Fairfax Financial Holdings Limited (PNK:FRFHF) Q4 2024 Earnings Call Transcript

Fairfax Financial Holdings Limited (PNK:FRFHF) Q4 2024 Earnings Call Transcript February 14, 2025

Operator: Good morning and welcome to Fairfax’s 2024 Year-End Results Conference Call. Your lines have been placed in a listen-only mode. After the presentation, we will conduct a question-and-answer session. [Operator Instructions] Today’s conference is being recorded. [Operator Instructions] Your host for today’s call is Peter Clarke with opening remarks from Derek Bulas. Sir, you may begin.

Derek Bulas: Good morning and welcome to our call to discuss Fairfax’s 2024 year-end results. This call may include forward-looking statements. Actual results may differ perhaps materially from those contained in such forward-looking statements as a result of a variety of uncertainties and risk factors, the most foreseeable of which are set out under risk factors in our base shelf prospectus, which has been filed with Canadian securities regulators and is available on SEDAR. Fairfax disclaims any intention or obligation to update or revise any forward-looking statements except as required by applicable securities law. I’ll now turn the call over to our President and COO, Peter Clarke.

Peter Clarke: Thank you, Derek. Good morning and welcome to Fairfax’s 2024 fourth quarter and year-end conference call. I plan to give you some highlights and then pass the call to Wade Burton, our President and Chief Investment Officer of Hamblin Watsa to comment on investments; and Jen Allen, our Chief Financial Officer, to provide some additional financial details. 2024 was another outstanding year. We earned $3.9 billion after taxes with record underwriting income of $1.8 billion, record interest and dividend income of $2.5 billion, and strong earnings from investments and associates of $956 million. Operating income from our insurance and reinsurance operations on an undiscounted basis and before risk margin was $4.8 billion.

Our book value per share increased 14.5% adjusted for our $15 dividend to $1,060. Included in our book value was a loss of $477 million or almost $22 per share in other comprehensive income relating to currency losses due to the significant strengthening of the U.S. dollar against many currencies around the world, primarily in the fourth quarter after the elections in the United States. We view these unrealized foreign currency movements as market fluctuations, similar to unrealized gains or losses on our equity and fixed-income investments. Our insurance and reinsurance companies are in great shape writing over $32 billion of premium worldwide. We benefit greatly from our scale and diversification and the exceptional talent and experience of our long-serving presidents and teams that run our insurance and reinsurance companies.

In the fourth quarter, we closed our previously announced purchase of Sleep Country Canada, and also in the fourth quarter we acquired the remaining 57% ownership of Peak Achievement. A big welcome to Stewart Schaefer and his team at Sleep Country and Ed Kinnaly and the team at Peak. We also announced a 33% investment in Albingia, a property and casualty insurance company based in France. It writes primarily specialty commercial insurance. The transaction is subject to regulatory approvals and expected to close in the second quarter. I will now give you some additional detail on the components of our net earnings for the year. Our investment return for 2024 was 6.7%, driven by increased interest and dividend income, strong share of profits of associates, and net gains on equities offset by unrealized losses on our bond portfolio, due to rising interest rates.

Consolidated interest and dividend income of $2.5 billion was up 32% year-over-year, benefiting from a growing investment portfolio, reinvesting at higher interest rates, and increased dividend income. Net gains on investments of approximately $1.1 billion for the year were driven by gains on our equity exposures of $1.9 billion offset by unrealized losses on our bond portfolio, up $731 million, primarily from U.S. Treasuries again due to the increase in interest rates in the fourth quarter. The net gains of $1.9 billion on our equity and equity-related holdings were driven by realized gains and unrealized mark-to-market gains on our Fairfax TRS, Stelco, Peak, Orla Mining offset by unrealized losses on IIFL Finance and Commercial International Bank.

