Mr. Prem Watsa reports

FAIRFAX FINANCIAL HOLDINGS LIMITED: THIRD QUARTER FINANCIAL RESULTS

Fairfax Financial Holdings Ltd. had net earnings of $476.9-million ($16.42 net earnings per diluted share after payment of preferred share dividends) in the third quarter of 2017 compared with net earnings of $1.3-million (42-cent net loss per diluted share after payment of preferred share dividends) in the third quarter of 2016. Net earnings in the third quarter of 2017 were strong despite incurring significant losses from hurricanes Harvey, Irma and Maria -- $929.5-million pretax and $791.0-million after tax. Book value per basic share at Sept. 30, 2017, was $415.48 compared with $367.40 at Dec. 31, 2016 (an increase of 15.4 per cent adjusted for the $10-per-common-share dividend paid in the first quarter of 2017).

"The third quarter of 2017 reminded us yet again that ours is a risk business. During the third quarter of 2017, the insurance industry experienced some of the largest catastrophe losses in its history as a result of hurricanes Harvey, Irma and Maria, and earthquakes in Mexico. Losses for the property and casualty insurance industry from these catastrophes are estimated to be perhaps $100-billion plus. Our companies' share of the losses amounted to $960-million, well within our expectation that in a year of extreme catastrophe losses, we expect to break even but will not suffer any significant loss of capital. Fortunately, the reduction of our shareholding in ICICI Lombard to about 10 per cent resulted in cash and marketable shares of $1.4-billion and a net after-tax gain of $930-million, and our strategic alliance with Mitsui Sumitomo Insurance Company will on closing result in a net after tax gain of about $900-million," said Prem Watsa, chairman and chief executive officer of Fairfax. "Fairfax expects to have an excellent year in 2017 in spite of the catastrophe losses, with cash and marketable securities at record levels -- and we are prepared if a hard market develops in 2018."

The third quarter results include a net after-tax gain of $930.1-million on the sale of about two-thirds of the company's equity interest in ICICI Lombard and the adjustment to fair value of the company's residual interest. The third quarter results do not include any gain on the sale of the company's 97.7-per-cent equity interest in First Capital for $1.6-billion, the agreement for which sale was announced in August, 2017, as completion of the sale, expected to occur in late 2017 or early 2018, is subject to applicable regulatory approvals. That sale would result in a net after-tax gain of approximately $900-million (an increase in book value per basic share of approximately $33 on a pro forma basis).

Highlights in the third quarter of 2017 (with comparisons with the third quarter of 2016 except as otherwise noted) included the following:

