come into the email. This has to do with the runoff portfolio. Can you comment here, within runoff, it's been a persistent and sizable source of adverse reserve development, and I believe specifically related to the asbestos exposure. Can you provide some color there around how that's shaping up and your comfort level with where you're sitting there reserve-wise today?

Yeah, so that's been a long-term problem for us. And we've got a terrific group that manages that. And it's not in the U.K., because it's in the U.S. concern, not in the U.K., But Nick Bentley and our team is really very good at it. We've got some of the best claim handlers for asbestos. We've been doing it for a long, long time. But we continue to look at, you know, a plethora of lawyers are going wild on it and extending it to all sorts of... different categories, even if there's a little, the problem with this is defending it because 70% of these claims are legal fees. Only 30% are indemnity. It's mainly defending it. And so what happens is people tend to settle. We feel very comfortable with Nick in charge that these are well-handled. and over time, you know, these like Peter Clarke feels that sometime in the next few years, it'll peak and start coming down. The long-term claims, we've got great talent in Leatherstone US on the neck and we're comfortable with the way it's managed, but it is something that we monitor very carefully.

Jeff Stacey. Prem, a related question on Riverstone. Why did you decide to sell a stake in Riverstone to OMERS and then have you received the cash from this transaction and when will any gain on the sale be recognized? And I know you put out the press release so I'm assuming and just want to clarify that that will happen in the first quarter results.

Yes, it did happen in the first quarter results, should happen in the first quarter results. It closed in the first quarter. The 40% was sold to Omos. I must say Omos is a terrific partner for us. We've had many, many deals with them, and it's really a pleasure to deal with them. They've got a very close relationship. And the reason we sold that 40% was so that the opportunity in Lloyds, because Lloyds had gone through... and many more. are all investing in our insurance companies. And so this was a way to do both, where once we have our partner in Womans, Riverstone UK can expand. They can borrow some money if they want at very low interest rates because it's a quick payoff. The track record is terrific. And so we felt that freed us, freed Riverstone UK from expanding on its own merit and allowed us to also support in a significant way our insurance companies as they expand because we had two areas that were expanding. And so this was a good compromise.

Jeff Fenwick. Okay, also related to some transactions in the insurance portfolio here. The question is, are you still planning on buying out the majority interests in Brits and Eurolife or have circumstances changed?

No, we plan to buy. So in the case of BRIT, I think it's about 10% remaining. And somewhere in August, we're thinking of buying that. And with EuroLife, we own about 30% now. And I think we can buy another 30% for approximately $100 million. And sometime during 2020, we expect to do that also.

Jeff Stacey? The next question is about Fairfax's investment in Stelco. The stock is down dramatically from $22 to $5 since the investment and there have been some management changes. It still has a strong balance sheet, excess land and low-cost operations. Can you comment on the company longer term and your thoughts on the holding?

Well, yeah, I mean, you know, our cost is around $20, and the stock went down to $4, and it's, I think, $5 and change. I mean, this is a—the Selco has come out of bankruptcy. It's debt-free. The pensions are well-funded. There's a fellow—it's a low-cost producer in North America, and the guy running it is Alan Kassenbaum. and Andy, supported by a private equity firm. And Alan Kastenbaum's track record is outstanding. And again, we had the ability to buy I think about 12 or 13 million shares. Looking pretty dopey right now because they've paid over 20 bucks and it's like fine. But I'll tell you, if any of you meet Alan Kassenbaum, you'll be as impressed as us and it's only a question time before we'll do well with it. There's no management change at the top. The fellow running it has always been Alan Kassenbaum. I think he might have pointed to the CEO that has been changed, but Alan is very much involved, and we're big fans of Alan Cash and Bob.

Can I pass it on to Jeff Penwick? Okay, our next question is with respect to your investment in Eurobank, and the question is, can you discuss that exposure to Eurobank? It's one of Fairfax's largest investments, and how concerned are you for the outlook here given the current environments? So that's a good question.

