Fairfax Financial Holdings Limited · TSX:FFH
Fairfax Financial — Shareholder Meeting (April 2012)
41 slides from Fairfax Financial's shareholder meeting presentation, Apr 26, 2012
Slide 1: Annual Meeting
Annual Meeting April 26, 2012 Note: All financial disclosure in this presentation is, unless otherwise noted, in US$
Slide 2: Forward-Looking Statements
Forward-Looking Statements Certain statements contained herein may constitute forward-looking statements and are made pursuant to the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Such forward- looking statements are subject to known and unknown risk
Slide 3: Fairfax – Twenty Six Years
Fairfax – Twenty Six Years 1985 2011 ($ millions) Net Premiums Written 12 5,608 Net Earnings (1) 48 Investment Portfolio 24 24,323 Total Assets 30 33,407 Common Shareholders' Equity 8 7,428 Per Share Growth Book Value $ 1.52 $ 365 240x Share Price (C$) $ 3.25 $ 437 134x Investments $ 4.80 $ 1,194 24
Slide 4: Guiding Principles: Objectives
Guiding Principles Objectives We expect to compound our book value per share over the long term by 15% annually by running Fairfax and its subsidiaries for the long term benefit of customers, employees and shareholders – at the expense of short term profits if necessary Our focus is long term gr
Slide 5: Guiding Principles: Structure
Guiding Principles Structure Our companies are decentralized and run by the presidents except for performance evaluation, succession planning, acquisitions and financing, which are done by or with Fairfax. Cooperation among companies is encouraged to the benefit of Fairfax in total Complete and
Slide 6: Guiding Principles: Values
Guiding Principles Values Honesty and integrity are essential in all of our relationships and will never be compromised We are results-oriented — not political We are team players — no "egos”. A confrontational style is not appropriate. We value loyalty — to Fairfax and our colleagues. We ar
Slide 7: Financial Results
Financial Results 2006 2010 2011 Book Value per Share $ 150 $ 376 $ 365 Growth in Book Value per Share (1) 2% (3%) Common Shareholders' Equity ($ billions) 2.7 7.7 7.4 Investments per Share $ 1,139 $ 1,194 (1) Excludes dividends of $10 in 2010 and 2011
Slide 8: Historic Performance vs Peer Group (5 Years)
Historic Performance vs Peer Group Compound Growth in Book Value per Share (5 Years ending 2011) (1) 19.4% 16.9% 11.6% 11.1% 11.1% 11.0% 8.9% 7.5% 7.3% 7.0% 5.8% 0.7% (2.4%) (11.0%) (1) Except for S&P 500 (compound index return excluding dividends)
Slide 9: Historic Performance vs Peer Group (26 Years)
Historic Performance vs Peer Group Compound Growth in Book Value per Share (26 Years: since Fairfax’s inception) (1) 23.5% 17.3% 17.1% 15.3% 13.9% 13.5% 10.4% 9.2% 7.1% (1) Except for S&P 500 (compound index return excluding dividends)
Slide 10: Source of Earnings in 2011
Source of Earnings in 2011 ($ millions) Ongoing operations Underwriting profit (loss) (754) Interest and dividend income 518 Operating income (236) Net gains on investments 205 Runoff 361 Interest expense (214) Loss on repurchase of long term debt (104) Corporate overhead, taxes and other 36 Net inc
Slide 11: Major Catastrophe Losses in 2011
Major Catastrophe Losses in 2011 ($ millions) Japan Tohoku earthquake and tsunami 470 Thailand floods 202 U.S. tornadoes 70 New Zealand earthquake 63 Hurricane Irene 31 Australian floods 27 Other 158 Total 1,021
Slide 12: OdysseyRe Track Record - Property
OdysseyRe Track Record - Property Gross Underwriting Premiums Combined Year Written Ratio ($ millions) 2000 136 78.9% 2001 353 103.4% 2002 491 75.3% 2003 580 70.0% 2004 629 101.5% 2005 716 151.4% 2006 584 63.1% 2007 616 81.7% 2008 637 90.5% 2009 662 87.2% 2010 755 127.5% 2011 798 97.5% Total 6,957 9
Slide 13: Investment Returns in 2011
Investment Returns in 2011 Realized Unrealized Net Gains Gains Gains (losses) (losses) (losses) ($ millions) ($ millions) ($ millions) Common Stock 703 (1,496) (793) Hedges - 414 414 Common Stock after Hedges 703 (1,082) (379) Bonds 425 854 1,279 CPI-linked derivatives - (234) (234) Other (40) 65 25
Slide 14: International Coal
