Mr. Prem Watsa reports

FAIRFAX FINANCIAL HOLDINGS LIMITED: FINANCIAL RESULTS FOR THE THIRD QUARTER

Fairfax Financial Holdings Ltd. had net earnings of $1,068.9-million ($42.26 net earnings per diluted share after payment of preferred share dividends) in the third quarter of 2023 compared with net earnings of $499.4-million ($19.31 net earnings per diluted share after payment of preferred share dividends) in the third quarter of 2022. Book value per basic share at Sept. 30, 2023, was $876.55 compared with $762.28 at Dec. 31, 2022 (an increase of 16.4 per cent adjusted for the $10 per common share dividend paid in the first quarter of 2023). (Note: All dollar amounts in this news release are expressed in United States dollars except as otherwise noted.)

"We continued to build on our outstanding first half of 2023, with the third quarter producing adjusted operating income of $967.2-million (or operating income of $1,424.4-million including the benefit of discounting, net of a risk adjustment on claims) from our property and casualty insurance and reinsurance operations, reflecting strong core underwriting performance, increased interest and dividends, and favourable results from profit of associates. We achieved an underwriting profit of $291.6-million on an undiscounted basis and a consolidated combined ratio of 95.0 per cent for the quarter, reflecting significantly lower catastrophe losses and excellent current accident year underwriting margins. Gross premiums written grew by 5.0 per cent and net premiums written grew by 4.8 per cent, primarily reflecting new business and continued incremental rate increases in certain lines of business.

"Net gains on investments of $56.0-million in the quarter was principally comprised of mark-to-market gains on common stocks of $273.3-million, which was largely offset by mark-to-market losses on bonds of $196.7-million due to continued rising interest rates.

"We remain focused on being soundly financed and ended the quarter with approximately $1.2-billion in cash and investments in the holding company," 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 second attached table presents the insurance service result for the property and casualty insurance and reinsurance operations reconciled to underwriting profit (loss), 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 in the consolidated statement of earnings, (ii) the effects of discounting of losses and ceded losses on claims recorded in the period, and (iii) the effects of the risk adjustment and other, which are presented in insurance service expenses and recoveries of insurance service expenses.

Highlights for the third quarter of 2023 (with comparisons with the third 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 4.8 per cent to $5,837.9-million from $5,573.1-million, while gross premiums written increased by 5.0 per cent, primarily reflecting new business and continued incremental rate increases in certain lines of business.
• The consolidated combined ratio of the property and casualty insurance and reinsurance operations was 95.0 per cent, producing an underwriting profit of $291.6-million, compared with a combined ratio of 100.3 per cent and an underwriting loss of $16.9-million in 2022, driven by decreased catastrophe losses of $388.7-million or 6.7 combined ratio points in the quarter, continued improvement in current accident year underwriting margins from prudent underwriting and continued growth in business volumes (net insurance revenue increased by 11.3 per cent).
• Adjusted operating income of the property and casualty insurance and reinsurance operations increased by 127.5 per cent to $967.2-million from $425.1-million, principally due to strong underwriting profit and increased interest and dividends.
• Net finance expense from insurance contracts and reinsurance contract assets held of $7.9-million in 2023 reflected interest accretion resulting from the unwinding of the effects of discounting associated with net claim payments made, partially offset by the benefit of increases in discount rates during the period due to continued rising interest rates, compared with net finance income from insurance contracts and reinsurance contract assets held of $422.9-million in 2022 which reflected the benefit of increases in discount rates that was only partially offset by the interest accretion.
• Consolidated interest and dividends increased significantly from $256.5-million to $512.7-million. At Sept. 30, 2023 the company's insurance and reinsurance companies held portfolio investments of $56.8-billion (excluding Fairfax India's portfolio of $2.0-billion), of which $6.4-billion was in cash and short term investments representing 11.2 per cent of those portfolio investments. During the first nine months of 2023 the company used cash and net proceeds from sales and maturities of U.S. treasury and other government short term investments and short-dated U.S. treasuries to purchase $5.8-billion of U.S. treasuries with maturities between three to five years and $2.4-billion of U.S. treasuries with maturities between five to seven years, and to make net purchases of $2.1-billion of short-dated first mortgage loans and $1.6-billion of corporate and other bonds with maturities primarily between two to five years. These actions should result in continued higher levels of interest income for approximately the next four years.
• Consolidated share of profit of associates of $291.5-million principally reflected share of profit of $118.9-million from Eurobank, $45.5-million from Poseidon (formerly Atlas) and $20.5-million from Stelco.
• Net gains on investments of $56.0-million consisted of that shown in the attached table.

Net gains on equity exposures of $273.3-million was primarily comprised of net gains on equity derivatives and unrealized gains on common stocks, convertible bonds and convertible preferred stocks. At Sept. 30, 2023, the company continued to hold equity total return swaps on 1,964,155 Fairfax subordinate voting shares with an original notional amount of $732.5-million ($935.0-million (Canadian)) or $372.96 ($476.03 (Canadian)) per share, on which the company recorded $162.0-million of net gains in the third quarter of 2023.

Net losses on bonds of $196.7-million was principally composed of net losses of $169.0-million on U.S. treasuries.

• The company's fixed income portfolio is conservatively positioned with effectively 70 per cent of the fixed income portfolio invested in government bonds and 19 per cent in high-quality corporate bonds, primarily short dated.
• Excluding the impact of Fairfax India's performance fees to Fairfax (accruals of $20.4-million in the third quarter of 2023 and $4.8-million in the third quarter of 2022), which are offset upon consolidation, operating income of the non-insurance companies increased to $146.3-million from $130.4-million, principally reflecting higher business volumes, and continued stable results at restaurants and retail.
• Interest expense of $124.8-million (inclusive of $12.1-million on leases) comprised (other than on leases) $80.7-million incurred on borrowings by the holding company and the insurance and reinsurance companies and $32.0-million incurred on borrowings by the non-insurance companies (which are non-recourse to the holding company).
• At Sept. 30, 2023, the excess of fair value over carrying value of investments in non-insurance associates and consolidated non-insurance subsidiaries was $600.9-million.
• The company's total debt to total capital ratio, excluding non-insurance companies, decreased to 21.6 per cent at Sept. 30, 2023, compared with 23.7 per cent at Dec. 31, 2022, principally reflecting increased common shareholders' equity as a result of the strong net earnings reported in the first nine months of 2023.
• During the first nine months of 2023 the company purchased 257,589 of its subordinate voting shares for cancellation at an aggregate cost of $179.8-million.

There were 23.2 million and 23.6 million weighted average common shares effectively outstanding during the third quarters of 2023 and 2022 respectively. At Sept. 30, 2023, there were 23,115,838 common shares effectively outstanding.

Consolidated balance sheet, earnings and comprehensive income information, together with segmented premium and combined ratio information, follow and form part of this news release.

As previously announced, Fairfax will hold a conference call to discuss its third quarter 2023 results at 8:30 a.m. Eastern Time on Friday Nov. 3, 2023. The call, consisting of a presentation by the company followed by a question period, may be accessed at 1-888-390-0867 (Canada or U.S.) or 1-212-547-0141 (international) with the pass code "fairfax". A replay of the call will be available from shortly after the termination of the call until 5 p.m. Eastern Time on Friday, Nov. 17, 2023. The replay may be accessed at 1-800-814-6745 (Canada or U.S.) or 1-203-369-3349 (international).

About Fairfax Financial Holdings Ltd.

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

We seek Safe Harbor.