Good morning, and welcome to Fairfax twenty twenty Third Quarter Results Conference Call. I'd like to inform all participants that your lines have been placed in a listen only mode until the question and answer session of today's call. After the presentation, we will conduct a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time.
Your host for today's call is Prem Watsa with opening remarks from Mr. Derek Bulas. Mr. Bulas, please begin.
Good morning, and welcome to our call to discuss Fairfax's twenty twenty 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 includes the risk of adverse consequences to Fairfax's business, investments and personnel resulting from or related to the COVID-nineteen 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.
Thank you, Derek. Good morning, ladies and gentlemen. Welcome to Fairfax's third quarter twenty twenty 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 are 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 and 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 $134,000,000 compared to net earnings of $69,000,000 in the 2019, which equates to net earnings per diluted share of $4.44 versus $2.4 in 2019. For the 2020, our net loss was $691,000,000 versus net earnings of $1,300,000,000 for the 2019.
This primarily reflects net unrealized losses on investments in the 2020. Fairfax's book value per share decreased by 6.9% to $442 per share in the 2020, adjusted for the $10 per share common dividend paid in the first quarter. Most importantly, our float increased by 7% to 22,000,000,000 and float per share increased by 8% to $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 $219,000,000 or 6.1 combined ratio points and $143,000,000 or 4% combined ratio points of COVID-nineteen losses. Our cat losses and COVID losses were approximately 10%.
Excluding COVID-nineteen 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 Brick 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 $536,000,000 on a net basis across all our companies. Of this, approximately 40% comes from business interruption exposures, primarily outside The United States and about 30% comes from event cancellation coverages. The balance comes from areas such as casualty, surety and travel lines. On a net basis, approximately 60% of our COVID provisions are in IBNR. Paid losses are about 20% and case reserves make up the remaining 20%.
As you can see, this is still 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're 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 $74,000,000 about 2.1% in the third quarter and $275,000,000 2.7% in the nine months. Our insurance business in most parts of the world are seeing pricing increases anywhere from 10 to 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, Bridge announced its plans in collaboration with Google Cloud to launch KEY, a standalone business and the first fully digital algorithmically driven Lloyd's syndicate.
KEY 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 we raised $500,000,000 of committed capital from Blackstone and Fairfax to fund the expansion of Key. Key is expected to be launched in the 2020 and begin writing business in January 2021. This is a very exciting new venture in the InsurTech space and Matthew Wilson, Mark Allen and team have done an outstanding job getting this initiative up and running. Mark Allen has been appointed as CEO of Key.
On August 28, we acquired the remaining 9.4% share of Brick for a cash consideration of $220,000,000 Now for the quarter, operating income was $255,000,000 and $6.00 $1,000,000 for the nine months. Net losses on investments in the third quarter were $27,000,000 with losses on net equity exposures of $156,000,000 partially offset by net gains on bonds and foreign exchange gains. The net losses on equities included an unrealized loss of 164,000,000 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, and I mentioned 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 mark to market gains or losses, quarterly and annual income will fluctuate and investment results will only make sense over the long term.
The 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 thirty four 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 percent 1991, we were up 14.6% In 1999, we were down 2.7%, that's the whole investment portfolio. In February, we were up 12.2%. In 2013, we were down 4.3%. In 2014 we were up 8.6%, and finally in 2016 we were down 2.2% and in 2017 we were up 6.8%.
Only four out of the thirty four years will be down. And 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 thirty four years. We have never focused on steady quarterly earnings.
Now 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 .com era in February. As the economy normalizes, we expect a reversion to the main and value oriented stocks to come to the fore. Perhaps two examples may make it more clear for you. Fairfax India is selling at 7.5 per share, while its most recent book value that came out at the September is more than $15 per share.
