Good morning, and welcome to Fairfax twenty twenty Second Quarter Results Conference Call. Your lines have been placed in a listen only mode. 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 Prev Watsia with opening remarks from Mr. Derek Bielos. Mr. Derek Bielos, please begin.
Good morning, and welcome to our call to discuss Fairfax's twenty twenty second 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 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 Wassa.
Thank you, Derek. Good morning, ladies and gentlemen. Welcome to Fairfax's second 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 want to again thank the people on the frontlines, our doctors, nurses in our hospitals, our grocery stores, our policemen, our utilities, and mother and many other essential services in our lives that we take for granted and have put themselves in harm's way and have gotten us through what we hope is the worst of this pandemic.
I also wanted to thank our employees all over the world who for a good part of the last four months have almost 100% work from home, not missing a beat in our business of providing outstanding service to our customers. I'm very grateful to all of them. We expect this pandemic to come to an end and we expect to return to normalcy soon. Coming now to our results in the second quarter. Fairfax's net earnings in the second quarter were $435,000,000 compared to net earnings of $494,000,000 in the 2019, which equates to net earnings per diluted share of $15.26 versus $17.18 in 2019.
For the 2020, our net loss was $824,000,000 versus net earnings of $1,300,000,000 for the 2019, primarily reflecting net unrealized losses on our investments in the 2020. Fairfax's book value per share decreased by 8.3% to 4.35 in the 2020, adjusted for the $10 per share common dividend paid in the 2020. Our insurance and reinsurance companies produced a consolidated combined ratio of 100.4% in the second quarter, which included $3.00 $8,000,000 or 9.2 combined ratio points of COVID-nineteen losses. Excluding these losses, the consolidated combined ratio was in the low 90s with continued 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% with Northbridge at 94.3%, Zenith at 94.6%, Allied World at 98%, Cumming Foster at 98.9% and Odyssey at 99.8%.
Bridge had a combined ratio of 114.9%, almost 115 in the quarter driven by COVID-nineteen losses primarily related to its event cancellation business. Excluding these losses, FIT had a combined ratio of 90.4. At the end of the second quarter, we have booked COVID losses of approximately $400,000,000 on a net basis across all our companies. Of this, a little less than half comes from business interruption exposures primarily outside of The United States and about a third comes from event cancellation coverages. The balance comes from areas such as casualty, surety and travel, lives.
On a net basis, approximately 70% of our provisions are on IBNR. Paid loss is about 10% 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 estimates may prove excessive in some of our companies and they may not be enough in others. In addition, as we all are 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 are quite 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. Underwriting income, excluding COVID losses, continues to increase with a lower consolidated combined ratio and strong organic growth continuing at our companies. Insurance and Reinsurance businesses, net written premium increased year over year by approximately 5%, primarily due to growth at Northbridge, Odyssey, Britain, Allied World.
Zenith is our only company not seeing premium increases as workers' compensation rates in The United States continue to decrease. Throughout our other lines of business, in most parts of the world, we are seeing price increases anywhere from 10% to 1330% and terms are tightening. For the year to date, the change in net premium written was 8%. We expect this growth to increase once we get past COVID-nineteen and the economy opens up fully. We think we're in a hard market and well positioned to expand significantly.
In May, Britain announced its plans in collaboration with Google Cloud to launch Key, a standalone business and the first fully digital and AI driven Lloyd 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. This is a very exciting new venture in the Intritech space with Matthew Wilson, Mark Allen, and and their team have done an outstanding job getting this initiative up and running. Speaking of startups, I mentioned in the past, our digital insurance company led by Kamish Koyal. Digit was formed in late twenty sixteen in India.
