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Fairfax Financial returns to profitability with fourth-quarter earnings

Prem Watsa, CEO of Fairfax Financial Holdings, sees no reason to change his pessimistic outlook on equities.

Charla Jones/The Globe and Mail

Fairfax Financial Holdings Ltd. says it has returned to profitability in 2012 after the "catastrophe" of losses it endured a year earlier.

The Toronto company, which reports in U.S. dollars, said part of the strength came from fourth-quarter earnings attributable to shareholders, which were $404.1-million, or $18.90 per share, an improvement over a loss of $771.5-million, or $38.47 a year earlier.

Quarterly profit came mostly from mark-to-market investment gains, which are when a company values assets and liabilities at their current worth even though they might not be drawn upon for years down the road.

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The company also faced lower underwriting losses of $113.1-million, which included losses from Hurricane Sandy worth $261.2-million.

Revenue grew to $2.76-billion from $823.6-million in the period.

The company maintained a conservative investment strategy by hedging the company's stock portfolio in 2010, with the expectation that the Toronto Stock Exchange would fall even further than the market drop in 2008.

In 2011, Fairfax was hit by claims losses and big deficits in its stock hedges, though the company said at the time it was confident it would eventually reverse as stock markets improve.

"We are maintaining our defensive equity hedges as we remain concerned about the economic outlook," said chairman and chief executive officer Prem Watsa in its earnings release.

"We continue to be soundly financed, with year-end cash and marketable securities at the holding company in excess of $1-billion."

For the year, Fairfax reported net earnings attributable to shareholders was $532.4-million from $45.1-million in 2011. Revenues increased to $8.02-billion from $7.48-billion.

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Fairfax, through its subsidiaries, is involved in property and casualty insurance and reinsurance and investment management.

In November, Fairfax was approved as part of a takeover deal for funeral services company Arbor Memorial Services Inc. valued at $375-million.

Shareholders gave the okay for the offer from 2341599 Ontario Ltd., a company sponsored by Scanfield Holdings Ltd., Fairfax Financial Holdings Ltd. and JC Clark Ltd.

Last year, the company doubled its stake in Research In Motion Ltd. when the company, which recently changed its name to BlackBerry, revamped its leadership with a new chief executive and new members on its board of directors.

Watsa also took a seat on its board, and increased his own holdings in the smartphone maker to 9.9 per cent – representing 51.9 million shares – a filing with the U.S. Securities and Exchange Commission showed.

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