Fairfax, a Toronto-based insurer and asset manager, released financial results late Thursday that highlighted a pandemic-induced roller-coaster ride over the past 12 months. At the end of March, as COVID-19 first swept through North America and Europe, the company booked a US$1.54-billion loss on its investments.
By the end of the year, Fairfax had earned US$313-million on its portfolio, a swing of US$1.8-billion. The recovery reflected a turnaround in value-oriented holdings such as steel maker Stelco Holdings Inc. and shipping company Atlas Corp.
“Our business is firing on all cylinders” founder and chief executive Prem Watsa said in an interview. He said in 35 years at Fairfax, he has never experienced swings in stock valuations to match last year’s. Looking ahead, he said: “Value investing is coming into the fore.”
Fairfax’s insurance operations recorded a US$669-million loss on COVID-19 related claims and another US$644-million of red ink on catastrophe losses. However, Mr. Watsa said over all, the insurance business performed extremely well in 2020, turning in operating income of US$916-million.
Fairfax’s premium income from its 26 insurance and reinsurance subsidiaries increased by 12.5 per cent last year to a record US$19-billion. Mr. Watsa said some rivals are scaling back during the pandemic and as a result, Fairfax expects to expand its client base and do more business with existing customers.
Early Thursday, ahead of Fairfax’s financial results, analyst Jaeme Gloyn at National Bank Financial said in a report: “We believe diminishing COVID-driven losses, stable leverage, and improving investment performance will support strong near-term results” at Fairfax. Mr. Gloyn said that since the end of the year, Fairfax’s stake in software company BlackBerry Ltd. has more than doubled in value to US$1.3-billion.
Fairfax’s stock currently trades at a discount to the company’s book value of US$478 a share and below the valuation of insurance industry peers, according to a recent report from analyst Phil Hardie at Scotia Capital. He said that discount is expected to narrow this year because of a number of factors, including “a long-awaited resurgence in value investments” and the potential for Fairfax to cash in on stakes in private companies, through their sale or initial public offerings.
Fairfax is a significant investor in Winnipeg-based Farmers Edge Inc., an agricultural technology company that filed to go public this week in an offering led by National Bank Financial and CIBC Capital Markets.
At last year’s annual meeting, Mr. Watsa called the company’s stock “ridiculously cheap” and subsequently spent US$149-million to personally acquire more Fairfax shares in June. On Thursday, the company’s results showed Fairfax invested US$485-million last year in derivatives called total return swaps that capture any increase in price of 1.4 million Fairfax shares more than US$344.45 per share. Fairfax stock traded Thursday at US$400, which means that, to date, the company has made US$75-million on the strategy.
Editor’s note: The online version of this story has been corrected to say the company’s results showed Fairfax invested US$485-million last year in derivatives called total return swaps that capture any increase in price of 1.4 million Fairfax shares more than US$344.45 per share.
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