It is down from a pre COVID high of $13.7 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-nineteen. Second example I wanted to share with you was Atlas Corp, formerly Seaspan run by David Sokol and Bing Chen. And they closed the stock price closed at 2019, closed the year 2019 at $14 per share. Then it goes down to $6.3 in March in the height of the pandemic crisis and closed the third quarter at $9 per share, selling at a price to free cash flow ratio of approximately four times 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 dollars greater than our carried values at the end of the third quarter. In September, we have redeemed our $500,000,000 holdings in Blackberry, dollars 3.75% convertible debentures and subscribed for $330,000,000 of its new 1.75 debentures convertible at $6 per share and maturing in November 2023.
We have previously announced that Fairfax Africa entered into a merger agreement with Helios to which Helios will acquire a 45.9% voting and equity interest at Fairfax Africa and will be appointed sole investment adviser to Fairfax Africa. Closing of this transaction is expected to be in the 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 fifteen 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. And so if you could 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 forty nine percent ownership in the public company.
We now have a company which will have $1,000,000,000 in revenue and $100,000,000 in EBITDA in a few years. We sold Davos for $59,000,000 with an additional earn out over time, about 100% return on our capital invested. Just recently, Peak Performance, which owns Bauer Skates, agreed subject to regulatory approval to sell Eastern, which is like in baseball bats and gloves to Rawlings, the number one company in baseball manufacturer for shares and cash had a significant profit for us and our partner Power Corp. Of course, the significant profit is based on what we invested in Bauerscapes and Eastern. And as I mentioned previously, we expect to merge Fairfax Africa with Helios for a 32% ownership in the combined entity.
Now I want to tell you this is just the start. Various initiatives are underway, 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 $1,200,000,000 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, Fairfax Africa, Recipe and Thomas Cook are well financed and do not need any cash from Fairfax. They either have significant cash themselves or have large lines 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%, but that time will come soon.
Please remember, we continue to hold the CPI linked deflation floor contracts with a notional amount of $76,000,000,000 and an average remaining term to maturity of approximately three years. We carry these contracts at only $12,000,000 and they continue to provide us with downside protection in the event of a catastrophic turn of involved events. At 09/30/2020, the company's insurance and reinsurance companies held approximately $15,000,000,000 in cash and short dated securities, representing approximately 38% of the portfolio investments, comprised of $11,400,000,000 of subsidiary cash and short term investments and $3,700,000,000 of short dated U. S. Treasuries.
Our investment portfolios by rising interest rates as we have not reached a yield. In fact, we will benefit from rising investment income. With a run rate of approximately $19,000,000,000 in gross premiums, our huge focus on underwriting discipline, a portfolio of approximately $40,000,000,000 and Hamlin Wisser Investment Corporation, HWIC operating in a stock focused market, all grounded on our fair and friendly culture built over thirty four 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. On our last call, I mentioned that I had joined the Canadian Council of Business Leaders Against Anti Black Systemic Racism or the Black North 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 initiative actions committee is 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 United Kingdom and is being led by Craig Pinak, who is 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, Sam. The COVID-nineteen pandemic continues to affect the global financial markets and operating results of certain industries, but 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 twenty twenty results. We reported strong underwriting performance with an underwriting profit of CAD52 million, which was achieved despite additional COVID-nineteen losses of CAD143 million and higher catastrophe losses reported in the quarter. We benefited from the non insurance companies attributing pretax income before interest expense and other of $34,000,000 And finally, our net gains on investments was $137,000,000 after adjusted for the non cash loss recorded on Fairfax Africa transaction of 164,000,000 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 $134,000,000 or $4.44 per share on a fully diluted basis in the 2020. That compared to the 2019 when we reported net earnings of $69,000,000 or $2.04 per share on a fully diluted basis. For the first nine months of twenty twenty, Fairfax reported a net loss of $691,000,000 or $27.27 per share on a fully diluted basis, which compared to the 2019 when we reported net earnings of $1,300,000,000 or $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 2020 at $52,000,000 and a combined ratio below 100% at 98.5%.
