Good morning, and welcome to Fairfax 2020 Third Quarter Results Conference Call. Your host for today's call is Prem Watsa, with opening remarks from Mr. Derek Bulas. Mr. Bulas, please begin.
Good morning, welcome to our call to discuss Fairfax's 2020 third quarter 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, and which now include the risk of adverse consequences to Fairfax's business, investments, and personnel resulting from or related to the COVID-19 pandemic. 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 Chair and CEO, Prem Watsa.
Hey, thank you, Derek. Good morning, ladies and gentlemen. Welcome to Fairfax's third quarter 2020 conference call. I plan to give you some of the highlights and then pass the call to Jen Allen, our Chief Financial Officer, for additional financial and accounting details. Like I said on our first quarter conference call, these are unprecedented times, and I'm not sure many of us at that time would have thought that seven months later, we would still be dealing with this pandemic to this degree. Although we are seeing a recent increase in cases, we are getting closer to a vaccine, and testing has improved significantly, and many new therapies are being discovered. At the end of the second quarter, almost 100% of our employees were working from home and not missing a beat in servicing our customers.
We're now slowly seeing our people throughout the world returning to the workplace on a limited basis, following the necessary precautions and making sure all our employees are safe. I wanted to, again, thank our employees all over the world who have been fully committed over this time period to provide outstanding service to our customers. I'm very grateful to all of them. We expect this to come to an end, we expect to return to normalcy soon. Coming now to our results in the third quarter, Fairfax's net earnings in the third quarter were CAD 134 million compared to net earnings of CAD 69 million in the third quarter of 2019, which equates to net earnings per diluted share of CAD 4.44 versus CAD 2.04 in 2019.
For the first nine months of 2020, our net loss was CAD 691 million, versus net earnings of CAD 1.3 billion for the first nine months of 2019. This primarily reflects net unrealized losses on investments in the first quarter of 2020. Fairfax's book value per share decreased by 6.9% to CAD 442 per share in the first nine months of 2020, adjusted for the CAD 10 per share common dividend paid in the first quarter. Most importantly, our float increased by 7% to CAD 22 billion, and float per share increased by 8% to CAD 900 per share. Our insurance and reinsurance companies produced a consolidated combined ratio of 98.5% in the third quarter, which included catastrophe losses of CAD 219 million, or 6.1 combined ratio points, and CAD 143 million, or four combined ratio points of COVID-19 losses. Our cat losses and COVID losses were approximately 10%.
Excluding COVID-19 losses, the consolidated combined ratio was 94.5%, with 14% growth in premiums on the back of a strong pricing environment. All of our major insurance companies, with the exception of Brit, generated combined ratios of less than 100%, despite these unprecedented times that included a high frequency of catastrophes and a global pandemic. For the nine months, we had a combined ratio of 98.6% with gross premiums up 11%. Excluding COVID losses, we had a combined ratio of 93.3%. More from Jen Allen. At the end of the third quarter, we have booked COVID losses of CAD 536 million on a net basis across all our companies. Of this, approximately 40% come from business interruption exposures, primarily outside the U.S., and about 30% come from event cancellation coverages. The balance come from areas such as casualty, surety, and travel lines.
On a net basis, approximately 60% of our COVID-19 provisions are in IBNR. Paid losses are about 20%, and case reserves make up the remaining 20%. As you can see, there is still considerable uncertainty as to the ultimate cost of the virus. The IBNR, incurred but not reported, estimates may prove excessive in some of our companies, and they may not be enough in others. In addition, as we are all well aware, the pandemic is ongoing. As long as it persists and disrupts the economy, new losses may emerge. The size of the ultimate loss will also depend, to some extent, on various court outcomes, as litigation has been filed in many jurisdictions and countries.
All in all, we remain comfortable with the provisions we have made to date in the context of the current market environment, and confident of earning an underwriting profit in 2020, absent other extraordinary events. Our reserves remain strong, with consolidated redundancies of CAD 74 million, about 2.1% in the third quarter, and CAD 275 million, 2.7% in the nine months. Our insurance business in most parts of the world are seeing pricing increases anywhere from 10%-30%, and terms are tightening. The prospects of our insurance business are excellent, as we think we're in a hard market and well-positioned to expand significantly in the years to come. Last quarter, Brit announced its plans in collaboration with Google Cloud to launch Ki, a standalone business, and the first fully digital algorithmically driven Lloyd's syndicate.
Ki will aim to significantly reduce the amount of time and effort taken by brokers to place their follow-on capacity, creating greater efficiency, responsiveness, and competitiveness. In September, Brit announced that it raised CAD 500 million of committed capital from Blackstone and Fairfax to fund the expansion of Ki. Ki is expected to be launched in the fourth quarter of 2020 and begin writing business in January 2021. This is a very exciting new venture in the InsurTech space, and Matthew Wilson, Mark Allan, and team have done an outstanding job getting this initiative up and running. Mark Allan has been appointed as CEO of Ki. On August 28th, we acquired the remaining 9.4% share of Brit for a cash consideration of CAD 220 million. For the quarter, operating income was CAD 255 million, and CAD 601 million for the nine months.