We have always said and please remember our net gains or losses on investments only make sense over the long-term and will fluctuate from quarter-to-quarter or for that matter year-to-year. More on Investments from Wade. As mentioned in previous quarters, our book value per share of $1,060 does not include unrealized gains or losses in our equity-accounted investments and our consolidated investments, which are not mark-to-market. At the end of the year the fair value of these securities is in excess of carrying value by $1.5 billion, an unrealized gain position or $68 per share on a pre-tax basis. This is after realizing a gain on Stelco of $352 million, which we sold in 2024 and closed in the fourth quarter. As we had an ownership above 20%, we equity accounted Stelco.

The market value was much higher than the carrying value and the way the accounting works is that gain is not reflected in our book value until realized, and this was the case for Stelco. In 2024, net earnings included an unrealized loss due to increasing interest rates in the year up $530 million. This consisted of unrealized losses on our bond portfolio of $731 million previously mentioned offset by the increase in discount on our insurance and reinsurance contracts held up $201 million. For comparison purposes, in 2023, this number with a net benefit of $496 million, a swing of around $1 billion year-to-year. Our insurance and reinsurance businesses wrote $32.5 billion of gross premium in 2024, an all-time high, up 12.6% versus 2023. The growth was driven by the consolidation of Gulf insurance, whose operating results were consolidated into our results beginning January 1, 2024 excluding Gulf’s premium of $2.7 billion, gross premium was up 3.1%.

Our North American insurance segment increased gross premiums by $469 million in 2024 or 5.6%. Crum & Forster continued to grow its specialty business with growth of 7.8% for the year, driven by its Surplus and Specialty lines, Accident and Health Business, and Seneca Insurance. Northbridge was up 4.4% in Canadian dollars reflecting continued strong customer retentions and continued rate increases. While Zenith’s premiums were down 1.2% year-over-year, due to continued competitive workers’ compensation market. Our global insurer and reinsurer segment was up 1.5% with gross premiums of $17.2 billion in 2024. Allied World was up 4.5% for the year with gross premiums of $7.2 billion, their reinsurance segment was up 13%, its global markets insurance premium was up 9%, while its North American insurance segment was relatively flat.

Odyssey’s Group’s premiums were down 1.4% in 2024 with gross written premium of $6.2 billion. Its insurance business was down 3.3 percentage points, principally from targeted decreases at Hudson in its crop and financial lines of business, while reinsurance was flat impacted negatively by the non-renewal of a large quota share in the fourth quarter of 2023. Excluding the quota share contract, Odyssey’s reinsurance business was up 7.3% in 2024. Brit’s gross premium was up 1% for the year, primarily in property, both direct and reinsurance, offset by long tail casualty in select areas. On a net basis though, premium was up 6% as they retained a greater share of profitable business. Our international insurance and reinsurance operations gross premium increased significantly in 2024 versus 2023 with gross written premium of $6.5 billion, up over 80% or $2.9 billion.

The growth was primarily the result of the consolidation of Gulf insurance that added $2.7 billion of gross premium in our international operations. Excluding Gulf insurance, our international operations gross premiums were up 5% or almost $200 million despite U.S. dollar strengthening. Our international operations now make up approximately 20% of our total gross premiums and the long-term prospects of our international operations are excellent and will be a significant source of growth over time driven by excellent management team. On underwriting, we had a very strong end to the year with the fourth quarter combined ratio of 89.5%, producing an underwriting profit of $658 million. Focusing on the full-year, our combined ratio was 92.7%, producing record underwriting profit of $1.8 billion.

The combined ratio included catastrophe losses of $1.1 billion, adding 4.5 combined ratio points, primarily from Hurricane Milton and Helene in the United States, the significant catastrophe events in Canada, and the floods in Dubai. This compares to a combined ratio of 93.2 and catastrophe losses of 4 points in 2023. As our premium base has expanded and with the benefits of diversification, we expect to be able to absorb significant catastrophe losses within our underlying underwriting profit. For the full-year 2024, our global insurers and reinsurers posted a combined ratio of 91%, led by Allied World with a combined ratio of 89.1% and an underwriting profit of $545 million and its seventh consecutive year of improved combined ratios since we acquired them in 2017.