That compared to an underwriting profit of $81,000,000 and a combined ratio of 97.5% in the 2019. Underwriting profit in the first '9 months of twenty twenty decreased to $142,000,000 with a combined ratio of 98.6% compared to underwriting profit of $271,000,000 and a combined ratio of 97.1% in the 2019. Underwriting performance in the first nine months of twenty twenty remained strong despite almost $1,000,000,000 in losses reported, which related to COVID-nineteen losses of $536,000,000 and higher catastrophe losses at $420,000,000 All of our insurance and reinsurance companies achieved combined ratios below 100% for the third quarter and 2020 with the exception of Brit primarily as a result of the impact of the COVID-nineteen losses. Overview of the underlying core underwriting results in the third quarter and 2020 are as follows: Northbridge improved their combined ratio to eighty nine point nine percent and ninety three point four and reported underwriting profits of $38,000,000 and $69,000,000 respectively. Odyssey Group reported underwriting profits of $6,000,000 and $20,000,000 with combined ratios of ninety nine point four percent and ninety nine point two despite COVID-nineteen losses and marginally higher catastrophe losses.
Crum and Forrester reported underwriting profits of $4,000,000 and $26,000,000 with combined ratios of ninety nine point three percent and ninety eight point six Zenith National reported underwriting profits of $12,000,000 and $40,000,000 and combined ratios of 92.791.6%. Looking to Brit, in the 2020, they reported an underwriting loss of $59,000,000 and combined ratio of 114,000,000 which reflected COVID-nineteen losses of $43,000,000 or 10 combined ratio points. In the first '9 months of twenty twenty, Brit reported underwriting losses of $119,000,000 and a combined ratio of 109.6, which also reflected COVID-nineteen losses of $170,000,000 or 13.8 combined ratio points. Allied World reported underwriting profits of $48,000,000 and $96,000,000 with combined ratios of ninety three point one and ninety five point two percent in each respective period. Rounding out with Fairfax Asia and the insurance and reinsurance other group, Fairfax Asia reported underwriting profits of $2,000,000 and $1,000,000 respectively, and combined ratios of 9699.4%.
And finally, our insurance and reinsurance operations other segment reported underwriting profits of $400,000 and $10,000,000 with combined ratios of 99.898.8%, even with the impact of COVID-nineteen losses adding $8,000,000 and $35,000,000 to the respective periods. Key components of the combined ratios in the third quarter and 2020 of 98.598.6% included the following: COVID-nineteen losses of $143,000,000 and $536,000,000 or four point zero and five point three combined ratio points, respectively higher current period catastrophe losses of $219,000,000 or 6.1 combined ratio points and $420,000,000 or 4.1 combined ratio points, primarily related to Hurricane Laura of 112,000,000 The benefit of strong reserving reflected in continued net favorable prior year reserve development of $74,000,000 or 2.1 combined ratio points and $275,000,000 or 2.7 combined ratio points. And 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 reinsurance segments are disclosed in the MD and A of Fairfax's interim third quarter report. As noted in the 2020, we reported COVID-nineteen losses of $536,000,000 which were comprised primarily of business interruption exposures of approximately 40%, principally from our international businesses and event cancellation coverage of approximately 29%, from the international businesses.
COVID-nineteen losses were principally comprised of incurred but not reported losses, which represented approximately 60% and net losses were primarily recorded at Brit for $170,000,000 Odyssey Group of $125,000,000 and Allied World at $113,000,000 Looking at the growth in our net premiums written by the insurance and reinsurance operations, in the third quarter twenty twenty, net premiums written increased by 12% to $3,700,000,000 from $3,300,000,000 and in the first nine months of twenty twenty increased by 9.4% to almost $11,000,000,000 from approximately $10,000,000,000 in 2019. That nine month increase in 2020 of $940,000,000 is almost equivalent to all of Northbridge's net premiums written in the first nine months of twenty nineteen. A few comments on our runoff operations. Subsequent to the contribution of European runoff to Riverstone Barbados on 03/31/2020, starting from 04/01/2020, the operating results of runoff only include our U. S.
Runoff operation. Runoffs reported an operating loss of $9,000,000 in the 2020 compared to an operating loss of $14,000,000 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 companies reporting segment.