• The combined ratio of the insurance and reinsurance operations was 130.2 per cent on a consolidated basis, including 33.6 consolidated combined ratio points of losses from hurricanes Harvey, Irma and Maria, producing an underwriting loss of $833.0-million, compared with a combined ratio and underwriting profit of 91.3 per cent and $174.5-million respectively in 2016.
• Net premiums written by the insurance and reinsurance operations increased by 41.4 per cent to $2,779.5-million (8.3 per cent excluding the acquisitions of Allied World, Bryte Insurance, AMAG, Fairfirst Insurance and AIG branches in Latin America and Central and Eastern Europe, all of which were acquired after the third quarter of 2016).
• The insurance and reinsurance operations produced an operating loss (excluding investment results) of $680.4-million, compared with operating income of $284.6-million in 2016, reflecting the above-mentioned $929.5-million of hurricane losses.
• Interest and dividend income of $151.5-million increased from $104.9-million in 2016, primarily reflecting the acquisition of Allied World and lower total return swap expense, partially offset by lower interest income earned as a result of the extensive sales of U.S. treasury and municipal bonds late in 2016 and in the first quarter of 2017.
• As at Sept. 30, 2017, subsidiary cash and short-term investments accounted for 43.1 per cent of the company's portfolio investments.
• Net investment gains were $1,100.5-million in 2017 (net investment losses of $199.5-million in 2016).
• Included in other are net losses of $400,000 and $112.6-million in the third quarter and first nine months of 2017 on the company's U.S. treasury bond forward contracts that reduce exposure to interest rate risk.
• On Aug. 23, 2017, the company entered into an agreement with Mitsui Sumitomo Insurance Company Ltd. of Tokyo, Japan, to pursue a global strategic alliance. In connection with the strategic alliance, Mitsui Sumitomo will acquire the company's 97.7-per-cent interest in First Capital, with the company retaining a meaningful quota share exposure to First Capital's insurance portfolio. The cash purchase price for the sale of First Capital is $1.6-billion, which will result in a realized net after-tax gain of approximately $900-million. Completion of the sale, anticipated for late 2017 or early 2018, is subject to applicable regulatory approvals.
• On July 6, 2017, the company sold a 12.2-per-cent equity interest in ICICI Lombard General Insurance Company Ltd. to private equity investors for net proceeds of $376.3-million and a net realized gain of $223.3-million. On Sept. 19, 2017, the company sold an additional 12.1-per-cent equity interest through participation in ICICI Lombard's initial public offering for net proceeds of $532.2-million and a net realized gain of $372.3-million. Fairfax's remaining 9.9-per-cent equity interest in ICICI Lombard was reclassified from the equity method of accounting to a common stock at fair value through profit and loss, resulting in a $334.5-million remeasurement gain.
• On July 6, 2017, the company, together with certain co-investors, completed the acquisition of 94.6 per cent of the outstanding shares of Allied World Assurance Company Holdings AG for purchase consideration of $3,977.9-million, consisting of $1,905.6-million in cash and $2,072.3-million through the issuance of 4,799,497 subordinate voting shares. The remaining 5.4 per cent of the outstanding shares of Allied World AG were acquired on Aug. 17, 2017, for purchase consideration of $229.0-million, consisting of $109.7-million in cash and $119.3-million by the issuance of 276,397 subordinate voting shares. As a result, the company and the co-investors had ownership interests of approximately 67 per cent and 33 per cent, respectively, in Allied World Assurance Company Holdings GmbH, the successor by merger to Allied World AG. Allied World is a global property, casualty and specialty insurer and reinsurer.
• During the third quarter of 2017, the company completed the acquisition of the insurance operations of AIG in Chile and Colombia (effective from July 31, 2017) and Argentina (effective from Sept. 30, 2017). The company continues to work through the legal, regulatory and operational requirements to complete the acquisitions of the insurance operations of AIG in Uruguay and Venezuela. Colonnade acquired the business and renewal rights of the insurance operations of AIG in Romania on Oct. 31, 2017.
• On July 20, 2017, the company increased its indirect equity interest in APR Energy PLC to 67.9 per cent through the acquisition of an additional 22.9-per-cent equity interest for purchase consideration of $109.0-million. Notwithstanding that increase, because there exist certain contractual arrangements between Fairfax and the second-largest shareholder which preclude either party from exercising unilateral control over APR Energy's most relevant decisions governing its operations, including the appointment of executive management and the approval of the detailed annual business plan, APR Energy continues to be classified as an associate of Fairfax subject to significant influence and continues to be reported under the equity method of accounting.
• On July 13, 2017, Fairfax India increased its equity interest in Bangalore International Airport Ltd. (BIAL) to 48.0 per cent through the acquisition of an additional 10.0-per-cent equity interest from a wholly owned subsidiary of GVK Power and Infrastructure Ltd. for purchase consideration of approximately $200-million (12.9 billion Indian rupees). BIAL owns and operates the Kempegowda International Airport in Bangalore, India, through a public-private partnership.
• On July 4, 2017, the company increased its equity interest in Grivalia Properties REIC to 52.6 per cent through the acquisition of an additional 10.3-per-cent equity interest from Eurobank Ergasias SA for purchase consideration of $100.0-million (88.0 million euros) and commenced consolidating Grivalia Properties in the other reporting segment. Pursuant to Greek securities law, the company then made a tender offer for all remaining outstanding shares of Grivalia Properties which expired on Sept. 6, 2017, resulting in the company acquiring an additional 0.1-per-cent equity interest in Grivalia Properties for cash purchase consideration of $600,000 (500,000 euros). Grivalia Properties is a real estate investment company listed on the Athens Stock Exchange.
• On Aug. 31, 2017, Fairfax Africa, through a series of transactions, invested $155.8-million in Atlas Mara Ltd. through the acquisition of a 42.4-per-cent equity interest. The company will apply the equity method of accounting to its investment in Atlas Mara, which is a financial services institution listed on the London Stock Exchange that operates in seven sub-Saharan countries.
• The company held $1,466.6-million of cash, short-term investments and marketable securities at the holding company level ($1,423.2-million net of short sale and derivative obligations) at Sept. 30, 2017, compared with $1,371.6-million ($1,329.4-million net of short sale and derivative obligations) at Dec. 31, 2016.
• The company's total debt to total capital ratio decreased from 28.7 per cent at Dec. 31, 2016, to 26.9 per cent at Sept. 30, 2017, primarily reflecting increased total capital.
• At Sept. 30, 2017, common shareholders' equity was $11,608.9-million, or $415.48 per basic share, compared with $8,484.6-million, or $367.40 per basic share, at Dec. 31, 2016. Common shareholders' equity at Sept. 30, 2017, does not include the unrecorded $1,080.5-million excess of fair value over the carrying value of investments in associates and certain consolidated subsidiaries.