Net losses on investments in the third quarter were CAD 27 million, with losses on net equity exposures of CAD 156 million, partially offset by net gains on bonds and foreign exchange gains. The net losses on equities included an unrealized loss of CAD 164 million upon recording Fairfax Africa at fair value, pursuant to its announced merger with Helios Holdings Limited. The final gain or loss on Fairfax Africa will be based on the stock price of the company on closing.
As we have mentioned, I mention this again at our annual meetings and in our annual reports and quarterly calls, with IFRS accounting, where stocks and bonds are recorded at market and subject to market gains or losses quarterly, annual income will fluctuate, and investment results will only make sense over the long term. The first quarter of 2020, we had a negative 3.6% return on our investment portfolio.
This is the total investment portfolio. While in the second and third quarters, we had a positive return of 2.6%, offsetting more than 70% of our investment losses in the first quarter. This is total return. As I previously highlighted to you, if you look at page 188 of our 2019 annual report, last column, it shows the annual total return on our investment portfolios for the last 34 years. There were four years when we had a negative return. In each case, we rebounded significantly in the next year. If I could just highlight that from the table, in 1990, we were down 4.4%, 1991 we were up 14.6%. In 1999, we were down 2.7%. That's the whole investment portfolio. In 2000, we were up 12.2%. In 2013, we were down 4.3%. In 2014, we were up 8.6%.
In 2016, we were down 2.2%, and in 2017, we were up 6.8%. Only four out of the 34 years were we down. Each time investors, all of you on the line, worried about our investments, and each time they were proven wrong. As I said before, more than 70% of our first quarter investment losses were made up in the second and third quarter. Our history has shown that our returns are very lumpy, and this has worked for us over the last 34 years. We have never focused on steady quarterly earnings. Long-term value investing has gone through a very difficult time in 2020 and for many years now.
Valuations of value-oriented stocks versus growth stocks, particularly technology, have never been so extreme, exceeding even the extremes of the dot-com era in 2000. As the economy normalizes, we expect a reversion to the mean, and value-oriented stocks to come to the fore. Perhaps two examples may make it more clear for you. Fairfax India is selling at CAD 7.50 per share, while its most recent book value, that came out at the end of September, is more than CAD 15 per share. It is down from a pre-COVID high of CAD 13.70 in 2020. We think it's only a matter of time that Fairfax India exceeds its 2020 high and does exceptionally well as the Indian economy recovers from COVID-19.
Second example I wanted to share with you was Atlas Corp., formerly Seaspan, run by David Sokol and Bing Chen. The stock price closed close to year 2019 at CAD 14 per share.
It goes down to CAD 6.30 in March, in the height of the pandemic crisis, and closed the third quarter at CAD 9 per share. Selling at a price to free cash flow ratio of approximately 4x, with a dividend yield of 5.5%. Financially very sound and with great management, it's only a matter of time before Atlas Corp. exceeds its previous high. We expect a significant return on our stock portfolios as the economy normalizes. The intrinsic value of our stock portfolios is billions of CAD greater than our carried values at the end of the third quarter. In September, we redeemed our CAD 500 million holdings in BlackBerry's 3.75% convertible debentures and subscribed for CAD 330 million of its new 1.75% debentures, convertible at CAD 6 per share and maturing in November 2023.
We previously announced that Fairfax Africa entered into a merger agreement with Helios, to which Helios will acquire a 45.9% voting and equity interest in Fairfax Africa and will be appointed sole investment advisor to Fairfax Africa. Closing of this transaction is expected to be in the fourth quarter of 2020, subject to various conditions, including regulatory and shareholder approval. Upon closing, Fairfax Africa will be renamed Helios Fairfax Partners Corporation and continue to be listed on the Toronto Stock Exchange. Helios has been investing in Africa for over 15 years. We are very excited about this transaction and welcome Tope and Baba, the co-founders of Helios, and the rest of the team from Helios to the Fairfax family. Yesterday, we filed the circular for the merger. You can get it because we filed it yesterday.
We have said for some time that we want to monetize many of our investments, including particularly many of our private investments. Here's what we have done in 2020. We merged Dexterra with Horizon North for a 49% ownership in the public company. We now have a company which will have CAD 1 billion in revenue and CAD 100 million in EBITDA in a few years. We sold Davos for CAD 59 million with an additional earn-out over time, about 100% return on our capital invested.
Just recently, Peak Achievement Athletics, which owns Bauer Hockey, agreed, subject to regulatory approval, to sell Easton, which is like in baseball bats and gloves, to Rawlings, the number one company in baseball manufacturer, for shares and cash at a significant profit for us and our partner, Power Corp. Of course, the significant profit is based on what we invested in Bauer Hockey and Easton.
As I mentioned previously, we expect to merge Helios Fairfax Partners Corporation with Helios for a 32% ownership in the combined entity. I want to tell you, this is just the start. Various initiatives are on the way, including taking some of our other private investments public in the new year. We have built significant value, as I mentioned before, which our shareholders will soon see. We continue to have approximately CAD 1.2 billion predominantly in cash and short-term securities in the holding company. Please note our cash in the holding company is to meet any and every contingency that Fairfax might face in this uncertain period.
