Fairfax posts $827.7 million bond loss as Q3 earnings fall

Fairfax Financial's third-quarter net earnings fell to $929.6 million, or $43.32 per diluted share, from $1.15 billion a year earlier, as rising interest rates drove $827.7 million of losses on its bond book, Insurance Business America reported.

Net investment losses totaled $858.7 million. A $679.3 million benefit on insurance contracts, generated by the same rate changes, offset most of the total, leaving a net interest-rate effect of $148.4 million. Fairfax said the fixed-income portfolio remains conservatively positioned, with an average term of 3.1 years and 77% in US Treasury and other government bonds.

For general-account managers comparing books, the number to hold against a peer is the $148.4 million net effect, not the $858.7 million gross mark. A longer portfolio would book a larger asset-side mark on the same rate move, with the net result set by how far the insurance-contract discounting travels alongside it.

P&C operations earned a $523.9 million underwriting profit, down from $540.3 million, with the undiscounted combined ratio rising to 92.5% from 92.0%.

Odyssey Group reported higher attritional losses and underwriting expenses, and Northbridge had higher catastrophe losses, while Allied World and Brit improved.

Net premiums written rose 5.4% and gross premiums written 9.3%. Adjusted operating income from P&C operations rose to $1.38 billion, supported by $587.6 million of interest and dividends. In the North American Insurers segment, the insurance service result rose to $313.7 million from $286.6 million.

Outside insurance, Sleep Country, a Fairfax subsidiary, completed the $522.5 million acquisition of Sleep Number.

Fairfax also agreed to take a 50% stake in Boots alongside Wittington Investments, as Private Wealth Daily previously reported.

Separately, Fairfax was selected to buy a controlling stake in India's IDBI Bank for about $5.6 billion.

"This transaction represents a once in a lifetime opportunity to purchase a majority interest in a bank in one of the world's fastest growing economies," chairman and CEO Prem Watsa said of the IDBI deal. At about $5.6 billion, the commitment is roughly six times the quarter's net earnings.