Odyssey Group had another great year and produced a combined ratio of 91.2% with underwriting income of $505 million, driven by a combined ratio of 84.7% in its reinsurance business and all its segments producing underwriting profits. Brit continues to produce excellent results as well, with $191 million of underwriting profit and another year of sub-95% combined ratio at 93.6%. Our North American insurers had a combined ratio of 93.7% in 2024, led by Northbridge with a combined ratio of 89.3% and underwriting income of $232 million. Despite the negative headwinds of the Canadian dollar and withstanding the significant catastrophe losses that affected Canada this year, an outstanding result. Crum & Forster continues to grow profitably with a combined ratio of 95% and Zenith, our workers’ compensation specialist had a combined ratio of 99.1%, managing multiple years of price decreases in that line of business.

Our international operations delivered a combined ratio of 97.3%. Fairfax Asia had a great year with a combined ratio of 92.1%, led by Singapore Re and all our other Asian companies produced underwriting profit. Latin America produced another excellent year under 95% despite some difficult economic conditions in some of the countries they do business. Colonnade, who writes business across Eastern Europe was affected by the significant flood losses in the third quarter and came in with a combined ratio of 96%, while Bryte in South Africa, after a number of difficult years from catastrophe had a great year with a combined ratio of 94.9%. EuroLife in Greece had a small underwriting loss at 103.0%, driven by a very competitive environment. Finally, Gulf Insurance, which was consolidated in our results for 2024, had an elevated combined ratio of 100.9% affected by the Dubai floods and 3.2 points of purchase price adjustments from the Fairfax consolidation.

This will be eliminated after this year. Excluding these adjustments, the combined ratio was 97.7%. We are confident they will return to their historical sub-95% underwriting results going forward. For the year, our insurance and reinsurance companies recorded favorable reserve development of $594 million or a benefit of 2.4 points on our combined ratio. This compared to $310 million or a benefit of 1.4 points in 2023. This is the 18th consecutive year our insurance and reinsurance operations had favorable reserve development. We are focused on setting our ongoing reserves at conservative levels, especially on long-tail lines of business. Offsetting this, our runoff operations strengthened reserves by $221 million as part of their annual actuarial reserve process.

The strengthening related primarily to latent liabilities due to continued increases in litigation activity. Through our decentralized operations, our insurance and reinsurance companies continue to thrive, writing close to $33 billion in gross premium, producing record underwriting profit, and as we said before, led by our exceptional management teams, our companies are positioned very well to continue capitalizing on their opportunities in their respective markets. Finally, a comment on the devastating fire losses that occurred in Southern California last month. For us this will be primarily a reinsurance event as we have very little direct insurance exposure to the fires. Our main exposure is through the reinsurance business at Odyssey, Brit, and Allied World.

Insured industry losses are estimated to be in the $35 billion to $45 billion range and we typically take on 1% to 1.5% of industry losses. This could be a little higher given this is a reinsurance event for us, but at a high level our early estimate of the net losses would be in the $500 million to $750 million range on a pre-tax basis. With that said, we are five weeks in since the fire started and we have not received many reports from our scenes. We’ll have a much better estimate at the end of the first quarter. We expect much of the loss and possibly all will be covered by our first quarter cat margin and underwriting income. Many people have lost their homes and many businesses have been destroyed by the fires. As part of our overall charitable giving’s, which is 2% of pre-tax profit, we have donated $1 million to the Red Cross in support of the relief efforts for the people affected by the wildfires as we also did for the people affected by Hurricane Milton.

I will now pass the call to Wade Burton, our President and Chief Investment Officer of Hamblin Watsa to comment on our investment.