We are not making any long-term investments with this cash other than to support our insurance and reinsurance operations. All our large investments, like Fairfax India, Helios Fairfax Partners Corporation, Recipe, and Thomas Cook, are well-financed and do not need any cash from Fairfax.
They either have significant cash themselves or have large credit lines to comfortably take them through this period of uncertainty. They have survived an unprecedented time period, where lockdowns across the world have taken the revenues down significantly. In the case of Thomas Cook, for example, down 80%. Their time will come soon. Please remember, we continue to hold the CPI-linked deflation floor contracts with a notional amount of $76 billion and an average remaining term to maturity of approximately three years. We carry these contracts at only $12 million, and they continue to provide us with downside protection in the event of a catastrophic turn in world events.
At September 30th, 2020, the company's insurance and reinsurance companies held approximately CAD 15 billion in cash and short-dated securities, representing approximately 38% of the portfolio investments, comprised of CAD 11.4 billion of subsidiary cash and short-term investments, and $3.7 billion of short-dated U.S. Treasuries. Our investment portfolios will be largely unimpacted by rising interest rates, as we have not reached yield. We will benefit from rising investment income. With a run rate of approximately CAD 19 billion in gross premiums, a huge focus on underwriting discipline, a portfolio of approximately CAD 40 billion, and Hamblin Watsa Investment Counsel Ltd., HWIC, operating in a stock picker's market, all grounded on our fair and friendly culture built over 34 years, we expect to generate a good return for our shareholders over time. The best is yet to come for our shareholders.
We were pleased to announce in October that the Right Honorable David Johnston has been reappointed as a Director of Fairfax. Mr. Johnston previously served as a Director of Fairfax and was required to step down from that role in 2010 on his appointment as the Governor General of Canada. We welcome David back to our board. Our last call, I mentioned that I had joined the Canadian Council of Business Leaders Against Anti-Black Systemic Racism or the BlackNorth Initiative. The initiative is a call to action to rally the Canadian business communities to eliminate anti-Black systemic racism and create opportunities within the workplace for people from the Black community.
I'm pleased to say our Black Initiatives Action Committee, this is a Fairfax committee, is up and running at Fairfax with one representative from the Black community from each of our seven companies in North America and the U.K., and is being led by Craig Pinnock, who's the CFO, Chief Financial Officer of Northbridge. We have many initiatives in progress, and we are quite excited about this initiative. I will now pass the call over to Jen Allen, our Chief Financial Officer. Jen?
Thank you, Prem. The COVID-19 pandemic continues to affect the global financial markets and operating results of certain industries. We're starting to see some rebound in the equity markets and improved operating performance in our subsidiaries that have been directly impacted by the lockdown restrictions. I'll start with a few key highlights from our third quarter 2020 results. We reported strong underwriting performance with an underwriting profit of CAD 52 million, which was achieved despite additional COVID-19 losses of CAD 143 million and higher catastrophe losses reported in the quarter. We benefited from the non-insurance companies attributing pre-tax income before interest expense and other of CAD 34 million. Finally, our net gains on investments was CAD 137 million after adjusted for the non-cash loss recorded on Fairfax Africa transaction of CAD 164 million.
I'll provide additional comments later in my remarks regarding Fairfax Africa's strategic transaction with Helios Holdings and the positive performance of the restaurant and retail segment, which is reported within our non-insurance group. Taking the above key highlights into account, Fairfax reported net earnings of CAD 134 million or CAD 4.44 per share on a fully diluted basis in the third quarter of 2020. Compared to the third quarter of 2019, when we reported net earnings of CAD 69 million or CAD 2.04 per share on a fully diluted basis. For the first nine months of 2020, Fairfax reported a net loss of CAD 691 million or CAD 27.27 per share on a fully diluted basis, which compared to the first nine months of 2019, when we reported net earnings of CAD 1.3 billion or CAD 46.23 per share on a fully diluted basis.
Looking in more detail to the results of our underlying reporting segments, starting with our ongoing insurance and reinsurance operations. Our core underwriting performance continued to be very strong with underwriting profit at our insurance and reinsurance operations in the third quarter of 2020 at CAD 52 million and a combined ratio below 100% at 98.5%. That compared to an underwriting profit of CAD 81 million and a combined ratio of 97.5% in the third quarter of 2019.
Underwriting profit in the first nine months of 2020 decreased to CAD 142 million, with a combined ratio of 98.6% compared to underwriting profit of CAD 271 million and a combined ratio of 97.1% in the first nine months of 2019. Underwriting performance in the first nine months of 2020 remained strong, despite almost CAD 1 billion in losses reported, which related to COVID-19 losses of CAD 536 million and higher catastrophe losses at CAD 420 million.