It is a fully digital company focusing on keeping insurance simple. Today, is writing approximately $350,000,000 in gross written premiums, has almost 1,700 employees and a market share in India of 1.6% and the growing Indian non life insurance market. We hold 45% of Digit and are very excited for the future. For the quarter, operating income was $121,000,000 and we continue to look to grow by increasing underwriting profits and increasing interest and dividend income. Net gains on investments were $644,000,000 primarily resulting from a tightening of corporate credit spreads and a recovery in equity markets subsequent to the global economic disruption in March 2020 caused by the COVID-nineteen pandemic.
We have mentioned this many times at our annual meeting and on 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. In the 2020, we had a negative 3.6% return on our investment portfolio. While in the second quarter, we had a positive return of 2.1%. This is for the whole portfolio, offsetting approximately 60% of our investment losses in the first quarter. As I have highlighted in the first quarter conference call, if you look at Page 188 of our 2019 annual report, last column shows the total annual total return on our investment portfolio for the last thirty four years.
There were four years when we had a negative return on the total portfolio. In each case, we rebounded significantly then the next year. Just to highlight for you from that table, in 1990, we had a negative four point four percent 1991, a positive 14.6 in 1999, a negative 2.7% in February, a positive 12.2% in 02/2013, a negative four point three percent 2014, the next year, eight point six percent 2016, most recently, a negative 2.2% and the following year, 2017, positive 6.8%. Only four years out of the thirty four years, we had a negative return. Each time investors worried about our investments and each time as I've said previously, they were proven wrong.
As I've said before, almost 60% of our first quarter investment losses were made up in the second 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. To give you an example from the past, we purchased 74% of Ridley, some of you will remember, in 2008 for approximately CAD 80,000,000 or $8.44 per share. After receiving $5.5 per share in dividends over the next seven years, we eventually sold our position at $40.75 per share or CAD $384,000,000 in 2015 for an annual compounded return of approximately 31%.
You can see that it was only on sale that we made our return. As mentioned in previous calls, we continue to be focused on monetizing many of our non insurance investments. We continue to look to put more of our cash to work in our insurance operations, our portfolios without reaching for yield or taking duration risk. The significant opening up on investment grade spreads, as we mentioned in our previous call, has allowed us to sell some of our treasuries and short dated bonds and by $3,900,000,000 in primarily investment grade corporate bonds with an average yield of 4.1%, average term of four years. We continue to focus on redeploying cash and increasing investment income.
In the second quarter, we announced our first mortgage real estate platform with Kelly Wilson to target first mortgage loans secured by high quality commercial real estate in the Western Part of The United States, in Ireland and in The UK. We have had a very successful history of investing with Kelly Wilson dating back to 2010, and we are very excited about this initiative. On July 22, it was announced that BlackBerry would redeem its 3.75% convertible debentures and issue a new convertible debenture at 1.75% convertible at $6 per share with a maturity of November 2023, three years. We will redeem our current $500,000,000 holdings in the 3.75% convertible and subscribe for the same amount of the new issue. On 07/10/2020, just recently, Fairfax Africa entered into a merger agreement with Helios Holdings Limited pursuant to which Helios will acquire a 45.9% voting and equity interest in Fairfax Africa and be appointed sole investment adviser to Fairfax Africa.
Closing of this transaction is expected to be in the 2020 subject to various conditions and regulatory and shareholder approvals. Upon closing, Fairfax Africa will be renamed Helios Fairfax Partners and continue to be listed in the Trans Stock Exchange. Helios has been investing in Africa for over fifteen years. We are very excited about this transaction and we welcome Tope and Baba, the cofounders of Helios and the rest of the Helios team to the Fairfax family. In May, we closed our Horizon acquisition of Horizon North.
We acquired 49% of Horizon North through the sale of Dexterra for shares of Horizon North. The combined operations create a leading Canadian services company. We provided approximately $630,000,000 in cash and marketable securities in capital to support our insurance and reinsurance operations to enable our companies to continue to grow in this very strong pricing environment as well as to support fluctuations in our investments from the effects of COVID-nineteen at the end of the first quarter. Like I said earlier, we expect these market fluctuations to reverse over time. After these contributions, we continue to have approximately 1,900,000,000.0 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. All of our large investments like Fairfax India, Fairfax Africa, Recipe, Thomas Cook are all well financed and do not need any cash from Fairfax. They either have significant cash themselves or have large lines to comfortably take them through this period of uncertainty. Again, I'll remember I'll remind you, we continue to hold CPI linked deflation flow of contracts, nominal amount of 78,000,000,000 and an average remaining term to maturity of three years.