Wade Burton: Thank you, Peter, and good morning. We ended 2024 in excellent shape on the investment side. Our $47 billion fixed-income portfolio is earning $2.5 billion in interest and dividend income in very high-quality investments with a 5.1% yield and duration of 3.3. Our $20 billion of equity investments had an excellent year with solid unrealized and realized gains and strong associated earnings. Our experienced investment team continues to closely monitor all the holdings, both fixed-income and equities. As many of you know, our long-term track record is outstanding, averaging 7.7% on the float over 39-years with only a handful of down years and nothing worse than negative 4.5% primarily unrealized. In 2024, the overall portfolio was up 6.7% in spite of mark-to-market losses on fixed income due to higher rates.

It was a solid year of performance and we are well positioned from a downside perspective going into 2025 and beyond. Also, if rates stay where they are, which we think they might, interest income could be even higher over the next few years. Higher rates hurt the mark in 2024 with unrealized bond losses of $731 million, but really set us up for excellent interest income for the next few years. I wanted to highlight two investments on this call. First, our investments in India, in this fast-growing economy Fairfax has direct investments of over $4.5 billion. This includes a $900 million market value, $679 million carrying value, investment and controlling stake in Fairfax India, where we have an incredible investment team led by Chandran Ratnaswami, Gopal Soundarajan, and Sumit Maheshwari.

We think Fairfax India’s book value significantly understates the intrinsic value of its holdings, especially considering their current 64% stake in Bangalore airport alone is 48% of the assets of Fairfax India. The other key investments in Fairfax India of IIFL Capital, TSB bank, and Seven Islands Shipping are performing very well making good profits and growing. Outside of Fairfax, India, we also have a large investment in India’s biggest tour operator Thomas Cook. Quest is the largest staffing company in India and of course, our direct investment in Digit, a very fast-growing and profitable online insurance company. Second, I wanted to discuss an investment that closed just after year-end 2024. We invested in the largest independent timeshare company in America called the Berkeley Group.

Caroline Shin and her team at Vacatia are Fairfax partners here. The investment is underpinned by asset value, where we directly own 4,950 full-service vacation units mostly located in Las Vegas, Orlando, and other high-traffic vacation areas in the U.S. The opportunity here is for Caroline and her team to generate overnight rental income from the huge stock of nightly vacancies. Her experience designing Hotwire online booking software and then as an executive at Starwood is perfect for what Vacatia is trying to do with Berkeley. In fact, prior to this acquisition, her group at Vacatia made investments in five smaller timeshare assets from 2019 to 2024, and in each case, they were very successful at significantly growing EBITDA in a short period of time.

The total deal was $835 million, which we funded with a $275 million five-year preferred note at 13.5%, a $365 million seven-year senior secured note at 9.5%, and $170 million mortgage warehouse loan with a five-year maturity at SOFR plus 400. The $50 million equity is funded 50% by Fairfax and 50% by Caroline and her partners. We are absolutely thrilled to be her partner on this. Overall, Fairfax’s investment book is in great shape to end the year. We have an outstanding team of investors and business partners and we are very excited about the returns we can generate with our mix of talent and assets. To close the year, I wanted to remind you all of three core tenets on the investment side of Fairfax. One, we always focus on the downside first.

We have to believe there’s a margin of safety before we make an investment. Two, we are value investors, and a big part of that is independently studying the fundamentals of each and every investment we make. And finally third, we are always focused on absolute return over the long run. We believe the focus on the long run and absolute returns is a huge competitive advantage for investment performance and ultimately shareholder return. And with that I’ll pass it to Jen Allen, our CFO.

Jen Allen: Thank you, Wade. I’ll begin my comments by discussing the impact changes in interest rates had on our consolidated statement of earnings in the fourth quarter and full-year of 2024. Specifically, the effects it had on discounting on our prior year net loss on claims and our fixed income portfolio. Our net earnings of just under $3.9 billion in the full-year of 2024 included a net loss of $530 million, reflecting the effects of increases in interest rates during the year, which was comprised of net losses on bonds of $731 million, primarily unrealized that was partially offset by a net benefit reporting on our insurance contracts and reinsurance contracts held of $201 million. I’d like to note that of that $530 million net loss reported for the full year of ’24, a significant portion or $438 million was incurred in the fourth quarter of 2024.