As presented in our MD and A, restaurants and retail reported pretax income before interest expense and other in the 2020 of $45,000,000 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-nineteen lockdown restrictions. Revenue of Restaurant and Retail segment in the 2020 exceeded that in each of the 2020, reflecting a modest recovery of business volumes suppressed by COVID-nineteen government mandated restrictions during the 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 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 reporting segment of $24,000,000 and $14,000,000 in the third quarter and 2020 principally reflected Fairfax Africa's operating losses of $45,000,000 and $84,000,000 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 $164,000,000 recorded in net losses on investments upon classifying Fairfax Africa as held for sale. At September 30, 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 $164,000,000 in net losses on investments in the consolidated statement of earnings, which after accounting for income taxes and non controlling interest decreased common shareholders' equity at 09/30/2020 by $44,000,000 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 associate recording the initial carrying value of the investment based on the market traded share price on closing.
Now looking to the consolidated investment results of Fairfax. Our consolidated interest and dividend income decreased year over year from $215,000,000 and $672,000,000 in the third quarter and first nine months of twenty nineteen to one hundred and eighty two million dollars and $6.00 $5,000,000 in the respective periods 2020, reflecting lower interest income earned principally due to sales and maturities of U. S. Treasury bonds in the 2019 and throughout 2020 and 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 $51,000,000 in the third quarter twenty twenty consisted principally of $30,000,000 from Eurobank, 19,000,000 from Atlas Corp, 14,000,000 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 $150,000,000 in the 2019 consisted principally of $73,000,000 from Eurolife that related to mark to market gains on its long dated Greek bonds and $62,000,000 from IFL Finance that primarily related to a spin off distribution gain of approximately $56,000,000 Our consolidated net loss on investments of $27,000,000 in the 2020 compared to net loss on investments of $97,000,000 in the 2019, with the 2020 reflecting foreign currency gains of $84,000,000 compared to losses of $91,000,000 in 2019.
Increased net gains on loan equity exposures of $177,000,000 and that's after adjusting for the non cash loss of the $164,000,000 related to the Fairfax Africa transaction. That was partially offset by increased net losses on our short equity exposures. And 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 09/30/2020, from 24.5% at December 3139, primarily reflecting our increased total debt related to the principal draw on our credit facility of $700,000,000 and our April debt issuance at $650,000,000 and decreased common shareholders' equity that related primarily to our net loss and our common share dividends paid in Q1 twenty twenty. At September 30, our book value per share was $442 compared to $486 at 12/31/2019, representing a decrease of 7% adjusted for the $10 per share paid in the first quarter of twenty twenty, but it increased since the 2020 of 1.6%.
The increase in book value per share of 1.6% in the 2020 reflected Fairfax's core underwriting performance continuing to be very strong despite recording additional COVID-nineteen losses and higher catastrophe losses. The favorable contribution from our non insurance operations from their pretax 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. And now I'll pass it back over to you, Prem.
Thank you, Jan. We now look forward to answering your questions. Please give us your name, your company name and as always try to limit your questions to only one so that it is fair to all on the call. So, Ella, we're ready for the questions.
Thank you so much speakers. All participants 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 Mckinen from BMO Capital. Tom, your line is open. You may proceed.
Yes. Thanks very much. Good morning, Prem.
Hey, good morning, Tom.
A question on the Holdco cash at $1,100,000,000 I think you've always said you'd like it to be at least $1,000,000,000 there. It's I'm just trying to gauge your comfortableness where it sits right now. Just are you expecting some dividends from the operating companies in the fourth quarter because you do have $275,000,000 dividend that you're going to be common dividend that you'd be paying in January. So just trying to gauge how comfortable we are with the Holdco cash position as it stands right now at 1,100,000,000.0
Yes. Tom, we basically want to keep in excess of $1,000,000,000 So we expect to get some dividends and some other payments. And we have a huge credit facility that we've paid back, as you know, from $2,000,000,000 down to $1,300,000,000 So there's about $700,000,000 that we've used. And over time, we'd like to pay that back also, the zero, which it was at the end of last year. So yes, so that's Tom, we're very focused on keeping $1,000,000,000 plus in cash.
