2012 agm slide presentation_fairfax-financial-holdings

7/31/2019 2012 AGM Slide Presentation_Fairfax-Financial-Holdings

1/41

Annual MeetingApril 26, 2012

Note: All financial disclosure in this presentation

is, unless otherwise noted, in US$


2/41

Forward-Looking Statements

Certain statements contained herein may constitute forward-looking statements and are madsafe harbor provisions of the United States Private Securities Litigation Reform Act of 199looking statements are subject to known and unknown risks, uncertainties and other factors

the actual results, performance or achievements of Fairfax to be materially different from aperformance or achievements expressed or implied by such forward-looking statements. Sucbut are not limited to: a reduction in net income if our loss reserves are insufficient; underwritrisks our subsidiaries insure that are higher or lower than expected; the occurrence of catastra frequency or severity exceeding our estimates; the cycles of the insurance market, which influence our and ourcompetitors premium rates and capacity to write new business; chanconditions, including interest rates and the securities markets, which could negatively affecportfolio; insufficient reserves for asbestos, environmental and other latent claims; thesubsidiaries to maintain favourable financial or claims-paying ability ratings; an inabilitinvestment objectives; exposure to credit risk in the event our subsidiaries reinsurers or insu

payments; a decrease in the level of demand for our subsidiaries products, or increasedinability to obtain reinsurance coverage at reasonable prices or on terms that adequasubsidiaries; an inability to obtain required levels of capital; an inability to access cash of risks associated with requests for information from government authorities; risks associagovernment investigations of, and class action litigation related to, insurance industry practicnew legislation; and the failure to realize future income tax assets. Additional risks and described on pages 195 205 in our 2011 Annual Report which is available at www.fairfadetailing of issues and risks relating to the company, please see Risk Factors in FairfSupplemental and Base Shelf Prospectus filed with the securities regulatory authorities in United States, which is available on SEDAR and EDGAR. Fairfax disclaims any intention

update or revise any forward-looking statements.


3/41

Fairfax Twenty Six Years

1985 2011

Net Premiums Written 12 5,608

Net Earnings (1) 48

Investment Portfolio 24 24,323

Total Assets 30 33,407

Common Shareholders' Equity 8 7,428

Per Share Growt

Book Value 1.52$ 365$ 240x

Share Price (C$) 3.25$ 437$ 134x

Investments 4.80$ 1,194$ 249x

Net Premiums Written 2.44$ 275$ 113x

($ millions)


4/41

Guiding Principles

Objectives

We expect to compound our book value per share over theby 15% annually by running Fairfax and its subsidiaries foterm benefit of customers, employees and shareholdersexpense of short term profits if necessary

Our focus is long term growth in book value per share andquarterly earnings. We plan to grow through internal meanthrough friendly acquisitions

We always want to be soundly financed

We provide complete disclosure annually to our sharehold


5/41

Structure

Our companies are decentralized and run by the presidenfor performance evaluation, succession planning, acquisitifinancing, which are done by or with Fairfax. Cooperation companies is encouraged to the benefit of Fairfax in total

Complete and open communication between Fairfax and isubsidiaries is an essential requirement at Fairfax

Share ownership and large incentives are encouraged acrGroup

Fairfax head office will always be a very small holding com

not an operating company

Guiding Principles


6/41

Guiding Principles

Values

Honesty and integrity are essential in all of our relationshipsand will never be compromised

We are results-oriented not political

We are team players no "egos. A confrontational style is notappropriate. We value loyalty to Fairfax and our colleagues.

We are hard working but not at the expense of our families

We always look at opportunities but emphasize downside protecand look for ways to minimize loss of capital

We are entrepreneurial. We encourage calculated risk-taking.It is all right to fail but we should learn from our mistakes

We will never bet the company on any project or acquisition

We believe in having fun at work!