All of our insurance and reinsurance companies achieved combined ratios below 100% for the third quarter and first nine months of 2020, with the exception of Brit, primarily as a result of the impact of the COVID-19 losses. Overview of the underlying core underwriting results in the third quarter and first nine months of 2020 are as follows. Northbridge improved their combined ratios to 89.9% and 93.4% and reported underwriting profits of CAD 38 million and CAD 69 million respectively. Odyssey Group reported underwriting profits of CAD 6 million and CAD 20 million, with combined ratios of 99.4% and 99.2%, despite COVID-19 losses and marginally higher catastrophe losses. Crum & Forster reported underwriting profits of CAD 4 million and CAD 26 million, with combined ratios of 99.3% and 98.6%. Zenith National reported underwriting profits of CAD 12 million and CAD 40 million in combined ratios of 92.7% and 91.6%.
Looking to Brit in the third quarter of 2020, they reported an underwriting loss of CAD 59 million and combined ratio of 114, which reflected COVID-19 losses of CAD 43 million or 10 combined ratio points. In the first nine months of 2020, Brit reported underwriting losses of CAD 119 million and a combined ratio of 109.6, which also reflected COVID-19 losses of CAD 170 million or 13.8 combined ratio points. Allied World reported underwriting profits of CAD 48 million and CAD 96 million, with combined ratios of 93.1% and 95.2% in each respective period. Rounding out with Fairfax Asia and the insurance and reinsurance other group. Fairfax Asia reported underwriting profits of CAD 2 million and CAD 1 million respectively, and combined ratios of 96 and 99.4.
Finally, our insurance and reinsurance operations other segment reported underwriting profits of CAD 400,000 and CAD 10 million, with combined ratios of 99.8% and 98.8%, even with the impact of COVID-19 losses adding CAD 8 million and CAD 35 million to the respective periods. Key components of the combined ratios in the third quarter and first nine months of 2020 of 98.5% and 98.6% included the following. COVID-19 losses of CAD 143 million and CAD 536 million, or 4.0 and 5.3 combined ratio points respectively, higher current period catastrophe losses of CAD 219 million or 6.1 combined ratio points, and CAD 420 million or 4.1 combined ratio points, primarily related to Hurricane Laura of CAD 112 million. The benefit of strong reserving reflected in continued net favorable prior year reserve development of CAD 74 million or 2.1 combined ratio points, and CAD 275 million or 2.7 combined ratio points.
Finally, improved underwriting expense ratios reflecting our growth in the net premiums earned relative to the increases in the underlying expenses. Additional details on the catastrophe losses, net favorable prior year reserve development, and combined ratio impact on each of the respective insurance and reinsured segments are disclosed in the MD&A of Fairfax's interim third quarter report. As noted in the first nine months of 2020, we reported COVID-19 losses of CAD 536 million, which were comprised primarily of business interruption exposures of approximately 40%, principally from our international businesses. An event cancellation coverage of approximately 29%, also from the international businesses. COVID-19 losses were principally comprised of incurred but not reported losses, which represented approximately 60%, and net losses were primarily recorded at Brit for CAD 170 million, Odyssey Group of CAD 125 million, and Allied World at CAD 113 million.
Looking at the growth in our net premiums written by the insurance and reinsurance operations, in the third quarter of 2020, net premiums written increased by 12% to CAD 3.7 billion from CAD 3.3 billion. In the first nine months of 2020, increased by 9.4% to almost CAD 11 billion from approximately CAD 10 billion in 2019. That nine-month increase in 2020 of CAD 940 million is almost equivalent to all of Northbridge's net premiums written in the first nine months of 2019. A few comments on our runoff operations. Subsequent to the contribution of European runoff to RiverStone Barbados on March 31, 2020, starting from April 1, 2020, the operating results of runoff only include our U.S. runoff operations.
Runoff reported an operating loss of CAD 9 million in the third quarter of 2020 compared to an operating loss of CAD 14 million in the same period of 2019, with U.S. runoff reporting a reduction in their operating expenses. Turning to the results of our non-insurance company's reporting segment, as presented in our MD&A, restaurants and retail reported pre-tax income before interest expense and other in the third quarter of 2020 of CAD 45 million. This segment's revenues benefited from expanded e-commerce platforms and strong brand awareness, which helped to partially offset the decline in in-store revenues as a result of the impact of COVID-19 lockdown restrictions.
Revenue of restaurant and retail segment in the third quarter of 2020 exceeded that in each of the first and second quarters of 2020, reflecting a modest recovery of business volumes suppressed by COVID-19 government-mandated restrictions during the first six months of 2020.
The majority of the stores and restaurants were reopened as the lockdown restrictions in the industries that they operate in began to lift. The restaurant and retail segment reported only a 3% decline in revenue in the third quarter of 2020 compared to 2019. Again, these are businesses operating in sectors that have been significantly impacted by the shutdown restrictions as a result of the pandemic. The operating losses of the other non-insurance reported segment of CAD 24 million and CAD 14 million in the third quarter and first nine months of 2020 principally reflected Fairfax Africa's operating losses of CAD 45 million, CAD 84 million, respectively. That was partially offset by operating income at Horizon North and AGT. The operating loss reported by Fairfax Africa excluded a non-cash loss of CAD 164 million recorded in net losses on investments upon classifying Fairfax Africa as held for sale.
