Saturday, October 31, 2009

Watsa says top priority is to keep Fairfax finances 'really, really strong'

TORONTO — The head of Fairfax Financial Holdings Ltd. (TSX:FFH) says the insurance and investment company has accumulated significant amounts of cash that could be used to pay dividends or make acquisitions, although none is currently planned.

Any new acquisitions Fairfax makes in the future would be limited to "very strong companies, with good track record," Fairfax chairman and chief executive Prem Watsa said in conference call Friday morning.

"Our No. 1 priority is to keep our financial condition really, really strong. We won't do anything at the expense of our financial condition," he added.

Although remaining very profitable, Fairfax has made a number of major investments in struggling Canadian companies that have fared poorly during the recent economic downturn.

Among the missteps, which Watsa acknowledged at the Fairfax annual meeting in April, was its investment in shares of Canwest Global Communications Inc., which has put much of its operations under creditor protection and delisted its shares.

Although there has been speculation that Fairfax might be interested in Canwest's newspapers, which aren't under creditor protection, the subject was never raised in the morning conference call with analysts on Friday.

On Thursday Fairfax, which keeps its books in U.S. dollars, announced it earned US$562.4 million or $30.88 per diluted share in its most recent quarter, up from $467.6 million or $25.27 per diluted share a year ago.

Revenue in the quarter totalled $2.21 billion, up from $2.16 billion in the same quarter last year.

"Our third quarter in 2009 was a key milestone in the history of Fairfax," Watsa said. "Besides excellent results, we have now privatized Odyssey Re and we financed it by issuing $1 billion of common stock."

Fairfax acquired the remaining shares of Odyssey Re Holdings Corp., a re-insurance company, in a deal worth about $960 million earlier this year.

Greg Taylor, Fairfax's chief financial officer noted that Odyssey, which will be issuing earnings next week, had a very strong quarter.

Fairfax said its third quarter had been bolstered by its insurance and reinsurance subsidiaries being strict about letting unprofitable businesses go.

"We are going to maintain underwritng discipline ... and maintain our focus on sound reserving practice," Taylor said.

The company also hedged a quarter of its equity investments in the quarter as a buffer to sudden drop in the stock market and large catastrophic events that could heavily impact its insurance side.

Shares in the company, which reported its results after the close of markets, traded Friday morning at $392.50, up $15 or four per cent on the Toronto Stock Exchange.

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