Swiss Re Commutation Hits Fairfax Q3 Earnings; Posts $359 Million Loss

Toronto-based Fairfax Financial Holdings Limited announced a net loss of $359.2 million for the third quarter of 2006 and net earnings of $68.4 million for the first nine months of 2006. The figures are given in U.S. dollars.

Fairfax explained that the “third quarter net loss included a $412.6 million non-cash charge related to the previously announced commutation of the Swiss Re corporate insurance cover. Prior to giving effect to the commutation loss, net earnings for the third quarter and for the nine months were $53.4 million and $481.0 million respectively. Net loss per diluted share was $20.41 for the third quarter and net earnings per diluted share were $3.37 for the nine months ended September 30, 2006.

Fairfax listed “other highlights” as follows:
— The combined ratios of the company’s insurance and reinsurance operations for the third quarter and the first nine months of 2006 were 98.5 percent and 98.0 percent respectively on a consolidated basis, and as follows on an individual company basis: Northbridge – 94.5 percent and 99.3 percent respectively, Crum & Forster – 98.7 percent and 98.9 percent respectively, and OdysseyRe – 100.3 percent and 97.1 percent respectively.
— Underwriting profit at the company’s insurance and reinsurance operations for the third quarter and the first nine months of 2006 was $16.6 million and $64.4 million respectively.
— Net premiums written during the third quarter and the first nine months of 2006 grew by 2.6 percent to $1.2373 billion and 2.7 percent to $3.6193 billion respectively compared to the prior year’s periods.
— Total interest and dividend income earned increased to $192.5 million and $532.3 million in the third quarter and the first nine months of 2006 respectively from $103.5 million and $339.4 million in the prior year’s periods.
— Net realized gains on investments in the third quarter were $20.9 million (net of mark-to-market adjustments on derivatives and other short positions of $117.6 million), and in the first nine months of 2006 were $745.3 million (net of mark-to-market adjustments on derivatives and other short positions of $72.0 million).
— The company’s runoff and other operations had a pre-tax loss of $408.4 million and $378.9 million for the third quarter and the first nine months of 2006 respectively, including the $412.6 million loss recorded during the third quarter of 2006 on the commutation of the Swiss Re corporate insurance cover. Prior to giving effect to the commutation loss, runoff and other’s pre-tax earnings for the third quarter and for the nine months were $4.2 million and $33.7 million respectively.
— The company held $473.7 million of cash, short term investments and marketable securities at the holding company level at September 30, 2006 compared to $559.0 million at December 31, 2005.
— Subsidiary portfolio cash and investments at September 30, 2006 totaled $15.8 billion at carrying value, compared to $14.3 billion at December 31, 2005. The pre-tax unrealized gain on portfolio investments at September 30, 2006 was $207.5 million (consisting of an unrealized loss on bonds of $101.5 million and an unrealized gain on equities and other of $309.0 million).
— Reinsurance recoverables declined to $5.8058 billion at September 30, 2006 from $7.6557 billion at December 31, 2005, a reduction of $1.8499 billion that included a reduction of $1 billion recoverable from Swiss Re after the commutation of the corporate insurance cover.
— Funds withheld payable to reinsurers declined by $645.8 million to $408.6 million at September 30, 2006 from $1.0544 billion at December 31, 2005, primarily due to the commutation of the Swiss Re corporate insurance cover.
— Future income taxes declined by $360.9 million to $757.9 million at September 30, 2006 from $1.1188 billion at December 31, 2005. The portion of the company’s future income tax asset related to capitalized operating losses of its U.S. consolidated tax group declined by $324.5 million to $81.2 million at September 30, 2006 from $405.7 million at December 31, 2005.
– Total holding company debt at September 30, 2006 declined by $119.0 million to $1.4908 billion from $1.6098 billion at December 31, 2005.
– At September 30, 2006, common shareholders’ equity was $2.5296 billion, or $142.57 per basic share.

The full earnings report may be obtained on the Croup’s Website at www.fairfax.ca. A replay of the conference call discussing the earnings statement is available until 5:00 p.m. Eastern Time on Friday, November 17, 2006. The replay may be accessed at (888) 562-2937 (Canada and U.S.) or 1 (203) 369-3751 (International).