Toronto-based Fairfax Financial Holdings Limited has filed its interim report for the six months ended June 30, 2006 and its restated consolidated financial statements and related disclosures pursuant to the restatement previously announced on July 27, 2006. Amounts quoted are in U.S. dollars.
As a result of the restatement, shareholders’ equity decreased $235.3 million as at March 31, 2006, within the estimated range of $225 to $240 million announced on July 27, 2006. Following the corrections Fairfax said its net earnings for the three and six months ended June 30, 2006 were slightly higher at $229.2 million and $427.6 million respectively than the $223.6 million and $421.7 million for those periods respectively announced on July 27, 2006.
The bulletin noted: “The company has completed the restatement of its previously reported consolidated financial statements as at and for the years ended December 31, 2001 through 2005 and all related disclosures, as well as its unaudited consolidated financial statements as at and for the three months ended March 31, 2006 and 2005.”
It has now filed audited restated consolidated financial statements comprising the consolidated balance sheets as at December 31, 2005 and 2004, the restated consolidated statements of earnings, shareholders’ equity and cash flows for each of the years in the three year period ended December 31, 2005 and all related disclosures, as well as unaudited consolidated financial statements as at and for the six months ended June 30, 2006 and 2005.
The bulletin provides a detailed explanation of the problems – for the most part “various non-cash accounting errors arising primarily in 2001 and prior.” As noted above, the cumulative effect was a reduction in shareholders’ equity.
CEO Prem Watsa reiterated his comment of July 27, 2006, stating: “Our operating and investment performance continues to be strong. The restatement has not impacted Fairfax’s cash flows or the fundamental strength of our business. Cash and marketable securities at the holding company at quarter-end exceeded $500 million, the regulatory capital at our operating subsidiaries remains strong and, with the commutation of the Swiss Re Cover, we do not expect to have any cash costs at the holding company to fund European runoff through 2007. That said, we take very seriously our obligation to provide accurate financial results, and our management team, having identified the accounting errors, acted diligently to correct the errors and disclose our restated results.”
Fairfax listed the following highlights for the first six months of 2006 (in summary form):
— The combined ratios of the company’s insurance and reinsurance operations for the second quarter and the first six months of 2006 were 100.4 percent and 97.8 percent respectively on a consolidated basis. On an individual company basis: Northbridge – 112.1 percent and 101.7 percent respectively, Crum & Forster – 99.8 percent and 99.1 percent respectively, and OdysseyRe – 95.6 percent and 95.5 percent respectively.
— Underwriting profit (loss) at the company’s insurance and reinsurance operations for the second quarter and the first six months of 2006 was $(4.2) million and $47.8 million respectively, in both cases reflecting the above-noted $64.5 million increase in the second quarter in Commonwealth’s reserves for 2005 hurricane losses.
— Net premiums written during the second quarter and the first six months of 2006 grew by 8.1 percent to $1.2504 billion and 2.7 percent to $2.382 billion respectively compared to the respective prior year’s periods.
— Total interest and dividend income earned increased to $190.6 million and $339.8 million in the second quarter and the first six months of 2006 respectively from $128.8 million and $235.9 million in the respective prior year’s periods.
— Net realized gains on investments were $434.8 million in the second quarter, derived in large part from the sale of Asian equities, and $724.4 million in the first six months of 2006.
— The company’s runoff and other operations had pre-tax income of $10.9 million and $29.5 million for the second quarter and the first six months of 2006 respectively, including in those numbers pre-tax profit of $10.3 million and $32.7 million for those periods respectively at Group Re and net realized gains (including net realized gains at Group Re) of $31.0 million and $48.6 million for those periods respectively.
The full report may be obtained on the Company’s Website at: www.fairfax.ca.
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