This compared to 2023, where we reported a net benefit of $496 million, reflecting decreases in the interest rate environment in 2023. Then that year was comprised of net gains on our bond portfolio $714 million, primarily unrealized that was offset by net loss on our insurance and reinsurance contracts held of $218 million. And similar to the fourth quarter of ’24, most of that benefit was reported in the full year of ’23 of $496 million as a result of the decrease in the interest rates in the fourth quarter of ’23 that represented $329 million of that benefit in the year. When you compare the year-over-year change on a pre-tax basis, it represents just over $1 billion movement in our pre-tax earnings on a year-over-year as a result of changes in interest rates, where this full-year included that net loss of $530 million compared to the benefit in ’23 of $496 million.

With the adoption of IFRS 17 generally an increase or decrease in interest rates will result in a decrease and increase to our carrying values of both the fixed income portfolio and now our net liability for incurred claims for insurance contracts. While the change to the carrying values of each does not necessarily are equal in magnitude and size, there is the movement in interest rate that’s mitigated and partially offset in our net earnings now. A few comments on our non-insurance companies in the fourth quarter. If you exclude any impact which was nil in the fourth quarter of Fairfax India’s performance fee and some non-cash goodwill impairment charges that we reported in the fourth quarter of ‘23, the operating income of our non-insurance companies increased to $150 million in the fourth quarter of 2024 from $52 million in the fourth quarter of ’23 and that primarily reflected higher operating income in our restaurant and retail segment, which increased by $38 million and that was primarily all driven by our acquisition of Sleep Country on October 1, 2024, where their operating results are now consolidated into our reporting.

There was higher operating income at Fairfax India, it increased by $35 million and that was driven by primarily their share of profit from its underlying investment and associates and that was principally related to its interest in Bangalore International Airport. And our operating income from the other segment of $18 million, compared to an operating loss in 2023, primarily was driven by higher business volumes at AGT. Looking for the full-year of 2024, if we also exclude the impact on Fairfax India’s performance fee and some non-cash goodwill impairment charges that were taken in ’23, the operating income on our non-insurance companies modestly decreased to $241 million in the full-year ‘24 from $299 million in ‘23. We had lower operating income at Fairfax India, a decrease of $92 million that was driven by a lower share of profit from its investments and associates, that was partially offset by higher operating income in our restaurant and retail segment, which was an increase of $48 million and as noted it was driven by the acquisition of Sleep Country and lower expenses at Recipe, due to improved cost management and better sales mix of higher margin products.

We turn and look at our share profit of investments in associates in both the fourth quarter and full-year of ‘24. We continue to report strong consolidated share profit of associates of $347 million in the fourth quarter, principally related to share profit of $171 million from Eurobank and $50 million from Poseidon. And in the full-year of 2024, our consolidated share of profit of associates was $956 million, principally reflecting the share profit of $515 million from Eurobank, $213 million from Poseidon, and $57 million from our Peak Achievement Investment. That was partially offset by a share of loss of $73 million from Fairfax India’s investment in Sanmar Chemicals Group. A few comments on the transactions in the fourth quarter and subsequent two, during the fourth quarter, we completed two significant acquisitions and commenced consolidating each of these acquisitions in our non-insurance companies reporting segment.

On October 1, 2024, we acquired all of the issued and outstanding common shares of Sleep Country for purchase consideration of $881 million or CAD1.2 billion, and then on December 20, 2024, we increased our interest in Peak Achievement to 100% by acquiring the 42.6% equity owned by Sagard Holdings and 14.8% equity interest owned by other minority shareholders for aggregate purchase consideration of $765 million. Fairfax was required to remeasure our existing equity-accounted investment and Peak Achievement to the fair value of $326 million upon consolidation and as a result we reported a pre-tax gain of $203 million in our net gains on investments in our consolidated statement of earnings. And that reflected Peak Achievement being now carried at approximately 8.5 times free cash flow.