We carry these contracts at only 14,000,000 and they continue to provide us with downside protection in the event of a catastrophe catastrophic turn of world events. At 06/30/2020, the company's insurance and reinsurance companies held approximately $13,600,000,000 in cash and short dated securities, representing approximately 35% of the portfolio investments. They comprise of $9,700,000,000 in subsidiary cash and short term investments and $3,900,000,000 of short dated U. S. Treasuries.
Our investment portfolios would be largely unimpacted 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 premium, a huge focus on underwriting discipline, a portfolio of approximately 39,000,000,000 and HWIC operating in a stock pickers market, all grounded on our fair and friendly culture built over thirty four years, we expect to generate a good return which we define as 15% for our shareholders over time. We feel the best is yet to come. Finally, I wanted to highlight a very important initiative I have joined called the Canadian Council of Business Leaders Against Anti Black Systemic Racism.
It's called the Black North Initiative. The initiative is a call to action to rally the Canadian business community to eliminate anti black systemic racism and create opportunities within the workplace for black people. Within Fairfax, I have recently spent time with 16 black individuals across our companies in Canada, United States, The UK to get their views on these issues and what we can do better as a company. I'm pleased to say all of them are very happy at Fairfax, but we have now formed a black initiatives action committee at the Fairfax level made up of individuals across our insurance and reinsurance companies to discuss these issues openly and to create more opportunities for people from the black community and all minorities within our company. Needless to say, racism will not be tolerated in our company.
I will now pass the call over to Jen Allen, our Chief Financial Officer. Jen?
Thank you, Prem. Similar to the introductory commentary I provided during the first quarter conference call, I would like to begin by highlighting some of the developments in our operations and provide additional perspective around the procedures performed to ensure we have addressed the continued global economic uncertainty created by the COVID-nineteen pandemic. Fairfax's head office teams continue to work from home and have been operating very effectively over the last four months. Our quarterly reporting processes remain robust. And similar to the first quarter, we performed additional procedures to ensure we understood the impact that the developing economic environment had on our subsidiaries.
The COVID nineteen pandemic has significantly impacted the global financial markets, and those macro events could be seen in Fairfax's first quarter results. As the economies begin to reopen, we saw some of those positive developments reflected in the financial markets and are evident in aspects of Fairfax's second quarter results. And now looking at Fairfax's second quarter results. In the 2020, Fairfax reported net earnings of $435,000,000 or $15.26 on a per share on a fully diluted basis. That compared to the second quarter nineteen when we reported net earnings of $494,000,000 or $17.18 per share on a fully diluted basis.
For the first '6 months of twenty twenty, Fairfax reported a net loss of $824,000,000 or $31.76 per share on a fully diluted basis. That compared to the six months of twenty nineteen when we reported net earnings of 1,300,000,000.0 or $44.17 per share on a fully diluted basis. Underwriting loss at our insurance and reinsurance operations in the 2020 was 13,000,000 with a combined ratio of a 100.4, and that compared to an underwriting profit of 100,000,000 and a combined ratio of 96.8% in the 2019. Underwriting profit in the 2020 decreased to $90,000,000 with a combined ratio of 98.6 compared to an underwriting profit of $189,000,000 with a combined ratio of 96.9% in the 2019. The increase in the combined ratios in the second quarter and 2020 compared to the same periods in 2019 principally reflected COVID-nineteen losses at $3.00 $8,000,000 and $392,000,000 or 9.26 combined ratio points, respectively, and higher current period catastrophe losses.