At September 30th, Fairfax Africa, with the exception of its equity accounted investment in Atlas Mara, constituted a disposal group held for sale, whose carrying value exceeded its estimated fair value less cost to sell. Accordingly, the company recorded a non-cash loss on investments of CAD 164 million in net losses on investments in the consolidated statement of earnings, which, after accounting for income taxes and non-controlling interests, decreased common shareholders' equity at September 30th, 2020, by CAD 44 million. Upon closing of the merger transaction between Fairfax Africa and Helios, Fairfax expects it will deconsolidate Fairfax Africa and account for its 32% equity interest in the new merged entity, Helios Fairfax Partners, as an investment in associates, recording the initial carrying value of the investment based on the market-traded share price on closing. Looking to the consolidated investment results of Fairfax.
Our consolidated interest and dividend income decreased year over year from CAD 215 million and CAD 672 million in the third quarter and first nine months of 2019 to CAD 182 million and CAD 605 million in the respective periods 2020, reflecting lower interest income earned principally due to sales and maturities of U.S. Treasury bonds in the second half of 2019 and throughout 2020. A general decrease in sovereign bond yields, partially offset by the reinvestment of our U.S. Treasury bond proceeds into higher-yielding, high-quality U.S. corporate bonds. Our consolidated share of profit of associates of CAD 51 million in the third quarter of 2020 consisted principally of CAD 30 million from Eurobank, CAD 19 million from Atlas Corp., CAD 14 million from RiverStone Barbados, which was partially offset by losses from investments in associates at Fairfax India and Fairfax Africa.
Our consolidated share of profit of associates of CAD 150 million in the third quarter of 2019 consisted principally of CAD 73 million from Eurolife. That related to mark-to-market gains on its long-dated Greek bonds and CAD 62 million from IIFL Finance that primarily related to a spin-off distribution gain of approximately CAD 56 million. Our consolidated net loss on investments of CAD 27 million in the third quarter of 2020 compared to net loss on investments of CAD 97 million in the third quarter of 2019, with the third quarter of 2020 reflecting foreign currency gains of CAD 84 million compared to losses of CAD 91 million in 2019.
Increased net gains on long equity exposures of CAD 177 million, and that's after adjusting for the non-cash loss of CAD 164 million related to the Fairfax Africa transaction. That was partially offset by increased net losses on our short equity exposures.
In closing, a few comments on our financial position. Our total debt to total cap ratio, excluding consolidated non-insurance companies, increased to 31.3% at September 30th, 2020, from 24.5% at December 31st, 2019, primarily reflecting our increased total debt related to the principal draw on our credit facility of CAD 700 million and our April debt issuance of CAD 650 million, and decreased common shareholders' equity that related primarily to our net loss and our common share dividends paid in Q1 2020. At September 30th, our book value per share was CAD 442 compared to CAD 486 at December 31st, 2019, representing a decrease of 7% adjusted for the CAD 10 per share paid in the first quarter of 2020. It increased since the second quarter of 2020 of 1.6%.
The increase in book value per share of 1.6% in the third quarter of 2020 reflected Fairfax's core underwriting performance continuing to be very strong despite recording additional COVID-19 losses and higher catastrophe losses. The favorable contribution from our non-insurance operations from their pre-tax income before interest expense and other, and finally, our net gains on investments after adjusting for the non-cash loss recorded on the Fairfax Africa transaction. Now I'll pass it back over to you, Prem.
Hey, thank you, Jen. We now look forward to answering your questions. Please give us your name, your company name. As always, try to limit your questions to only one so that it is fair to all on the call. Ella, we're ready for the questions.
All right. Thank you so much, speakers. To all our participants, we will now begin the question and answer session. All right, speakers, we now have our first question in queue coming from the line of Tom MacKinnon from BMO Capital Markets. Tom, your line is open. You may proceed.
Yeah, thanks very much. Good morning, Prem.
Hey, good morning, Tom.
A question on the hold co cash at CAD 1.1 billion. I think you've always said you'd like it to be at least CAD 1 billion there. I'm just trying to gauge your comfortableness where it sits right now. Are you expecting some dividends from the operating companies in the fourth quarter? You do have a CAD 275 million common dividend that you're going to be paying in January. Just trying to gauge how comfortable you are with the hold co cash position as it stands right now at CAD 1.1 billion.
Tom, we basically want to keep in excess of CAD 1 billion. We expect to get some dividends and some other payments. We have a huge credit facility that we've paid back, as you know, from CAD 2 billion down to CAD 1.3 billion. There's about CAD 700 million that we've used. Over time, we'd like to pay that back also to zero, which it was at the end of last year. Tom, we're very focused on keeping CAD 1 billion plus in cash. We're focused on having enough money to support our insurance companies in this hard market that we're witnessing. Finally, the extra money we would take and buy back our shares. That's the order we look at it.
If I could quickly squeeze in another. The equity hedge losses seem a little bit higher than I would have expected because you got CAD 266 notional, but the unrealized losses were CAD 89 million. That seems high relative to the notional. Is there anything I am missing here?
Yeah, no, that's right, Tom. It's the remnants of what we were covering. I told you that before in the first quarter, second quarter. We're slowly but steadily covering it, and it's gone. It's on the way out.
Okay, thanks.