Eurobank is one of the largest banks in Greece, has $65 billion in total assets, and it came out with its 2019 financial results, just highlights for them for you. If you look at pre-provision income, that means income before provisions for non-performing loans. That's about 830 million euro, almost a billion US. So a very solid core pre-provision income of 830 million. And the non-performing loans because of a transaction that is about to close. There's $7.5 billion, I think it's approximately $7.5 billion being transferred. The non-performing loans, which were at the end of 2019, was 29%, drops to 16% at the end of 2020, 13%, and in a couple of years down to 5%. So it's that legacy problem, which is a pretty big problem, is now coming down significantly. Deposits in Greece with this conservative government, and the Prime Minister Kiriakos. Very business-friendly government, terrific background that he has, very successful business guy, well-educated, and he's just been there now for about six months, maybe six or eight months, and doing a terrific job. So deposits are coming back into Greece. Loans to deposits is a good number to look at, was 93% in 2018 at 83%. Loans to deposits, so the loans are being funded by deposits now, and it used to be above 100%. So the return they have said publicly, the return in 2020, let's see, before the coronavirus, It's 9% and going up to 10% in 2022. That means the earnings for 2020 were supposed to be 12 cents and going up to 16 cents. Now, the coronavirus, of course, has put a halt to a lot of things, but that's potential. of this company. And its capital adequacy ratio is something like 19.2%. So very well capitalized. Terrific management team. And Fopion, George Christikos, the guy who ran Grabalia. So we continue to be very, you know, I'm excited about the possibility of this bank with a government that just got elected with a four-year term. This is a friendly government. And if they do as well for Greece, then perhaps The private is about 48 years old. He'll get a few terms, a few more terms in Greece. And this bank is going to benefit from the economic development that Greece will have. But right now, like the rest of the world, there's a lockdown and the tourism, of course, will be down. And so we have to wait and see how long it will take. for all of that to change. But we like the economic prospects under the prime minister, the new prime minister got elected, and we like the management team of Eurobank, and we think it's selling at, like many other stock prices, selling at prices that don't make too much long-term sense. So that's our view on Eurobank. And having said all that, it hasn't performed what we expect it to over time. Is that you, Jeff, or Jeff Stacey? It's over to me, Prem. You guys both have the same Jeff names. It's a little confusing.

You talked earlier about shifting a good part of the bond portfolio from short-term treasuries to corporates, investment-grade corporate bonds at attractive yields. And you commented that you'd invested $2.9 billion in investment-grade corporate bonds. If spreads remain wide, how much of the total bond portfolio would Fairfax be comfortable investing in corporate bonds?

Yeah, we would, you know, these are very high quality corporate bonds.

A lot of them are A and above.

and some BBB Plus big companies. And we like the spreads, as long as the spreads. Now, the Federal Reserve has come in. As you know, we had an unprecedented situation in the coronavirus price of oil. Well, the response from the U.S. government has been unprecedented also. They had sort of a stimulus package or a care package of $2 trillion. and more recently $2 trillion where the Fed said they were going to buy corporate bonds, some non-investment grade bonds, ETFs. So the spreads have come down some and so it will be a little more difficult right now to invest the monies at the spreads that we were able to get some time back. But if the spreads come up again, we would certainly look at it. Because the other side of all of this, Jeff, is that You know, if you look at the other side of the coronavirus, the economy picks up again. You know, all of this money sloshing around, it's the same here in the UK and in Germany and many parts of the world. You know, eventually, if we come out of this in the way that I think might happen, it might cause a problem in inflation, you know, too much inflation. Too Much Money Chasing Too Few Goods. But we'll have a lot of time to figure that out, I think, because it's still too early. But that's what we were thinking. So if the opportunity comes, the spreads are good, then we'd continue to buy high-quality corporates. Jeff Fenwick.

Okay, this question circles back to a question about the balance sheet and your liquidity position. So you had $2.5 billion of cash and securities at the end of Q1. Do you feel like that's the right level that you need? Is that enough protection given the volatility we're seeing in the market today?

Yeah, no, I think that's why we drew the line because that's a lot, right, $2.5 billion. and more. And as I mentioned, we've got another 500 million in stock positions like Fairfax India and Fairfax Africa and and things that we can always, you know, plus minus $3 billion to support our insurance companies. So one of the questions was, can you take advantage of the opportunity that you see in the insurance business? And we have every intention of taking full advantage of the opportunities that we see. Yeah, no, we think we're well-capitalized. We expect to take full advantage of the opportunity. Jeff Stacey?

Prem, just a question sort of tying back to the financial crisis in 2008, 2009. At that time, Fairfax got a number of opportunities to deploy capital to private placements, whether debentures or preferred shares, often with warrants attached. Do you think that this crisis will play out similarly and do you think there's opportunities to get capital deployed that way this time?

