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Fairfax dragged to Q4 loss by investment hit

Prem Watsa's Fairfax Financial Holdings slumped to a $363mn fourth quarter deficit after posting a $684mn investment loss.

Full-year earnings halved from $991mn to $447mn on the back of a 105 percent combined ratio and a weaker investment performance.

After booking net gains on investments of $945mn in 2009, the figure fell to $186mn in 2010.

This included $764mn of mark-to-market losses on the company's short equity derivatives and $425.5mn of writedowns from its US state and municipal bonds.

Fairfax is the holding company for a number of operating (re)insurance companies, which control their own underwriting affairs while investments are centralised.

This is overseen by Watsa, who has a reputation as an investment guru after shorting sub-prime asset classes before the financial crisis.

Watsa has succeeded in bucking the trend by increasing the interest and dividends on his investment portfolio.

In 2009 interests and dividends yielded $557mn, rising to $603mn for 2010.

Underwriting performance deteriorated, with a headline full-year combined ratio of 105.2 percent, up from 99.8 percent the year before.

This equated to a hefty underwriting loss of $237mn after a negligible profit in 2009.

Odyssey Re gave the strongest underwriting showing of any of Fairfax's major operating units.

Its combined ratio still crept up from 96.7 percent to 98.6 percent, slashing full-year underwriting profits from $64.3mn to $25.8mn.

Lloyd's insurer Advent fell to an underwriting loss of $18mn as its combined ratio grew by 16 percentage points to 108.4 percent.

Catastrophe losses impacted the full-year group underwriting results by 7.3 percentage points on the combined ratio.

Net cat losses of $331mn included $137mn from the Chilean earthquake.

Odyssey took $86.5mn of these losses and Advent a further $35.5mn.

Fairfax also reported that it had taken a $35.5mn Deepwater Horizon charge.

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