Thank you, Tom. Our next question is coming from the line of Jaeme Gloyn from National Bank Financial. Sir, your line is open. You may now raise your question.
Yeah, thanks. Good morning, Prem.
Hey, good morning, Jaeme.
Actually, it's only question, is related to the Northbridge COVID losses. I see that it was increasing in terms of its combined ratio percentage, where pretty much every other subsidiary that was either flat to down on a combined ratio basis. I'm wondering what was changing in Northbridge to take those higher losses in Q3 on an absolute and on a relative basis?
Yeah. Not much you can extrapolate that, Jaeme. There were some long-term care facilities, but mostly IBNR. Mostly that we like to reserve conservatively and put the reserves up front and then get redundancies that we've had for the last 10 years. Jen, would you like to add to that?
Yeah. No, Prem, you've highlighted the biggest one, which is the long-term care facility. There probably won't be significant additional exposure coming through, but it was related primarily to that long-term care facility recorded in the third quarter.
It's just being conservative, Jaeme, just putting up the reserve. We like to put them up as soon as we see it. As I've said many times before, the past has to come and help us and not hurt us. If you have redundancies, as we continue to have it, that's helping us. If you have deficiency, that means you're under-reserved. That's hurting us. For the longest time now, we've had reserve redundancies in all our companies, and our reserves are very strong.
Thanks. Thank you.
Thank you. Our next question is coming from the line of Jonathan Chin, Private Management Group. Your line is open, sir. Jonathan, your line is open. You may now raise your question, please.
Morning. I wanted to see if you could spend a little time talking about underwriting. Take us through where you're seeing opportunities?
Jonathan, a little louder, please, Jonathan.
Good morning. If you could talk me through underwriting and maybe where you're seeing the opportunities, rate versus exposure, and if it's more on the insurance side, less on the reinsurance side, and some of the geographies. Thank you.
Good question, Jonathan. Insurance is where you're getting the rate increases, it's all over the world, Jonathan. It's like in the U.S., particularly in the casualty end, but it is in the U.K. It is in Singapore. We have an operation there in Fairfax Asia. Prices are going, as I said, 10%-30%, depending on which specific area you're looking at. Reinsurance is going up more in the third quarter than it did in the second quarter, but it's not going up as much, 8%, 9%, 10%. Insurance is going up significantly, and the terms are being tightened. When you see a hard market, the terms get tightened. The terms are being tightened all over the place. In Asia, in London, in North America. We're thinking we're in the midst of a very good market.
If history is any guide, these last for a few years, Jonathan.
Okay, great. A couple of quarters ago, maybe a couple of years ago, you outlined some goals, return on equity, things of that nature, and you've obviously made a lot of progress on increasing your net written premiums. Is there anything that stops you from achieving those goals? Thank you.
Anything that stops us from achieving our goals? No. 15%, not at all. Let me just tell you, I've been in the business for 45 years, and I have rarely seen a time period where there's such a divergence from growth-oriented stocks, like technology, and value-oriented stocks. I gave you a few examples in our own portfolio, but let me just give you one that I just came across today. I just looked at it again. Zoom, which we all use, Zoom Technology, Zoom Video, it's got a market cap of $139 billion. At the end of July, for the first six months, it had a revenue base of approximately CAD 1 billion and a net profit of CAD 200 million. CAD 139 billion. That, by the way, is about the same size as Exxon.
We have this situation here where if you're growth oriented, and it's growing significantly, that you have market capitalizations that we haven't seen. It can only be justified for a short period of time in the stock market. In the insurance business, I don't follow this too much, I just know that in the insurance business a few days ago, Root went public. A company called Root. CAD 7 billion. It's got CAD 500 million of premium, and its CAD 7 billion market cap is almost as big as Fairfax, which has approximately CAD 20 billion of premium. Exceptional divergence, I've seen this over long periods of time, and it reminds me really of the late 1960s and the early 1970s, when you had the Nifty Fifty. The Nifty Fifty were stocks like McDonald's, Johnson & Johnson, Polaroid, Kodak. I talked about that in my annual report.
What happened is, these things went to 50 times earnings, 100 times earnings. In 1974, they peaked out in 1972- 1973. In 1974, they dropped by 75%- 80%. Some of them, like Eastman Kodak and Polaroid, never came back. Even the ones like Johnson & Johnson and McDonald's, which are great growth companies, they never saw those stock prices for 10-15 years in the future after 1974. Ben Graham, who is the father of value investors, he came out in 1976, and he called it the Renaissance of Value Investing. He gave a speech on it, and I still remember reading it. I was just an analyst at the time. Value came out and did exceptionally well. I think we're going to see the similar type of phenomenon in the next few years.
I don't know if it's next three months or next two years. No one can forecast that. These type of speculations, like Zoom at CAD 139 billion, if history is any guide, it just doesn't make any sense. It will not have a good ending. Next question.
Thank you.
Thank you, Jonathan. Next question, Ella?
Our next question is coming from the line of [Junira], our private investor. [Junira], line is open. You may now raise your question, please.
Good morning. I'm wondering about the private investments. Are you guys planning to do multiple IPOs next year, or is there only one you're thinking of doing for the private investments?