During 2024 these and other small acquisitions resulted in an increase to goodwill and intangible assets of $2.3 billion and an increase in non-recourse debt of $1.2 billion as presented on our balance sheet. And finally on December 13, 2024, we purchased the remaining shares of Brit, from Brit’s minority shareholders, increasing the company’s ownership in Brit from 86.2% to now wholly owned sub at 100%. I’ll close with a few comments on our financial condition. At December 31, 2024 cash and investments at the holding company was $2.5 billion with access to our fully undrawn $2 billion unsecured revolving credit facility and we also have an additional $2 billion at fair value of investments in associates in consolidated non-insurance companies owned at the holding company and no long-term debt maturities until the fourth quarter of 2026.

On November 22, 2024, we completed an offering for an aggregate CAD700 million principal of amount of unsecured senior notes comprising CAD450 million at 4.73% unsecured senior notes that are due in 2034 and a CAD250 million of 5.23% unsecured senior notes due in 2054. A portion of the aggregate net proceeds were used to redeem all of the company’s Series C and D preferred shares on December 31. In the full-year of 2024, we purchased 1.35 million subordinate voting shares for cancellation at a cost of approximately $1.6 billion or $1,179 per share, of which 334,000 subordinate voting shares or a cost of $461 million were completed in the fourth quarter of 2024. At December 31, 2024, the excess of our fair value over carrying value of our investments and associates and our non-insurance consolidated subsidiaries was $1.5 billion, compared to $1 billion at December 31 ‘23 with $397 million of that increase related to the publicly traded Eurobank.

The pre-tax excess of $1.5 billion or $68 per share is not reflected in our book value per share, but is regularly reviewed by management as an indicator of investment performance. The excess of that carrying fair value — over carrying value at December 31 ’24 no longer includes an unrealized gain of $352 million on Stelco as it was realized in the fourth quarter as Peter noted of 2024. Our total debt to total cap ratio excluding our non-insurance companies increased to 24.8% at December 31 ’24, compared to 23.1% at December 31 ’23, primarily reflecting the increased total debt that primarily related to our issuance of the $1 billion principal amount of senior notes that are due in 2054 that was offset by our increased shareholder equity. Our book value per basic share of $1,060 at December 31 ’24, compared to $940 at December 31 ’23, which represented an increase in per basic share for the full-year of 14.5% adjusted to include our $15 per common share dividend that we paid in first quarter of ‘24.

And in closing, a few remarks on our common shareholder equity that increased by just over $1.3 billion to $23 billion at December 31 ’24 up from $21.6 billion in the prior period. It reflected our net earnings attributed to Fairfax shareholders of the $3.9 billion and that was partially offset by the purchases of the 1.3 million subordinate voting shares for cancellation, for cash consideration of $1.6 billion. The other comprehensive loss from CTA of $477 million or $22 per share relating to unrealized foreign currency losses, as a result of the significant strengthening of the U.S. dollar against many currencies around the world and similar to the net loss that we incurred from the changes in interest rate, that unrealized foreign currency losses was primarily all incurred in the fourth quarter of 2024.

And lastly, we had payments of our common share and preferred dividends of $412 million. That concludes my remarks and I’ll turn the call back over to Peter. Thank you.

Peter Clarke: Thank you, Jen. Cedric, we are now happy to take on any questions you might have.

Q&A Session

Operator: Thank you. [Operator Instructions] Okay and our first question comes from Nik Priebe, I’m sorry if I mispronounced that from CIBC Capital Markets. Your line is open.