We're focused on having enough money to support our insurance companies in this hard market that we are witnessing. And finally, the extra money we would take and buyback our shares. So that's the order we look at it.
And if I could quickly squeeze in another, the equity hedge loss seemed a little bit higher than I would have expected because you got $266,000,000 notional, but the unrealized losses were $89,000,000 I mean, that seems high relative to the notional. Is there anything I'm missing
Yes. No, that's right, Tom. It's the remnants of what we were covering. It's I told you that before in the I guess, the first quarter, second quarter, we've slowly but steadily covering it and it's kind. So it's on the way to it's on the way out.
Thanks.
Thank you, Tom. Our next question is coming from the line of James Bloin from National Bank Financial. Sir, your line is open. You may now raise your question.
Yes, thanks. Good morning, Prem.
Good morning, Jamie.
First or actually, that's the 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 had that was either flat to down on a combined ratio basis. So I'm wondering what was changing in Northbridge to take those higher losses in Q3 on an absolute and on a relative basis?
Yes. There's not much you can't extrapolate that, Jamie. There were some long term care facilities, but mostly IBNR, mostly that we put we like to reserve conservatively and put the reserves upfront and then get redundancies that we've had for the last ten years. And Jen, would you like to add to that?
Yes. 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, Jenny, and just putting up the results. We like to put them up as soon as we see it. And as I've said many times before, the past has to come and help us and not hurt us. And so if you have redundancies that we continue to have it, that's helping us. If you have deficiency, that means you're under reserve, that's hurting us.
And for the longest time now, we've had reserve redundancies in all our companies, and our reserves are very strong. Thanks, all. Thank 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.
Good morning.
Wanted to see if you could talk about underwriting, take us through where you're seeing opportunities.
Yes. Jonathan, a little louder please, Jonathan. Yes.
Good morning. Once you could speak through underwriting and maybe where you're seeing the opportunities rate versus exposure and if it's more on the insurance side versus the reinsurance side and some of the geographies? Thank you.
Yes. Good question, Jonathan. It's insurance is where you're getting the rate increases, but it's all over the world, Jonathan. It's like in The United States, particularly in the casualty end, but it is in The United Kingdom. It is in Singapore.
We have an operation there in Fairfax Asia. So prices are going, as I said, 10% to 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%. But insurance is going across going up significantly and the terms are being tightened. When you see a hard market, the terms get tightened and the terms have been tightened all over the place, in Asia, in London, in North America.
So we're thinking we're in the midst of a very good market. And if history is any guide, these last for a few years, Jonathan.
Okay, great. Then 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, our 15%, not at all. Let me just tell you, I've been in the business for forty five 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. So 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 $139,000,000,000 At the July, for the first six months, it had a revenue base of approximately $1,000,000,000 and a net profit of $200,000,000 $139,000,000,000 that by the way is about the same size as Exxon. So 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 and it can only be justified for a short period of time in the stock market. In the insurance business, and I don't follow this too much and I just know that, in the insurance business a few days ago, Root went public, company called Root, 7,000,000,000. It's got $500,000,000 of premium and its $7,000,000,000 market cap is almost as big as Fairfax, which has approximately $20,000,000,000 of premium. Like exceptional divergence, And I've seen this over long periods of time and it reminds me really of the nineteen late 60s and the early 70s when you had the Nifty 50.
And the Nifty 50 were stocks like McDonald's, Johnson and Johnson, Polaroid, Kodak. And I talked about that in our annual report. And what happened is these things went to 50 times earnings, 100 times earnings. And in 1974, they peaked out in 'seventy two, 'seventy three and 1974, they dropped by 75%, 80%. And some of them like Eastman Kodak and Polaroid never came back.
But even the ones like Johnson and Johnson and McDonald's, which are great growth companies, they never saw those stock prices for ten fifteen years in the future after '74. And then Graham, is father of value investors, He came out in 1976 and he called it the Renaissance of Value investing. And he gave a speech on it. And I still remember reading it. I was just an analyst at the time.
