Mr. Prem Watsa reports

FAIRFAX FINANCIAL HOLDINGS LIMITED: FINANCIAL RESULTS FOR THE FIRST QUARTER

Fairfax Financial Holdings Ltd. had net earnings of $1,250.0-million ($49.38 net earnings per diluted share after payment of preferred share dividends) in the first quarter of 2023 compared with net earnings of $588.7-million ($22.67 net earnings per diluted share after payment of preferred share dividends) in the first quarter of 2022. Book value per basic share at March 31, 2023, was $803.49 compared with $762.28 at Dec. 31, 2022 (an increase of 6.8 per cent adjusted for the $10 per common share dividend paid in the first quarter of 2023). (All dollar amounts in this news release are expressed in U.S. dollars except as otherwise noted.)

"We got off to a great start in 2023, with our property and casualty insurance and reinsurance operations producing operating income of $1,309.3-million ($843.0-million excluding discounting and risk adjustment on claims of $466.3-million) for the first quarter, reflecting increased interest and dividends, increased share of profit of associates, and strong insurance service result. Our underwriting performance in the first quarter of 2023 continued to produce favourable results, with additional growth in gross premiums written of 7.2 per cent and net premiums written of 6.1 per cent, primarily reflecting new business and continued incremental rate increases in certain lines of business. We achieved underwriting profit of $313.8-million on an undiscounted basis and a consolidated combined ratio of 94.0 per cent for the quarter.

"On Jan. 1, 2023, we were required to adopt the new accounting standard for insurance contracts (IFRS 17) -- with the most significant changes being the discounting of our insurance liabilities and a specific risk margin for uncertainty. As we have stated before, this new reporting requirement will not change the way management evaluates the business and we will continue to be focused on underwriting profit on an undiscounted basis with strong reserving. The effects of discounting and risk adjustment in the quarter resulted in an increase to pretax earnings of $309.6-million.

"Net gains on investments of $771.2-million in the quarter were principally comprised of mark-to-market gains on common stocks of $410.4-million and bonds of $319.0-million. The pretax gain on the sale of Brit's MGA Ambridge of approximately $255-million was not accounted for in the first quarter as the transaction only closed on May 10, 2023. Also, on closing of the Gulf Insurance transaction, the company expects it will record a pretax gain of approximately $300-million when our equity interest increases from 43.7 per cent to a controlling interest of 90.0 per cent.

"As we have previously said, we have increased our interest and dividend annual run rate to over $1.5-billion and have locked it in at this level for the next three years. Our fixed income portfolio is conservatively positioned with effectively 80 per cent of our fixed income portfolio in government bonds and only 14 per cent in primarily short-dated corporate bonds.

"We continue to focus on being soundly financed and ended the quarter with approximately $1.0-billion in cash and investments in the holding company, which does not include any proceeds from the sale of Brit's MGA Ambridge that closed on May 10, 2023," said Prem Watsa, chairman and chief executive officer.

The attached table presents the sources of the company's net earnings in a format which the company has consistently used as it believes it assists in understanding Fairfax.

The next attached table presents the insurance service result for the property and casualty insurance and reinsurance operations reconciled to underwriting profit, a key performance measure used by the company and the property and casualty industry in which it operates. The reconciling adjustments are (i) other insurance operating expenses as presented on the consolidated statement of earnings, and (ii) the effects of discounting of losses and ceded losses on claims recorded in the period and the effects of the risk adjustment and other, which are presented in insurance service expenses and recoveries of insurance service expenses.

Adoption of IFRS 17 insurance contracts on Jan. 1, 2023

On Jan. 1, 2023, Fairfax adopted the new accounting standard for insurance contracts (IFRS 17).

• It resulted in considerable changes to the recognition, measurement, presentation, and disclosure of the company's insurance and reinsurance operations -- the most significant being the discounting of the company's net insurance liabilities and a new risk adjustment for uncertainty.
• This new accounting standard has not changed the way management evaluates the performance of its property and casualty insurance and reinsurance operations. The company remains focused on underwriting profit on an undiscounted basis with strong reserving with all of the property and casualty insurance and reinsurance operations continuing to use the traditional performance measures of gross premiums written, net premiums written and combined ratios to manage the business.
• The cumulative effect of implementing IFRS 17 was $2.4-billion and was recognized as an increase in common shareholders' equity at Dec. 31, 2022 (an increase in book value per share of $104.60), primarily reflecting the introduction of discounting net claims reserves of $4.7-billion, partially offset by a risk adjustment of $1.6-billion for uncertainty related to the timing and amount of cash flows from non-financial risk and by the tax effect of the measurement changes and other of $700-million.
• The new standard increased common shareholders' equity at Dec. 31, 2022, to $17.8-billion, a book value per share of $762.28.

Highlights for the first quarter of 2023 (with comparisons to the first quarter of 2022 except as otherwise noted, and excluding the effects of IFRS 17 when discussing the combined ratio and adjusted operating income) include the following:

• Net premiums written by the property and casualty insurance and reinsurance operations increased 6.1 per cent to $5,619.4-million from $5,297.3-million, while gross premiums written increased by 7.2 per cent.
• The consolidated combined ratio of the property and casualty insurance and reinsurance operations was 94.0 per cent, producing an underwriting profit of $313.8-million, compared with a combined ratio of 93.1 per cent and an underwriting profit of $324.4-million in 2022, driven by continued growth in business volumes (net insurance revenue increased by 10.6 per cent) and prudent expense management, partially offset by increased catastrophe losses of $191.9-million or 3.7 combined ratio points in the quarter.
• Adjusted operating income of the property and casualty insurance and reinsurance operations increased by 49.9 per cent to $843.0-million from $562.4-million, principally due to increased interest and dividend income and share of profit of associates.
• Net finance expense from insurance contracts and reinsurance contract assets held of $163.4-million reflected interest accretion as a result of the unwinding of the effects of discounting recognized at higher interest rates compared with net finance income from insurance contracts and reinsurance contract assets held of $419.0-million in the prior year that benefited from the significant increase in discount rates during the quarter, the effects of which exceeded the interest accretion.
• Consolidated interest and dividends increased significantly in the quarter from $168.9-million to $382.3-million. At March 31, 2023, the company's insurance and reinsurance companies held portfolio investments of $54.5-billion (excluding Fairfax India's portfolio of $2.0-billion), of which approximately $7.5-billion was in cash and short-term investments representing approximately 13.7 per cent of those portfolio investments. During the first quarter of 2023 the company used net proceeds from sales and maturities of short-dated U.S. treasuries to purchase $5.9-billion of U.S. treasuries with maturities between three to five years, which will benefit interest and dividend income in the remainder of 2023.
• Consolidated share of profit of associates of $333.8-million principally reflected share of profit of $94.6-million from Eurobank, $69.2-million from EXCO Resources Inc., $50.1-million from Poseidon (formerly Atlas Corp.) and $28.7-million from Gulf Insurance.
• Net gains on investments of $771.2-million.

We seek Safe Harbor.