Nik Priebe: Yes, thanks. One of the things that stood out to me was that interest and dividend income stepped up quite meaningfully between Q3 and Q4 after plateauing in the preceding few quarters. I wouldn’t think that the consolidation of ownership in Brit would have had a meaningful impact. There was a steepening of the yield curve in the quarter. But was there anything specific that you would call out in Q4 that would have driven the sequential growth in that line item?

Peter Clarke: Hey, good morning, Nick. Thanks for the question. Yes. Our run rate on our interest and dividends is running about $2.5 billion. In the fourth quarter, our dividend income was a little higher than in the past quarters. We did receive a dividend from Digit Insurance. So that’s probably what you’re seeing in that number.

Nik Priebe: Got it. What was the magnitude of that one?

Peter Clarke: It was approximately $100 million.

Nik Priebe: Okay. Thank you.

Peter Clarke: Thanks. Next question, please.

Operator: Next question comes from Tom MacKinnon with BMO Capital Markets. Your line is open.

Peter Clarke: Good morning, Tom.

Tom MacKinnon: Yes, thanks. Just following on Nick’s question. Yes. Good morning. Yes, that dividend associated with the compulsory convertible press from Digit. I don’t think you got that dividend in the past. Is this the first time you’re getting it? And is that dividend paid quarterly or annually? Thanks.

Peter Clarke: Yes, and the dividend really relates to the IPO of Digit earlier in the year. But why don’t I pass it to Jen who may have some more details.

Jen Allen: Sure. Thanks, Peter. Good morning, Tom. So, as Peter indicated, when we did the IPO on Digit back in May of 2024, if you recall, we did sell into the market at the holding company, which is where Fairfax has got its ownership in Digit Infoworks. Those proceeds remained at the holding company until the dividend was paid out in the fourth quarter, about $112 million. So that is the additional increase that you’ll see in the fourth quarter related to the IPO proceeds being distributed.

Tom MacKinnon: And is that dividend normally in the fourth quarter? Is that how we should be thinking of that going-forward?

Jen Allen: No, it’s related to the IPO proceed specifically.

Tom MacKinnon: Okay, so it’s unusual.

Peter Clarke: That’s correct. It’s a one-off.

Tom MacKinnon: Okay, thanks.

Peter Clarke: Thank you. Next question, please.

Operator: Next question comes from Jack Cohen with National Bank Financial. Your line is open.

Jack Cohen: Good morning. So you reported $2.5 billion in cash and investments at the Holdco 10 year. Is the baseline still to hold at least $1 billion or is that minimum increase as the business is scaled?

Peter Clarke: Yes, we save $1 billion. We continually look at what amount we want to keep at the holding company. We’ve grown significantly over the years. We’ve held that amount for many, many years and as we say, that is for the protection of our insurance and reinsurance companies. It’s not for investment purposes. It’s not for acquisitions. You know, we think the billion dollars is prudent. It’s been running a little higher. But the $2.5 billion may come down a little bit as we raise some debt late in the year and we bought back some of our preferred shares. But we play it by ear and we’re very comfortable where we are today.

Jack Cohen: Okay, that’s perfect.

Peter Clarke: Thank you. And next question, please.

Operator: Yes, our next question comes from Fahad Alghamdi with NBK Wealth. Your line is open.

Fahad Alghamdi: Yes, hi. This is Fahad Alghamdi from NBK Wealth, one question from my side. In the light of your recent increase of exposure on GCC, we would like to know specifically in Saudi, what are your plans in this competitive market? Is there specific segments such as BNC or Motor you’re planning to focus on? Thank you.

Peter Clarke: Thank you. Yes, I think your question was on Gulf Insurance. And as I said, we consolidated Gulf Insurance into our results this year and you know, we’ve had an ownership position in them for the better part of 10 years. We’ve been a huge partner. We’re very excited to have them 100% owned. They operate through 12 different regions in the Middle East and they do have — they have approximately 50% ownership in a company in Saudi Arabia, and we’re just very excited for the potential for Gulf going forward. Thank you for the question. And next question, please.