International Coal Share $16 Price $14 $12 Sale Price Sale Price per per Share Share $14.60 Cost per $7.26 (Average $10.93) $10 Share $4.58 Cost per Share $8 $1.81 (average $3.62) $6 $4 Cost per Share $2 $2.87 (average $3.37) Cost per Share $4.39 $0 (average $4.40) 2006 2007 2008 2009 2010 June 2011
Slide 15: Accident Year Combined Ratios
Accident Year Combined Ratios 2002-2011 Cummulative Net Premiums Average Written Combined Ratio ($ billions) Northbridge Cdn 11.0 96.4% Crum & Forster 9.0 100.3% OdysseyRe 20.6 93.6% Fairfax Asia 0.9 87.4% 40.1 95.6%
Slide 16: Accident Year Reserve Redundancies
Accident Year Reserve Redundancies Average Annual Reserve Redundancies 2002-2010 Northbridge 7.6% Crum & Forster 8.0% OdysseyRe 9.3% Fairfax Asia 6.2%
Slide 17: Strong Operating Companies’ Capital - 2011
Strong Operating Companies’ Capital - 2011 Net Premiums Written/ Net Premiums Statutory Statutory Written Surplus Surplus ($ millions) ($ millions) Northbridge 1,099 1,138 1.0x Crum & Forster 1,077 1,245 0.9x Zenith National 524 620 0.8x OdysseyRe 2,090 3,454 (1) 0.6x Fairfax Asia 214 458 (1) 0.5x (
Slide 18: Well Positioned for a Turn in the Cycle
Well Positioned for a Turn in the Cycle 3,000 Northbridge (C$) Crum & Forster OdysseyRe 2,500 Gross Premiums Written 2,000 1,500 1,000 500 Soft Market Hard Market 0 1999 2000 2001 2002 2003 2004 2005
Slide 19: Growth in Net Premiums Written in 2011
Growth in Net Premiums Written in 2011 Net Premiums Written % Change in Northbridge 11.5% Crum & Forster 46.8% Zenith National 27.4% (1) OdysseyRe 12.7% Fairfax Asia 35.8% Other insurance and reinsurance (8.7%) Consolidated 23.4% (1) Second half of 2011 versus second half of 2010, as Zenith National
Slide 20: International Operations - 2011
International Operations - 2011 Fairfax Share Gross Gross Shareholders' Premiums Investment Shareholders' Premiums Equity Written Portfolio Equity Written Fairfax Asia 620 1,656 1,930 419 772 Insurance - Other 609 1,481 1,516 185 439 Reinsurance - Other 200 431 714 200 431 Total International Operat
Slide 21: Importance of Float
Importance of Float Year-End Float (Operating Companies) 1985 12.5 million 2011 11.6 billion Average cost of float: 2.8% Total float at year-end 2011 14.4 billion (including runoff) $ 707 / share (+10% over the 2010 float of $641 per share)
Slide 22: Importance of Float (Per Share)
Importance of Float Year-End 2011 ($ millions) Per Share Total Float 14,399 $ 707 Common Shareholders' Equity 7,428 $ 365 Net Liabilities 2,495 $ 122 Total Investment Portfolio 24,322 $ 1,194 Investment Portfolio in 1985 24 $ 5
Slide 23: Pre-Tax Interest and Dividend Income
Pre-Tax Interest and Dividend Income Interest Dividend Income Per Share ($ millions) 1985 3 70¢ 2011 705 $ 35 2011 - Adjusted for "Munis" 814 $ 40
Slide 24: Pre-Tax Realized & Unrealized Gains
Pre-Tax Realized & Unrealized Gains Gains Per Share ($ millions) 1985 0.5 10¢ 2008 2,292 $ 126 2009 1,981 $ 108 2010 (3) $ - 2011 691 $ 34 Cumulative Gains 11 billion
Slide 25: Pre-Tax Income – Runoff Operations
Pre-Tax Income – Runoff Operations ($ millions) 2007 188 2008 393 2009 31 2010 165 2011 352 Cumulative (2007-2011) 1,129
Slide 26: Dividend Capacity – Operating Companies
Dividend Capacity – Operating Companies At December 31, 2011 ($ millions) Northbridge 166 Crum & Forster 122 Zenith National 62 OdysseyRe 303 Total 653
Slide 27: Acquisitions in 2011
Acquisitions in 2011 William Ashley – 100% ownership Since 1947, William Ashley has been recognized in North America as the leader within the dinnerware and wedding registry industries Sporting Life – 75% ownership Since 1979, Sporting Life has been selling high-end sports merchandise and leadin
Slide 28: Investment Performance
Investment Performance Hamblin Watsa Investment Performance As at December 31, 2011 5 Years 10 Years 15 Years Common stocks (with equity hedging) 8.7% 15.8% 14.2% S&P 500 (0.2%) 2.9% 5.5% Taxable bonds 13.3% 12.5% 10.4% Merrill Lynch U.S.corporate (1-10 year) bond index 6.0% 5.8% 6.3% Notes: Bonds d
Slide 29: Long Term Common Stock Holdings
Long Term Common Stock Holdings At December 31, 2011 Shares Owned Cost per Market Price Market (millions) Share per Share Value Wells Fargo 20.0 $ 19.36 $ 27.56 552 Johnson & Johnson 7.4 $ 61.37 $ 65.58 485 U.S. Bancorp 15.9 $ 16.27 $ 27.05 428