7/41

Financial Results

2006 2010Book Value per Share $ 150 376$ $

Growth in Book Value per Share (1) 2%

Common Shareholders'

Equity ($ billions) 2.7 7.7

Investments per Share $ 1,139 $

(1) Excludes dividends of $10 in 2010 and 2011


8/41

19.4%

16.9%

11.6% 11.1% 11.1% 11.0%

8.9%7.5% 7.3% 7.0%

5.8%

0.7%

Historic Performance vs Peer Group

Compound Growth in Book Value per Share (5 Years ending 2011)

(1) Except for S&P 500 (compound index return excluding dividends)


9/41

Historic Performance vs Peer Group

Compound Growth in Book Value per Share (26 Years: since Fairfaxs incep

(1) Except for S&P 500 (compound index return excluding dividends)

23.5%

17.3% 17.1%

15.3%

13.9%13.5%

10.4%9.2


10/41


11/41

Major Catastrophe Losses in 2011

($ millions)

Japan Tohoku earthquake and tsunami 470

Thailand floods 202

U.S. tornadoes 70

New Zealand earthquake 63

Hurricane Irene 31Australian floods 27

Other 158

Total 1,021


12/41

OdysseyRe Track Record - Property

Gross

Underwriting Premiums Combined

Year Written Ratio($ millions)

2000 136 78.9%

2001 353 103.4%

2002 491 75.3%

2003 580 70.0%

2004 629 101.5%

2005 716 151.4%

2006 584 63.1%

2007 616 81.7%

2008 637 90.5%

2009 662 87.2%

2010 755 127.5%

2011 798 97.5%

Total 6,957 96.7%


13/41

Investment Returns in 2011

Common Stock

HedgesCommon Stock after Hedges

Bonds

CPI-linked derivatives

Other

703

1,088

Realized

Gains

(losses)

($ millions)

-703

425

-

(40)

Unrealized

Gains

(losses)

($ millions)

(1,496)

414(1,082)

854

(234)

65

(397)


14/41

International Coal

$0

$2

$4

$6

$8

$10

$12

$14

$16

Cost perShare $4.58

Cost per Share $4.39(average $4.40)

Cost per Share$1.81

(average $3.62)

Cost per S$2.87

(average $

Sale Priceper Share

$7.26

2006 2007 2008 2009 2010 Jun

SharePrice


15/41

Accident Year Combined Ratios

Cummulative Net

Premiums Average

Written Combined Ratio

($ billions)

Northbridge Cdn 11.0 96.4%Crum & Forster 9.0 100.3%

OdysseyRe 20.6 93.6%

Fairfax Asia 0.9 87.4%

40.1 95.6%

2002-2011


16/41

Accident Year Reserve Redundancie

Average AnnualReserve

Redundancies

Northbridge 7.6%

Crum & Forster 8.0%

OdysseyRe 9.3%

Fairfax Asia 6.2%

2002-2010

St O ti C i


17/41

Strong Operating Companies

Capital - 2011

(1) IFRS total equity

Net PremiuWrit

Net Premiums Statutory Statu

Written Surplus Surp

($ millions) ($ millions)

Northbridge 1,099 1,138

Crum & Forster 1,077 1,245

Zenith National 524 620

OdysseyRe 2,090 3,454 (1)

Fairfax Asia 214 458 (1)


18/41

Well Positioned for a Turn in the Cycle

0

500

1,000

1,500

2,000

2,500

3,000

1999 2000 2001 2002 2003 2004 200

GrossPre

miumsWritten

Northbridge (C$)

Crum & Forster

OdysseyRe

Soft Market Hard Market


19/41

Growth in Net Premiums Written in 201

(1) Second half of 2011 versus second half of 2010, as Zenith National was acquired in May 2010

Northbridge 11.5%

Crum & Forster 46.8%

Zenith National 27.4% (1)

OdysseyRe 12.7%

Fairfax Asia 35.8%

Other insurance and reinsurance (8.7%)

Consolidated 23.4%

Net Premiums Written

% Change in


20/41

International Operations - 2011

Shareholders'Equity

Gross

PremiumsWritten

InvestmentPortfolio

ShareholderEquity

Fairfax Asia 620 1,656 1,930 41

Insurance - Other 609 1,481 1,516 18

Reinsurance - Other 200 431 714 20

Total International Operations 1,429 3,568 4,160 80

Fairfax

Fairfax Asia

Falcon Insurance (Hong Kong)