Operator: The next question comes from Fernando Torrealba with Cormak. Your line is open.

Fernando Torrealba: Thank you. I was just wondering if, by the way, this is Fernando on for Jeff Fenwick at Cormark. So, I was just wondering if the experience with the wildfires in California moves the needle at all for Fairfax on how it thinks about cat exposure, whether the firm plans to pair back any further? Just any color on that would be helpful?

Peter Clarke: Sure. I think the simple answer is no. We’re very comfortable where our exposure is on the cat side. You know, through the hard market, we grew significantly. You know, we didn’t grow as much on our catastrophe exposure. But where we are today, we’re very comfortable and our teams are there that, we have no plans of walking away. We’ll look at, see what rates happen. Rates might firm up after such a large loss such as this. But we’re very comfortable where we are. Our losses were within our expectations and manageable within our underwriting profit. So — no, we’re all good on the catastrophe side. Next question, please.

Operator: Thank you. Our next question comes from Howard Flinker with Fllinker & Co. Your line is open.

Howard Flinker: Thank you. First a comment and then a question out of the blue. You have a team of terrific, really disciplined underwriters. Nice work. My question out of the blue for Prem is this. If you heard the press conference between Donald Trump and Narendra Modi yesterday, they mentioned a possibility or probability of an undersea cable from India to Israel, then to Italy, across Europe and into North America. Do you have any thoughts off the top of your head about that Prem?

Peter Clarke: First of all, I guess your comment on our underwriters, that’s exactly right. We have a great team of underwriters all around the world.

Howard Flinker: You do.

Peter Clarke: And your comment on — Prem is not with us today, but I will for sure pass your question along and…

Howard Flinker: Well it was kind of interesting and I thought off the top of your head you might have something to say about it?

Peter Clarke: Myself, I don’t. But again, we’ll take it away. Thank you. Thank you very much for the question. Next question, please.

Operator: Yes, we have a follow-up with Tom McKinnon with BMO Capital Markets. Your line is open.

Tom MacKinnon: Yes, thanks.

Peter Clarke: Good morning, Tom.

Tom MacKinnon: Yes. You still own the equity total return swaps on your own stock. You know, stock trades at 1.3 times book. Why do you still own this as opposed to perhaps just using buying back more stock?

Peter Clarke: Right. Yes, no, that’s — the TRS on Fairfax, that’s strictly an investment for us. We put it back on in 2021 or thereabouts and it’s performed extremely well and we think it will continue to perform very well. As we said, we can see strong underwriting results going forward. Our interest in dividend income is strong, our associate income is strong. But we feel we’ll be able to continue to compound book value at a very high rate or acceptable rate, and our share price will follow. You know, we’re not trading at a high multiple if you look at our peers and so for us, it’s still an investment, we very much like. Thank you, Tom. Next question, please.

Operator: Yes, our next question comes from Jack Cohen again with National Bank Financial. Your line is open.

Jack Cohen: Thank you. So last year you reported the maximum dividend capacity available in 2024 from the insurance subsidiaries was $3 billion. I was just wondering if you had an update on this figure for 2025?

Peter Clarke: I think we’ll be updating it in our annual report. But Jen, anything to comment on that?

Jen Allen: No. Yes, that’s correct. So it’ll be disclosure and coming up in our Annual Report, that’s released on March 7, Jack. So it’ll be a standard disclosure, nothing, I think of concern to raise. If anything, you know, as Peter noted, we’re doing very well. But it is disclosure we’ll provide on that release of the Annual Report.

Jack Cohen: Thank you.

Peter Clarke: Next question, please.

Operator: I am showing no further questions, Mr. Clarke.

Peter Clarke: Well, thank you, Cedric. If there are no further questions, thank you for joining us on our year-end 2024 conference call and we hope to see you all at our Annual Meeting in April. Thank you.

Operator: Thank you and that concludes today’s conference. You may all disconnect at this time.