fairfax 2010 agm slide presentation

8/9/2019 Fairfax 2010 AGM Slide Presentation

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Annual MeetinApril 22, 2010

Note: All financial disclosure in this presentation is, unlessotherwise noted, in US$ and, except per share data, in $ millions


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Objectives

We expect to compound our book value per share over thelong term by 15% annually by running Fairfax and itssubsidiaries for the lon term benefit of customers

employees and shareholders at the expense of short term

profits if necessaryur ocus s ong erm grow n oo va ue per s are an

not quarterly earnings. We plan to grow through internalmeans as well as through friendly acquisitions

We always want to be soundly financed

We provide complete disclosure annually to our

3

s are o ers


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Structure

Our companies are decentralized and run by the presidentsexcept for performance evaluation, succession planning,ac uisitions and financin which are done b or withFairfax. Cooperation among companies is encouraged to

the benefit of Fairfax in total omp e e an open commun ca on e ween a r ax an s

subsidiaries is an essential requirement at Fairfax

Share ownershi and lar e incentives are encoura edacross the Group

Fairfax head office will always be a very small holding

4

company an no an opera ng company


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Values

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

We are results-oriented not olitical

We are team players no "egos. A confrontational style is

not appropriate. We value loyalty to Fairfax and our

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

We always look at opportunities but emphasize downside

protect on an oo or ways to m n m ze oss o cap ta We are entrepreneurial. We encourage calculated risk-taking.

It is all right to fail but we should learn from our mistakes

5

We will never bet the company on any project or acquisition

We believe in having fun at work!


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2006 2007 2008 2009

Book Value per Share 150$ 230$ 278$ 370$

Common Shareholders'

Equity (billions) 2.7$ 4.1$ 4.9$ 7.4$

Investments per Share 1,076$ 1,141$ 1,064$

Earnings per Share (diluted) 58.38$ 79.53$ 43.75$

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2008-2009 Change in Book Value per

Share61%

4

1%

37%

36%

36%

36%

35%

33%

32%

31%

30%

30%

30%

28%

27%

25%

24%

23%

23%

22%

22%

% %1 1

818

15%

14%

12%

12%

9%

7%

7%

6%

5%

4%

2%

0

%

)

(1

(7%)

(12%)

)

(3

0

(39%)

7

SOURCE: Dowling & Partners.Fairfax calculated using the same methodology as Dowling & Partners, based on company data

(95%)


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U.S. P&C Insurance Companies

-5-Year Compound Annual Growth Rate

2004-2009

1 Fairfax(1) 17.8% 15.2%

2 WR Berkley 15.6% 3.3%

3 QBE Insurance Group 12.8% 10.8%

4 Loews 12.7% 9.2%

5 ACE Ltd. 12.5% 3.3%

6 Chubb 12.4% 5.0%

7 Leucadia National 11.4% 0.5%

8 ena ssance e 11.4% 0.4%

9 Markel Corp 10.9% (1.4%)

10 Travelers 10.9% 6.1%

11 PartnerRe 10.4% 3.8%

. .

13 Progressive 5.9% (3.2%)

14 White Mountains 3.9% (12.4%)

15 Hartford Financial (4.3%) (19.6%)

16 AIG (44.5%) (47.9%)

8

(1) BVPS in U.S. dollars. Share

price in Canadian dollars.(2) In Canadian dollars.

S&P 500 1.6% (1.7%)

TSX (2) 9.1% 4.9%


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Book Value Per Share

ears ears ears ears

Ranking 1 12 1 1

Fairfax 17.8% 9.0% 18.0% 25.7%

Number of

Companies 16 16 14 10

S&P 500 1.6% 4.5% 5.8% 5.5%

TSX 9.1% 6.1% 5.8% 4.7%

9

For Fairfax: BVPS in U.S. dollars.

For TSX: In Canadian dollars.


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Share Price

Ranking 1 13 5 1

Fairfax 15.2% 5.3% 12.8% 22.3%

Number of

Companies 16 16 14 10

S&P 500 (1.7%) (2.7%) 6.1% 6.5%

TSX 4.9% 3.4% 7.1% 5.0%

10

For Fairfax: Share price in Canadian dollars.

For TSX: In Canadian dollars.


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Combined Net Return onRatio Earnings Avg. Equity

or r ge . .

Crum & Forster 104.1% 213 17.7%

OdysseyRe 96.7% 487 15.1%

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Crum &

Combined Ratio 105.9% 104.1% 96.7% 99.8%

2006-2009

Increase In

Net Premiums

Written

Percentage Points

(Including ULAE)

. .