Slide 30: Fairfax Investment Portfolio Positioned Defensively
Fairfax Investment Portfolio Positioned Defensively At December 31, 2011 Cash and Short Term 27% Government Bonds 17% Municipal Bonds 25% Corporate Bonds 6% Total Fixed Income 48% Yield 7.2% (1) Common Stocks (2) 21% Other Investments 4% Total 100% Total Investment Portfolio ($ billions) 24.3 (1) Pr
Slide 31: Fairfax Focused on the Long Term
Fairfax Focused on the Long Term Earnings and book value volatile on a quarterly basis 2011 Earnings (Loss) per Book Value Share per Share At December 31, 2010 n/a $ 376 First quarter $ (12.42) $ 355 Second quarter $ 3.40 $ 359 Third quarter $ 46.73 $ 403 Fourth quarter $ (38.47) $ 365
Slide 32: Financial Strength
Financial Strength 2010 2011 ($ millions) Subsidiary Debt 919 624 Holding Company Obligations 1,810 2,395 Total Debt 2,729 3,019 Holding Company Cash and Marketable Securities 1,474 963 Net Debt 1,255 2,056 Total Equity & Non-controlling Interest 8,674 8,409 Net Debt/Net Total Capital 12.6% 19.6% To
Slide 33: U.S. Debt as % of GDP 1870-2011
U.S. Debt as % of GDP 1870-2011 Annual 380% 380% 2009 = 382.8 360% 360% 340% 340% 1933 = 299.8 320% 320% 2003 = 301.4 300% 300% 280% 2000 280% 260% 1998 260% 240% 240% 220% 220% 1928 200% 200% 1916 = 170.4 180% 1875 = 156.4 180% 160% Total 160% 140% 140% 120% Private 120% 100% 100% 80% 80% 60% 60% 4
Slide 34: US Economy is Still at Risk
US Economy is Still at Risk (2007=100, Seasonally adjusted) (%, Seasonally adjusted, inverted) 103 3.5 Unemployment Rate 4.0 101 (right scale) 4.5 99 5.0 Industrial Production 5.5 97 (left scale) Last seen 6.0 in 2005 95 6.5 7.0 93 7.5 91 8.0 Last seen in 1983 8.5 89 9.0 87 9.5 10.0 85 10.5 Last see
Slide 35: Euro-Zone Economy is Still at Risk
Euro-Zone Economy is Still at Risk (Seasonally adjusted, 2005=100) (%, Seasonally adjusted, inverted) 115 7.0 Unemployment Rate 7.5 110 (right scale) 8.0 105 8.5 100 Last seen 9.0 in 2005 9.5 95 10.0 90 Industrial Production (left scale) 10.5 Last seen in 1997 85 11.0 1998 1999 2000 2001 2002 2003 2
Slide 36: Japan’s GDP Flat in spite of Massive Loss
Japan’s GDP Flat in spite of Massive Loss of Wealth and Private Sector De-leveraging (Sep. 1990=100) (Sep.1990=100, Seasonally Adjusted) 140 130 Nominal GDP (Right Scale) Real GDP 120 (Right Scale) 115 Cumulative 100 100 90 - 05 GDP Likely GDP Path Supported by w/o Government Action Government 80 85
Slide 37: Long Term Bullish on Equities
Long Term Bullish on Equities Annual Compound Return - December 31, 2011 1 Year 5 Years 10 Years 15 Years 20 Years Long US Treasury Bonds (1) 35.6% 11.2% 8.8% 8.3% 8.0% (2) S&P 500 2.1% (0.3% ) 2.9% 5.5% 7.8% (1) Barclays Capital 30 year Bellwether (2) S&P 500 compound index return including dividen
Slide 38: CPI-Linked Derivative Contracts
CPI-Linked Derivative Contracts December 31, 2011 Notional Weighted Amount Average Dec 31, 2011 Underlying CPI Index ($ billions) Strike Price (CPI) CPI U.S. 18 217 226 European Union 27 110 114 U.K. 1 216 239 France 1 120 124 47 ($ millions) Total cost 421 Total market value 208
Slide 39: Historic Total Return on Investment Portfolio
Historic Total Return on Investment Portfolio 20.0% 10.0% 0.0% 1986 1991 1996 2001 2006 2011 -10.0% Total Return on Portfolio - - - Average Total Return on Portfolio 9.6%
Slide 40: Superior Long Term Investment Track Record
Superior Long Term Investment Track Record Return on Average Investments 2002-2011 Peer 1 5.3% Peer 2 5.3% Peer 3 5.1% Peer 4 4.9% Peer 5 4.7% Peer 6 4.4% Peer 7 4.4% Peer 8 4.2% Peer 9 4.0% Peer 10 3.9% Peer 11 3.7% Average 4.5% Fairfax 9.7% Source: SNL Financial LC; Returns calculated by Fairfax
Slide 41: Ready for the Next Decade - Building on Fairfax’s Strengths
Ready for the Next Decade - Building on Fairfax’s Strengths Our guiding principles have remained intact Excellent long term performance Demonstrated strengths Strong operating subsidiaries focused on underwriting profitability and prudent reserving Conservative investment management provid
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