There were 27.6 million and 23.2 million weighted average common shares effectively outstanding during the third quarters of 2017 and 2016, respectively. At Sept. 30, 2017, there were 27,940,806 common shares effectively outstanding.

Fairfax's detailed third quarter report can be accessed at its website.

As previously announced, Fairfax will hold a conference call to discuss its third quarter 2017 results at 8:30 a.m. ET on Friday, Nov. 3, 2017. The call, consisting of a presentation by the company followed by a question period, may be accessed at 1-800-857-9641 (Canada or United States) or 1-517-308-9408 (international) with the passcode Fairfax. A replay of the call will be available from shortly after the termination of the call until 5 p.m. ET on Friday, Nov. 17, 2017. The replay may be accessed at 1-866-443-6901 (Canada or U.S.) or 1-203-369-1120 (international).

About Fairfax Financial Holdings Ltd.

Fairfax Financial Holdings is a holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management.

                            CONSOLIDATED STATEMENTS OF EARNINGS
                              (in millions, except per share)

                                                   Third quarter     First nine months
                                                  2017      2016       2017       2016
Revenue
Gross premiums written                        $3,477.0  $2,326.0   $8,857.8   $7,290.2
Net premiums written                           2,779.2   1,965.3    7,268.1    6,133.8
Gross premiums earned                          3,403.3   2,348.6    8,275.2    6,794.6
Premiums ceded to reinsurers                    (643.6)   (347.9)  (1,396.1)  (1,015.8)
Net premiums earned                            2,759.7   2,000.7    6,879.1    5,778.8
Interest and dividends                           151.5     104.9      387.0      418.9
Share of profit of associates                     55.1      31.7      131.8       56.8
Net gains (losses) on investments              1,100.5    (199.5)   1,287.2     (129.9)
Other revenue                                    840.5     493.6    2,218.0    1,400.3
                                               4,907.3   2,431.4   10,903.1    7,524.9
Expenses
Losses on claims, gross                        3,842.1   1,356.6    6,871.7    4,187.1
Losses on claims ceded to reinsurers          (1,133.6)   (189.6)  (1,689.3)    (733.4)
Losses on claims, net                          2,708.5   1,167.0    5,182.4    3,453.7
Operating expenses                               564.0     390.3    1,419.6    1,157.8
Commissions, net                                 411.1     337.8    1,189.2      987.1
Interest expense                                  96.3      60.6      235.9      175.5
Other expenses                                   784.0     473.2    2,075.9    1,340.2
                                               4,563.9   2,428.9   10,103.0    7,114.3
Earnings before income taxes                     343.4       2.5      800.1      410.6
Provision (recovery) for income taxes            (26.8)    (30.2)      42.0      101.1
Net earnings                                     370.2      32.7      758.1      309.5
Attributable to
Shareholders of Fairfax                          476.9       1.3      871.1      189.0
Non-controlling interests                       (106.7)     31.4     (113.0)     120.5
                                                 370.2      32.7      758.1      309.5
Net earnings (loss) per share                    16.85     (0.42)     34.04       6.78
Net earnings (loss) per diluted share            16.42     (0.42)     33.13       6.62
Cash dividends paid per share                        -         -      10.00      10.00

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