Pacific Insurance (Malaysia)

First Capital (Singapore)

Falcon Thailand (1)

ICICI Lombard (India) (1)

Insurance - Other

Fairfax Brasil

Alliance Insurance (Dubai)

Gulf Insurance (Kuwait) (1)

Alltrust Insurance (China)

(1) These associated companies are carried on an equity accounted basis

Reinsurance - Ot

Advent Capital (Un

Polish Re


21/41

Importance of Float

Average cost of float: 2.8%

Total float at year-end 2011 14.4 billion(including runoff) $ 707 / share (+10% over the 2010 float

Year-End Float(Operating

Companies)

1985 12.5 million

2011 11.6 billion


22/41

Importance of Float

Year-End 2011

($ millions) Per Share

Total Float 14,399 707$

Common Shareholders' Equity 7,428 365$

Net Liabilities 2,495 122$Total Investment Portfolio 24,322 1,194$

Investment Portfolio in 1985 24 5$


23/41

InterestDividend

Income Per Share

($ millions)

1985 3 70

2011 705 35$

2011 - Adjusted

for "Munis" 814 40$

Pre-Tax Interest and Dividend Income


24/41

Gains Per Share($ millions)

1985 10

2008 2,292 126$

2009 1,981 108$

2010 -$

2011 691 34$

Cumulative Gains billion11

(3)

0.5

Pre-Tax Realized & Unrealized Gains


25/41

Pre-Tax Income Runoff Operations

($ millions)

2007 188

2008 393

2009 31

2010 165

2011 352

Cumulative (2007-2011) 1,129


26/41

Dividend Capacity Operating Companies

($ millions)

Northbridge 166

Crum & Forster 122

Zenith National 62

OdysseyRe 303

Total 653

At December 31, 2011


27/41

Acquisitions in 2011

William Ashley 100% ownership Since 1947, William Ashley has been recognized in North America a

within the dinnerware and wedding registry industries

Sporting Life 75% ownership

Since 1979, Sporting Life has been selling high-end sports merchanleading edge fashion apparel focused on the principle of a healthy, slifestyle and unparalleled customer satisfaction


28/41

Investment Performance

Hamblin Watsa Investment Performance

Notes: Bonds do not include returns from credit default swaps.

Common stocks (with equity hedging) 8.7% 15.8%

S&P 500 (0.2%) 2.9%

Taxable bonds 13.3% 12.5%Merrill Lynch U.S.corporate (1-10 year) bond index 6.0% 5.8%

5 Years 10 Years

As at December 31


29/41

Long Term Common Stock Holdings


Shares Owned Cost per Market Price

(millions) Share per Share

Wells Fargo 20.0 19.36$ 27.56$

Johnson & Johnson 7.4 61.37$ 65.58$ U.S. Bancorp 15.9 16.27$ 27.05$

Fairfax Investment Portfolio Positioned


30/41

Fairfax Investment Portfolio PositionedDefensively

(1) Pre-tax equivalent yield(2) Common stock hedged approximately 100%


Cash and Short Term 27%

Government Bonds 17%

Municipal Bonds 25%

Corporate Bonds 6%

Total Fixed Income 48%

Yield 7.2% (1)

Common Stocks (2) 21%

Other Investments 4%

Total 100%

Total Investment Portfolio ($ billions) 24.3

F i f F d h L T


31/41

At December 31, 2010 n/a 376$

First quarter (12.42)$ 355$

Second quarter 3.40$ 359$

Third quarter 46.73$ 403$

Fourth quarter (38.47)$ 365$

Earnings (Loss) per

Share

Book Val

per Shar

2011

Fairfax Focused on the Long Term

Earnings and book value volatile on a quarter

Fi i l St th


32/41

Financial Strength

2010 2011

Subsidiary Debt 919 62

Holding Company Obligations 1,810 2,39

Total Debt 2,729 3,01

Holding Company Cash and Marketable Securities 1,474 96

Net Debt 1,255 2,05

Total Equity & Non-controlling Interest 8,674 8,40

Net Debt/Net Total Capital 12.6% 19.6

Total Debt/Total Capital 23.9% 26.4

($ millions)