And value came out and did exceptionally well. And I think we understand 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. But these type of speculations like Zoom at $139,000,000,000 if history is any guide, it just doesn't make any sense.
It will not have a good ending. Question, Thank you, David. Next question, Ella.
Our next question is coming from the line of Jon Yura, our private investor. Junior, your line is open. You may now raise your question please.
Good morning. So 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? Junior, please repeat that if you don't mind.
So I think earlier on the call, guys stated that in 2021, there might be one couple of IPOs?
Yes, yes, yes. No, we've got some IPOs. Yes, no, we are looking at 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. That case, Horizon North is already public.
But we are planning we've got some private investments. I can't talk about them, of course, till it goes public. But yes, we think they'll be worth a lot and they're good companies. And mostly they're in our books at very low values compared to where we take them public at and we can build very significant companies we think over time just like Horizon North will be over time.
Okay. And if you could provide an update on Digi, 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?
Yes, DigiT, sorry.
Yes. Sorry. Digit is a phenomenal company that's going at so it's in a few years or three years maximum since it began under Kameshko Air, its revenue this is March 2021, will be plus minus $400,000,000 $375,000,000 to $400,000,000 from scratch. It's breaking even already. It's fully digitized and it's in India.
And the Indian market is wide open. The growth opportunity for this company is huge. It's going at its aim is to grow at twenty, twenty five percentage points more than the industry, which is growing at 20%. So it's been growing at 45%, something like that. And Kamesh, he's an insurance guy.
He's built the second largest insurance company in India. And so we think it's going to be a phenomenal success and we own a little below 50%. And when the government gives us the ability to go to 75%, we expect to be at 75%. Okay. Thanks.
Thank you.
Yes. Thank you. Our
next question is coming from the line of Christopher Gable, Azure Private Investor. Christopher, your line is open. You may now raise your question,
please. I
have a question, but first the context, sir.
A little louder, Christopher, if you don't mind.
No, 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 and 2019 relative to the Standard and 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, Marco was up by a factor of 3.3%, Berkshire was up by a factor of 3.4 Fairfax declined from 3.75% to 2.66% or 30%.
And with all due respect, there is a significant amount of underperformance over a relatively long period of time. And I'm wondering, my question is, what does management have in mind 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. And you're exactly right. We haven't performed as well in the last five years as you pointed out in the proxy circular and ten years as you pointed out. The fact is you're looking at a very low price right now. Like 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 and tell we you what the stock price is going to do, but we understand the intrinsic value of our company. And 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. And we've got a tremendous insurance company operations across the world.
And our investments, which are out of favor because value investing is out of favor, will come back in spades. We've got a you look at our track record over thirty four years and it's 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 and the ten years haven't been good. And but I think if you look in the next five years, we'd like to think that our returns will be quite exceptional.
But thank you for your question, Christopher. Next question, Alan.
Your next question is coming from the line of Craig Fakhter, 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 3,500,000,000 in revenue. And I want to have you compare 2020 revenue and income from the likes of all
of
our restaurants, the kegs, sporting life, William Ashley, on and on. If you could just give us an overall summary?
Yes. Just 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. And you'll see in our results of the recipe, for example, so they have when the closes the close down, you have to work you have to have a patio, you have have take home, curbside pickup, all of these things.
And they you'll see their numbers when it comes out. They made money. They were profitable. And you'll if you go down the list, the Gulf Town had record earnings and revenues more than last year, because I guess all of us didn't have too much choices of the grades of golf and that worked for the pandemic standpoint. Sporting Life is doing well and adjusting to the pandemic.
And Toy Service was positive on an EBITDA basis. Adjusting in terms of reacting to this pandemic. So the point I made is you had restaurants closed for some time period. You had GolfTouch and others also closed. And but they've negotiated this time period and come out very strong.
