Fairfax Financial posts Q2 profit of US$83.3M; cites investment gains

TORONTO – Fairfax Financial Holdings Ltd. (TSX:FFH) reported a big increase in second-quarter profits on Thursday, with the Canadian insurance giant crediting investment gains for most of the improvement.

Toronto-based Fairfax, which report in U.S. dollars, said it earned US$83.3 million or US$3.40 per diluted share in the quarter. That compared with net earnings of US$23.7 million or 87 cents per diluted share in the same 2010 period.

Revenue for the three months ended June 30 was US$1.75 billion, up from US$1.39 billion.

“The increase in earnings arose primarily from net gains on investments of $119.6 million compared to net losses on investments of $29.3 million last year,” said Fairfax, most recently reported to be among a group of investors buying up part of a failed Irish bank.

“Despite the challenging insurance industry and investment environment, during the second quarter we recorded good operating results and essentially maintained our common shareholders’ equity and book value per share,” said chairman and CEO Prem Watsa.

He added that the company continues to be “soundly financed” with cash and marketable securities at the holding company level in excess of US$1 billion.

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Fairfax said the combined ratio of the company’s insurance and reinsurance operations was 100.5 per cent on a consolidated basis, producing an underwriting loss of US$6.1 million in the quarter compared with an underwriting profit of US$8.7 million in the same 2010 quarter.

Underwriting results in the most recent period were hurt by US$88.1 million of pre-tax catastrophe losses (net of reinsurance and reinstatement premiums) primarily related to U.S. tornado losses, which increased the combined ratio by 6.9 points.

Net premiums written by the company in the second quarter of 2011 increased 24.3 per cent to US$1.37 billion from US$1.1 billion in the second quarter of 2010, due primarily to the acquisitions of Zenith National and First Mercury.

The Irish media have named Fairfax as part of a group of private investors buying a maximum 37 per cent stake in the Bank of Ireland for euro1.1 billion.

The Irish government is expected to maintain an interest of between 15 and 31 per cent, with the rest of the bank remaining in private hands.

Fairfax has successfully invested in a failed bank before, spending $388 million to acquire a piece of Wells Fargo in 2008. That stake currently has a market value of more than $600 million.

Stock in Fairfax, which reported after markets closed, was down $1.97 at C$370.03 Thursday on the Toronto Stock Exchange.