U S D bt % f GDP 1870 2011


33/41

0%

20%

40%

60%

80%

100%

120%

140%160%

180%

200%

220%

240%

260%

280%

300%

320%340%

360%

380%

1870 1886 1902 1918 1934 1950 1966 1982 1

Annual

U.S. Debt as % of GDP 1870-2011

Source: Hoisington Investment Management

1875 = 156.4

1933 = 299.8

1916 = 170.4

1928

2009

2003 = 3

20

1998

Federal

Total

Private

US E i Still t Ri k


34/41

Source: Richard Koo, Nomura Research Institute

83

85

87

89

91

93

95

97

99

101

103

98 99 00 01 02 03 04 05 06 07 08 09 10

(%, Seasonally adjusted, inverted

Unemployment Rate

(right scale)

(2007=100, Seasonally adjusted)

Last seen

in 2005

Last seen in 1983

Last seen in 1997

Industrial Production(left scale)

US Economy is Still at Risk

E Z E i Still t Ri k


35/41

85

90

95

100

105

110

115

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010


(%, Seasonally adjusted, inv(Seasonally adjusted, 2005=100)

Industrial Production(left scale)

Unemployment Rate(right scale)

Last seen in 1997

Last seenin 2005

Euro-Zone Economy is Still at Risk

Japans GDP Flat in spite of Massive Loss


36/41

down87%

25

40

55

70

85

100

115

130

0

20

40

60

80

100

120

140

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

(Sep.1990=100, Seasonally Adjusted)

Real GDP(Right Scale)

Land Price Index in Six Major Cities(Commercial, Left Scale)

(Sep. 1990=100)


Nominal GDP (Right Scale)

Likely GDP Pathw/o Government Action

Last seen in 1973

p pof Wealth and Private Sector De-leveraging

Long Term Bullish on Equities


37/41

Long Term Bullish on Equities

(1) Barclays Capital 30 year Bellwether

(2) S&P 500 compound index return including dividends

1 Year 5 Years 10 Years 15 Ye

Long US Treasury Bonds (1) 35.6% 11.2% 8.8% 8.3

S&P 500 (2) 2.1% (0.3%) 2.9% 5.5

Annual Compound Return - Decembe

CPI-Linked Derivative Contracts


38/41

December 31, 2011

Notional Weighted

Amount Average Dec 3Underlying CPI Index ($ billions) Strike Price (CPI)

U.S. 18 217

European Union 27 110

U.K. 1 216

France 1 120

47

($ m

Total cost

Total market value

Historic Total Return on Investment


39/41

Portfolio

Total Return on Portfolio - - -Average Total Return on Portfolio 9.6%

-10.0%

0.0%

10.0%

20.0%

1986 1991 1996 2001 2006

Superior Long Term Investment


40/41

Peer 1

Peer 2

Peer 3

Peer 4

Peer 5

Peer 6

Peer 7

Peer 8

Peer 9

Peer 10

Peer 11

Average

Fairfax

4.5%

9.7%

3.9%

3.7%

4.2%

4.0%

4.4%

4.4%

4.9%

4.7%

5.3%

5.1%

Return on Average

Investments 2002-2011

5.3%

p gTrack Record

Source: SNL Financial LC; Returns calculated b Fairfax

Ready for the Next Decade -


41/41

yBuilding on Fairfaxs Strengths

Our guiding principles have remained intact

Excellent long term performance

Demonstrated strengths

Strong operating subsidiaries focused on underwrprofitability and prudent reserving

Conservative investment management providing elong term returns

Well positioned for the future

Fair and friendly Fairfax culture

2012 agm slide presentation_fairfax-financial-holdings

Documents