So we think they'll all do well as we as the economy returns to normalcy. And we've had an unprecedented closing here. And as we come back, we think we'll our companies will come back strongly. But that's a good question. We have 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 and Company. Sir, your line is open. You may now raise your question, please.
Thank you. Hi, Prem. Hi, John.
Hey, good morning, Alvin.
Hi. I'll add the Digital Equipment, Data General, IBM, Avon Products to the Nifty-fifty with 74, you'll recall those names.
Yes, of course.
Yes, yes. You go back, Alvin. Yes, I do, unfortunately. Well, maybe you will.
Me too.
Yes, right, exactly. I've got a question where we may disagree, but I'd like to know your thoughts anyhow. 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. And 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. So we all go through these periods of underperformance no matter what our fields have
Well, you're very kind, Howard. I understand the previous guy is concerned. I understand what he's talking about. And a lot of our shareholders are concerned that we haven't performed recently. But I'll tell you what, we're as focused as we've ever been.
And this is our thirty fifth year and we want to do well for our shareholders. Our company has always been focused on it. In the past, some of you will remember, our insurance companies weren't doing well and our investments were doing really well. More recently, our insurance companies have been more recently for about ten years plus, 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, they're changing all that and we
expect Am it 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, that
Even in 'nine, 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 I when I saw that, Howard, I jumped on it myself. So I'm suffering from with all of you.
Okay. Thank you.
Thank you, Howard. You're welcome. Yes, we'll talk soon. Thank you very much. You're welcome.
Alan, next question.
All right. Our next question is coming from the line of Mike Beale from Davenport and 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 and the notional or size relative to our portfolio? And just the strategy in general there, that is a pretty big number. And I don't mean to Monday morning or Friday morning quarterback because the third quarter was a strong one.
But $168,000,000 in losses on short equity exposure, I think deserves a little more explanation.
So Michael, we don't talk about individual names, as you know, till we buy the sold them or cover them. And, on the shorts, let me assure you that it's over. This was just a remnant. And unfortunately, as you pointed out, has gone up. And but not much not too long in the future, we'd be out of it.
It's all mark to market, of course, so you see it. And we reduced it quite significantly in the third quarter and relatively soon, I just don't want to fix the time, but relatively soon that will be gone. And then, we've said publicly, we will not short the TSC, not short the indices, meaning the S and P or any of them. So we will not do that and we won't short companies at all ever. And so, rest assured, there'll be no more of those.
Okay. So exactly broadly, what were we short? You just said we don't short individual companies and we don't short the TSC or I guess the S and P. So I still don't understand what this hedge is what it's about?
Yes. So Michael, basically what it was, was a position that we've had in the past. So it's not a new short. It's a position an individual position that we've had in the past that we've covered and covered and covered, and this is the just a large remnant of it. Okay.
Thank you. Thank you, Michael. Next question and 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
now raise your question, please.
Yes, thanks. I wanted to follow-up on two things actually. Just first on the COVID losses that we're taking this quarter. Looks like it was about $33,000,000 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? And then that only captures a third of the COVID related losses. So what was really driving those other COVID losses that would have amounted to about like 95,000,000 to 100,000,000 this quarter?
So yes, yes. And you can talk to Jenny later on. But event cancellation, right? So event cancellation losses, I told you this is a live cat. So we've taken pretty well what we know for the next three months.
But 2021, if this pandemic virus continues in 2021, so there'll be some losses in event cancellation, mainly coming from Lloyd's and Britt. Britt has got a business there. That's where the losses have come from. But it's in the we just think it's in the on the way to becoming insignificant. We don't think it's going to be significant in the future.
And so 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. And so we expect to make an underwriting profit for the whole year. But the underlying business, if you remove these, we'll always have cat losses. There'll always be some cat losses.
But if you remove the COVID losses, annual annual annual annual remember that the prices are going up significantly and we and the claims are not 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. But 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 that will develop very well. And so we expect our insurance business to do very well, Jamie, as the years it's a very good environment for property casualty insurance companies right now. So Jamie, thank you very much for your question. And 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. And that concludes today's call. We thank you all for your participation. Have a great day.