[Junira], please repeat that, if you don't mind.
I think earlier on the call, you guys stated that in 2021, there might be couple IPOs.
Yeah. No, we've got some IPOs. Yeah, no, we've got some private companies. I gave you the example of Dexterra merging with Horizon North, where we have 49%, a very strong company. In that case, Horizon North is already public. We've got some private investments. I can't talk about them, of course, till it goes public. Yeah, we think they'll be worth a lot, and they're good companies. Mostly they're in our books at very low values compared to where we take them public at. We can build very significant companies, we think, over time. Just like Horizon North will be over time.
Okay. If you could provide an update on Digit, how it's doing, and if you guys plan to bring some of the lessons learned there into the other insurance companies.
Sorry, were you talking Digit?
Yeah, Digit. Sorry, yeah.
Yeah, sorry. Digit is a phenomenal company. In a few years, or three years maximum since it began under Kamesh Goyal, its revenue, this is end of March 2021, will be ±CAD 400 million, CAD 375 million-CAD 400 million from scratch. It's breaking even already. It's fully digitized. It's in India, and the Indian market is wide open. The growth opportunity for this company is huge. Its aim is to grow at 20, 25 percentage points more than the industry, which is growing at 20%. It's been growing at 45%, something like that. Kamesh, he's an insurance guy. He's built the second largest insurance company in India. We think it's going to be a phenomenal success. We own a little below 30%. When the government gives us the ability to go to 75%, we expect to be at 75%.
Okay, thanks.
Thank you.
Yeah. Thank you. Next question.
Our next question is coming from the line of Christopher Gable. As our private investor, Christopher, your line is open. You may now raise your question, please.
Yeah, good morning, Christopher.
Good morning, sir. I have a question, but first the context, sir.
A little louder, Christopher, if you don't mind.
Oh, no problem. I do have a question, but first a little bit of context. From the last proxy statement, there's a chart that shows that between 2014, 2019, relative to the Standard & Poor's property casualty composite, Fairfax underperformed by 47% during that period. That was pre-COVID. Going back to 2009 through yesterday, which includes COVID, I calculated that over that period of time, Markel was up by a factor of 3.3. Berkshire was up by a factor of 3.4. Fairfax declined from CAD 375 to CAD 266 or 30%. With all due respect, that is a significant amount of underperformance over a relatively long period of time. I'm wondering, my question is, what does management have in mind to do to do something for long-suffering shareholders like me, and when might you do it?
Well, first of all, Christopher, that's a very good question. You're exactly right. We haven't performed as well in the last five years, as you pointed out in the proxy circular, and 10 years, as you pointed out. The fact is, you're looking at a very low price right now. Our company is selling below book value. It's selling at about 75%, 80%, 70% of book value, which I've said is a ridiculous price. I went in and bought a whole ton of stock myself. We can't tell you what the stock price is going to do. We understand the intrinsic value of our company. I can tell you, and I told you on this call, it's much higher. You've got speculative situations taking place in the marketplace. I've highlighted that for you just now through Zoom and Root.
We've got a tremendous insurance company operations across the world. Our investments, which are out of favor because value investing is out of favor, will come back in spades. You look at our track record over 34 years, very few companies have been able to beat that. What you're seeing today is from today's stock price, you're exactly right. The last five years haven't been good, the 10 years haven't been good. I think if you look in the next five years, we'd like to think that our returns will be quite exceptional. Thank you for your question, Christopher. Next question, Anna.
Your next question is coming from the line of [Craig Facteau] as our private investor. Craig, your line is open. You may now raise your question, please.
Retail, I think if my memory serves me correct from the annual meeting in 2019, I think we were doing about CAD 3.5 billion in revenue. I want to have you compare 2020 revenue and income from the likes of all of our restaurants, The Keg, Sporting Life, William Ashley, on and on. If you could just give us an overall summary.
Yeah, that's a good question. Just a quick one. Retail, of course, our restaurants suffered greatly because they were closed down, and then they opened up in the third quarter. You'll see in our results that Recipe, for example, so when it closed down, you had to have a patio. You had to have take home, curbside pickup, all of these things, and you'll see their numbers when it comes out. They made money. They were profitable. If you go down the list, Golf Town had record earnings and revenues more than last year, because I guess all of us didn't have too much choices of the place of golf, and that worked from the pandemic standpoint. Sporting Life is doing well and adjusting to the pandemic. Toys 'R' Us was positive on an EBITDA basis, adjusting in terms of reacting to this pandemic.
The point I made is you had restaurants closed for some time period. You had Golf Town and others also closed. They've negotiated this time period and come out very strong. We think they'll all do well as the economy returns to normalcy. We've had an unprecedented closing here, and as we come back, we think our companies will come back strongly. That's a good question. Those are our investments, and we expect all our investments in that retail area to come back.
Thank you.
Thank you. Next question, Ella.
Our next question is coming from the line of Howard Flinker from Flinker & Company. Sir, your line is open. You may now raise your question, please.
Thank you. Hi, Prem. Hi, Jen.
Hey, good morning, Howard.