So that's what we're looking at and as you'd expect and you know people who want to you know if you're a big utility or you're a big telecom company and you have bonds that you have that are five years, 10 years, 15, 20 years. So Brian Bradstreet likes the idea of a put bond. So you buy a 30-year bond, but we have the ability to put it in five years. And so he pays for that by taking a little lower yield. I've done that in the past. He's looking at doing that as we speak. And debt at once is another thing that's worked for us in the past. Thank you for joining us. And so, you know, we've done well on that because we wouldn't do it unless we want to back the management. So if we like the management of the company, then we would do it. And like we did with, you know, with C-SPAN and with David Sokol, we've exercised those debt and wants. We exercised the wants in that case. And we're big shareholders, happy shareholders of Atlas. C-SPAN. But yeah, we think you never can predict these things, Jeff, but the fact that we have a very good history of treating people well is a big plus.

Jeff Fenwick? Okay, a bit of a follow-up, I guess, to these opportunities that you're seeing. There's a question here about How high could you take that percentage of the portfolio for equity exposure and what would be your comfort level there?

We have never selected on that, you know, and what we have today and you can always trade, you know, something that we may not, we like a lot, but we like something even better, higher quality. So we've done that. and selectively we bought a situation that we like. But yeah, so that's where we are right now on our equity portfolio, Jeff and Nick. Jeff, Stacy?

Prem, just we're coming up to 11.30, so I think we probably have time for two more questions. So The question I want to ask before we turn it over to Jeff Fenwick for the last question, have you considered making the investment portfolio more liquid rather than investing in large control positions?

Yes, we have. And you know what? With the portfolio being broken up now and split into Lawrence and Wade and Lawrence investing amounts of money and all of that across the $40 billion, you'll naturally see, I think, more names and less concentrated portfolios. and perhaps better names than what I have had in the past. I could vouch for that. And so that's going to happen. But once in a while, we'll see a situation that we really like and then we'll take a big position. But we've got a terrific investment team and our portfolio has grown so significantly that having that investment team and many more. So we basically now, you know, if you're making an investment, it has to go through Wade and Lawrence and of course Roger and Brian. So it's a big plus for us that that process is ingrained at Fairfax. You have, Jeff Fenwick, the last question.

Yes, this will be the last question. This one is with respect to Fairfax's exposure to the hospitality and restaurant space. Fairfax obviously has a large investment in recipe, and the investor's just asking, do you speak to the size of Fairfax's exposure to this segment, and whether you see any particular risks here that we should be concerned about?

We have 45% or something like that of recipe. The amount of the investment is about $500 to $600 million. I think we disclosed that in our annual report in U.S. dollars. Recipe, of course, with the lockdown, all the restaurants are closed. But we've got a terrific, you know, I think it's about 1,400 restaurants, great brands, and they're in-home delivery and pickup. They're making up quite a bit from that and waiting for the... and many more. Thank you for joining us. So Jeff Fenwick, thank you very much. Jeff Stacey, thank you. That basically concludes the Fairfax Financial Annual Meeting, this website meeting that we've had. I did want to take the opportunity to thank our directors who've been so supportive of us over the years. I wanted to take the time to thank the management that we have, our presidents, which is our big strength. all over, you know, the United States, Canada, but all over the world, led by Andy Bernard, our officers in Fairfax, our investment talent that we have at Hamlin Watsa. I wanted to thank all of you. I wanted to thank you, our shareholders, for joining us today and our employees. And thank you for those very, as always, we've had some excellent questions. and I appreciate the questions, the shareholder questions, which is what we like to do. I want to thank our moderators. I think it'd be fair to say, and I'll give you a nice applause when we meet next year, Jeff Stacey and Jeff Fenwick, but I think everyone would say they've done a terrific job and we really want to thank them for that. and then thank you for being on the webcast and the telephone during this unprecedented time that we face and we look forward to seeing you all in person a year from now and I'll turn it over back to our operator Mo to formally conclude the call.

Thank you Mr. Watsa. Ladies and gentlemen, that concludes the Fairfax Financial Holdings Limited Annual General Meeting Conference Call. Please note that a replay of this call will be available for the next two weeks by phoning 1-866-454-2124 or 1-203-369-1243. These numbers will also be posted on the Fairfax website. You may now disconnect. Thank you for joining us.