Fairfax Earnings: Both Sides of the Business Show Strength
Fairfax FFH reported a strong first quarter, with attractive results on both the underwriting and investment sides of the business. As a result, book value per share, adjusted for dividends, increased 7% from the year-end figure. However, we see nothing to alter our long-term view, and will maintain our CAD 730 per share fair value estimate for the no-moat company.
Net premiums written increased 6% year over year, a relatively muted level of growth compared with recent quarters. While we hesitate to make too much of one quarter, it is possible that the company is seeing fewer opportunities as we move deeper into the hard market.
The combined ratio came in at 94.0%, compared with 93.1% last year. We’ve seen underwriting profitability start to flatten out at commercial line peers as well, and we don’t expect the hard market to drive significant improvements from here. Still, with underwriting profitability at an attractive spot, the outlook remains quite positive in the near term, and higher interest rates should provide an additional boost to overall profitability over time.
On the investment side, the company recorded an investment gain of $771 million for the quarter, with the bulk of that figure ($410 million) coming from its equity holdings. While Fairfax’s approach paid off this quarter, we continue to view the firm’s investment strategy as more risk-tolerant than value-creative from a long-term perspective.
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