Crum & Forster (40.1%) 8.5%

12

OdysseyRe (13.4%) 1.4%


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Subsidiary Growth in

2001-2009

Com ound Annual

Growth RateNorthbridge 18.6%

Crum & Forster 19.0%

OdysseyRe 22.7%

(1) 2002-2009

Fairfax Asia (1) 24.8%

(1) 2002-2009

Four excellent companies:

Underwriting culture

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Conservative reserving

Total return investing


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Investing for Long Term Growth

GloballFairfax Asia

Falcon Insurance 100% (Hong Kong) ICICI Lombard General Insurance 26% (India)

a con nsurance a an 41% a an

Alltrust Insurance Company 15% (China)

Europe

Advent Capital 100% (UK)

Polish Re 100% (Poland)

Arab Orient Insurance 20% (Jordan)

Alliance Insurance 20% (Dubai)

at n mer ca

Fairfax Brasil 100% (Brazil)

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Combined

Q1 2010 123.1%

2009 112.4%

To December 31, 2009

10 Years 89%20 Years 94%

30 Years 95%

Zenith to be run independently by Stanley Zax and hismanagement team, with investments centralized at Fairfax

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record (Zenith) with investment expertise (Fairfax)


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Dividend Capacity AtDecember 31, 2009

Northbridge 263$

m ons

Crum & Forster 164$

OdysseyRe 351$

Total 778$

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Average Float

(OperatingCompanies)

1986 $22 million

-

. .

.

Total float at year-end 2009: $11.6 billion

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-

Billions Per Share

.

Common Shareholders' Equity 7.4$ 370$

Net Debt 2.3$ 115$

Total Investment Portfolio 21.3$ 1,064$

Investment Portfolio in 1985 $24 million 5$

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-

$ Millions Per Share

1985 3 70

2009 713 39$

2009 - Adjusted

for "Munis" 822 40$

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-

Per Share$ Amount

1985 million 10

2009 billion 110$2.0

0.5

Cumulative Gains billion10.2

20


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At December 31, 2009

Shares Market UnrealizedOwned Value Gains

(millions) (millions) (millions)

Wells Fargo 20.0 540$ 152$

.

US Bancorp 15.9 356$ 98$

.

Total 1.7$ billion 281$

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Other Than Temporary Impairments

- -

2008 2009

(billions)

Other Than Temporary Impairments 1.4$

Mark-to-Market Losses 0.7$Realized Losses 0.3$

Total 2.4$

22


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Hamblin Watsa Investment Performance

5 Years to 10 Years to 15 Years to

Dec. 31 '09 Dec. 31 '09 Dec. 31 '09

Common Stocks (with Equity Hedging) 17.1% 19.9% 18.3%

Common Stocks 5.9% 13.9% 14.3%. . .

Bonds 11.8% 12.1% 10.6%

BofA Merrill Lynch U.S. Corporate Index 4.5% 6.4% 6.8%

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Source: Hamblin Watsa Investment Counsel - Annualized Rate of Return (%).

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

15 year investment performance includes portfolios managed by Hamblin Watsa which were not owned by Fairfax.

Past performance is no guarantee of future results.


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-1985 2009

Net Premiums Written 12.2 4,286

Net Earnings (0.6) 857

Investment Portfolio 23.9 21,273

Common Shareholders' Equity 7.6 7,392

Per Share Growth

.

Share Price (C$) 3.25$ 410$ 126x

Investments 4.80$ 1,064$ 222x

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Net Premiums Written 2.44$ 214$ 88x


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To December 31, 2009nce

Inception5 Years 10 Years 15 Years 20 Years 22 Years

Compound

Annual Return 31% 18% 13% 18% 19%

For an employee earning Cdn $40,000

Participation at maximum 10% of salary since inception

Shares owned at December 31, 2009: 2,805

Value: Cdn $1.1 million

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Quarterly Earnings Not Important

2009

Earnings (Loss)

Per Share

Book Value

Per Share

At December 31, 2008 n/a 278$

First quarter (3.55)$ 255$

Second quarter 15.56$ 316$

Third quarter 30.88$ 372$

Fourth uarter 1.65$ 370$

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2004 2005 2006 2007 2008 2009

Holdco Cash and

Marketable Securities $567 $559 $767 $963 $1,555 $1,243

Year End Year End Year End

2003 2005 2009

Subsidiar Debt 784 933 903

Holdco Obligations 1,587 1,610 1,411

Total Debt 2,371 2,543 2,314

Holdco Cash and Marketable Securities 410 559 1,243

et e t , , ,

Total Equity & Minority Interests 2,896 3,396 7,737

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. . .