Hi. I'll add the Digital Equipment Corporation, Data General, IBM, Avon Products to the Nifty Fifty of 1974. You'll recall those names.
Yes, of course.
You already know.
Yeah. You go back, Howard.
Yeah, I do, unfortunately. Well, maybe fortunately.
Me too.
Yeah. Right. Exactly. I got a question where we may disagree, but I'd like to know your thoughts anyhow.
Sure.
What is your feeling about gold, which you have avoided so far?
We've avoided it. We've never been able to understand that, Howard, and so we've never owned it. We've always looked at it, but we've never been able to figure out the price of gold, and so we've passed on it.
Okay. That's a fair enough answer. To add to the comment about the fellow who was moaning that your stock has underperformed. Last I measured, you didn't turn dumb overnight. We all go through these periods of underperformance no matter what our fields of.
Well, you're very kind, Howard. I understand the previous guy, his concern.
Yeah, sure.
I understand what he's talking about, and a lot of our shareholders are concerned that we haven't performed recently. I'll tell you what, we're as focused as we've ever been, and this is our 35th year, and we want to do well for our shareholders. Our company's always been focused on it. In the past, some of you will remember, our insurance companies were doing well, and our investments were doing really well. More recently, for the last 10 years+ , our insurance companies have been golden, have done really well, and our investments, value investing, and some poor choices on our part haven't done well. Well, we're changing all that, and we expect to do well.
Am I correct that this is the first time, this last year or so, is this the first time in this century when your stock has sold below book value?
In a long, long time, Howard.
I think even in 2009, it did not sell below book value.
It's a rare time that you've been able to buy our stock at below book value, and when I saw that, Howard, I jumped on it myself. I'm suffering with all of you.
Okay. Thank you.
Thank you, Howard.
You're welcome. Yeah, we'll talk soon. Bye.
Yeah. Thank you very much.
You're welcome.
Ella, next question.
All right, our next question is coming from the line of Mike Beall from Davenport & Company. Mike, your line is open. You may now raise your question, please.
Thank you. Prem, could you give us a little more color on this short equity exposure? Exactly what are we short, the notional or size relative to our portfolio? Just the strategy in general there. That is a pretty big number. I don't mean to Monday morning or Friday morning quarterback because the third quarter was a strong one, but CAD 168 million in losses on short equity exposure, I think deserves a little more explanation.
Mike, we don't talk about individual names, as you know, till we've either sold them or covered them. On the shorts, let me assure you that it's over. This is just a remnant, and unfortunately, as you pointed out, has gone up. Not too long in the future, we'd be out of it. It's all mark-to-market, of course, so you see it. We reduced it quite significantly in the third quarter. Relatively soon, I just don't want to fix a time, but relatively soon, that'll be gone. We've said publicly, we will not short the TSE and not short the indices, meaning the S&P or any of them. We will not do that, and we won't short companies at all, ever. Rest assured there'll be no more of those.
Okay. Exactly, broadly, what were we short? You just said we don't short individual companies, and we don't short the TSE or I guess the S&P. I still don't understand what this hedge is designed, what it's about.
Yeah. Mike, basically what it was a position that we've had in the past. It's not a new short, it's an individual position that we've had in the past that we've covered and covered and covered, and this is the last remnant of it.
Okay. Thank you.
Thank you, Mike. Next question, perhaps the last question. Ella?
All right. Our next question is coming from the line of Jaeme Gloyn from the National Bank Financial. Sir, your line is open. You may raise your question please.
Yeah, thanks. I wanted to follow up on two things, actually. First on the COVID losses that we're taking this quarter. Looks like it was about CAD 33 million related to business interruption. Another chunk related to event cancellation. Is that it for those items? Should we expect to see more flowing through on a quarter-to-quarter basis as this evolves? That only captures a third of the COVID-related losses. What was really driving those other COVID losses that would've amounted to about CAD 95 million-CAD 100 million this quarter?
Yeah. You can talk to Jaeme later on, but event cancellation. Event cancellation losses, I told you this is a live cat. We've taken pretty well what we know for the next three months. 2021, if this pandemic virus continues in 2021, so there'll be some losses in event cancellation, mainly coming from Lloyd's and Brit. Brit has got a business there. That's where the losses have come from. We just think it's on the way to becoming insignificant. We don't think it's going to be significant in the future. That's why I made the point that, in spite of some of these losses, we'll make an underwriting profit for the whole year. We made an underwriting profit for the nine months. So we expect to make an underwriting profit for the whole year.
The underlying business, we'll always have cat losses. There'll always be some cat losses. If you remove the COVID losses, and you remember that the prices are going up significantly, and the prices are going up way above claims, and we haven't adjusted our loss ratios and so we are keeping our loss ratios high. If history is any guide, and we've had it in the past, when you look two or three years from now, those loss ratios will develop very well. We expect our insurance business to do very well, Jaeme. It's a very good environment for property casualty insurance companies right now. Jaeme, thank you very much for your question. Ella thank you for hosting this and I thank everyone for joining us and this will be the end. Thank you, Ella.
You're welcome. That concludes today's call. We thank you all for your participation. Have a great day.