Total Debt / Total Capital 45.0% 42.8% 23.0%


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Can Government Stimulus Work

I have never known much good done by those who affected totrade for the public good.

Adam Smith (Wealth of Nations) 1772

Too much public sector borrowing and government directedinvestment could only crowd out private sector borrowing and

.

Margaret Thatcher (Prime Minister of the U.K.) 1979

current resources from less productive private uses to moreproductive government uses a daunting challenge to say the

28

eas .

Eugene Fama (Professor, University of Chicago) 2009


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Can the Japanese Experience Be

Government Debt as a % of GDP, Nominal GDP, Long TermGovernment Interest Rates and Nikkei Stock Average

1989-2009Index

160%

180%

200%

120

140

120%

140%

80

100

DP

Base= 100

60%

80%

100%

40

60 %of

20%

40%

20

29Source: Hoisington Investment Management and Bank of Japan

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Nominal GDP Nikkei Interest Rates Gov't Debt % GDP


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Government Debt as a % of GDP, Nominal GDP,

Long Term Treasury Rates and S&P 5001929-1941Index

50%

60%

120

140

40%

80

100

DP

Base= 100

20%

30%

60 %ofG

10%20

30

0%0

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

Nominal GDP S&P 500 Interest Rates Gov't Debt % GDP

Source: Hoisington Investment Management and U.S. Commerce Department


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-U.S. Total Private Sector(1) Debt and Total Private Sector Debt/GDP

1953-2009

250%

300%

4,000

5,000

)

200%

2,000

3,000

ang

e

($

Billion

150%

0

1,000

Over

YearCh

100%

-1,000

Yea

31Source: Gluskin Sheff and Hoisington Investment Management

50%-2,000

1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009

Total Private Sector Debt (YOY Change) Total Private Sector Debt/GDP(1) Household,business andfinancialsector


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Long Term U.S. Treasury Rate

-Long Term Treasury Rate

1872 - 2009

12%

14%

Fall of Berlin Wall

8%

10%

Bamboo Curtains

6%

Average = 4.24%

2%

GlobalGlobal market Restricted market

32Source: Hoisington Investment Management

0%

1872 1889 1906 1923 1940 1957 1974 1991 2008

9


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1-10 Year High Yield Spreads

1,600

1,800

2,000

ies

1,200

1,400

U.S.

Treasu

800

1,000

d(bps)over

200

400Sprea

33Source: Merrill Lynch

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009


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800

1-10 Year Investment Grade Spreads

600

700

ies

500

U.S.

Treasu

300

d(bps)over

100

200

Sprea

34Source: Merrill Lynch

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009


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U.S. Real Housing Price Index

-U.S. Real Housing Price Index

1890 - 2009

200

220

160

180

120

140 1989124.21979

122.1

1894123.9

80

100

= .

35Source: Hoisington Investment Management and Robert Shiller, Yale University

60

1890 1907 1924 1941 1958 1975 1992 2009


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Fairfax Investment Portfolio

2007 2008 2009

Government Bonds 50% 16% 14%

Corporate Bonds 4% 7% 14%

Total Fixed Income 55% 43% 54%(1) (1)

Common Stocks 17% (2) 22% 27% (2)

Other Investments 7% 3% 2%

Total 100% 100% 100%

Total Investment Portfolio (3) $19.1B $20.0B $21.3B

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(1) Pre-tax equivalent yield

(2) 2007, approximately 85% hedged and 2009, approximately 30% hedged(3) Includes holding company cash and marketable securities


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3,000

2,500

Odyssey Re

Crum & Forster

2,000

m

sWritten

1,000

,

rossPremi

500

Soft Market Hard Market

37

0

1999 2000 2001 2002 2003 2004 2005

F i f St th


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Fairfaxs Strengths

1. Operations Disciplined operating management focused on

P&C Insurance Operations

Canada leading commercial insurance operation

country

Asia Hong Kong, Singapore, Thailand, China and largest

rivate o eration in India South America Fairfax Brasil

Middle East Dubai and Jordan

Eastern Euro e Poland

P&C Reinsurance Operations

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the world

F i f St th


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Fairfaxs Strengths

2. InvestmentsLong term, value-oriented philosophy

Worldwide

Stocks

Bonds

Distressed debt

erever va ue preva s

Excellent long term track record

39

Ready for the Next Decade


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Ready for the Next Decade -

Our guiding principles have remained intact

Excellent long term performance

Demonstrated strengths

Strong operating subsidiaries focused onunderwriting profitability and prudent reserving

excellent long term returns

Well ositioned for the future

Fair and friendly Fairfax culture

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fairfax 2010 agm slide presentation

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