That was partially offset by higher net favorable prior year reserve development and decreases in the commission and underwriting expense ratios. In the first six months of twenty twenty, the COVID-nineteen losses were primarily comprised of business interruption exposures that represented 46% and were principally from our international businesses. And events cancellation coverage accounted for approximately 36. The losses were principally comprised of incurred but not reported losses that represented on a net basis 70% of the COVID-nineteen losses reported. Current period catastrophe losses were $96,000,000 and $2.00 1,000,000 or 2.9 and 3.1 combined ratio points in the second quarter and June 2020.
That compared to $41,000,000 and $88,000,000 or one point three and one point five combined ratio points in the second quarter and June 2019. Our combined ratios benefited from net favorable prior year reserve development in the second quarter and June 2020 of $105,000,000 and $2.00 1,000,000 which translated into 3.1 combined ratio points in each of those respective periods. That compared to net favorable prior year reserve development of $41,000,000 and $91,000,000 which represented one point three and one point five combined ratio points in both those respective periods in 02/2019. Looking at our operating company results and starting with Northbridge. Northbridge's underwriting profit was $19,000,000 and $30,000,000 with combined ratios of ninety four point three and ninety five point four in the second quarter and 2020.
That compared to underwriting profits of $3,000,000 in the second quarter and the first six months of 'nineteen with combined ratios of 99.199.4%. Current period catastrophe losses of $22,000,000 and $24,000,000 or six point five and three point six combined ratio points, principally related to Fort McMurray floods and Calgary hailstorms in the 2020. The impact of COVID-nineteen added $23,000,000 and $26,000,000 or seven point one and three point nine combined ratio points of losses to Northbridge's underwriting results in the 2020. In Canadian dollar terms, net premiums written by Northbridge in the second quarter and June 2020 increased by 914% in each of those respective periods, reflecting strong retention of renewal business, growth in new business and price increases noted across the group. Moving to Odyssey Group.
Odyssey Group reported underwriting profits of $1,000,000 and 14,000,000 with combined ratios of 99.899.2% in the second quarter and June 2020. That compared to underwriting profits of $27,000,000 and $68,000,000 and combined ratios of ninety six point six and ninety five point nine in second quarter and June 2019. Current period catastrophe losses of $40,000,000 and $93,000,000 represented four point six and five point four combined ratio points in the second quarter and six months twenty twenty. Those were higher than the current period catastrophe losses of $32,000,000 and $68,000,000 that represented four point one and four point five combined ratio points in the second quarter and June 2019. The impact of COVID-nineteen added $50,000,000 and $100,000,000 or five point seven and five point nine combined ratio points of losses to Odyssey Group's underwriting results in the second quarter and June 2020.
Odyssey Group's combined ratios in the second quarter and 2020 benefited from net favorable prior year reserve development of $17,000,000 and 59,000,000 That's one point nine and three point five combined ratio points, respectively. That compared to net favorable prior year reserve development of $4,000,000 and $40,000,000 which equated to zero point five and two point seven combined ratio points in the second quarter and 2019. Net favorable prior year reserve development in the second quarter and 2020 primarily reflected better than expected emergence related to U. S. Insurance, Euro Asia and Latin America, partially offset by net adverse prior year reserve development in North America.
Odyssey Group booked $935,000,000 and $1,800,000,000 of net premiums in the second quarter and June 2020, which represented increases of 9% in both those respective periods. The increase is principally reflected growth in The US insurance with increases noted in US crop, financial products, and professional liability line, growth in North America from US property and US casualty reinsurance, and in the growth in the London market. Moving on to Crum and Forster. Crum and Forster reported underwriting profits of 6,000,000 and 22,000,000 with combined ratios of ninety eight point nine and ninety eight point one in the second quarter and six months of twenty twenty. That compared to underwriting profit of $13,000,000 and $24,000,000 and combined ratios of ninety seven point five and ninety seven point six in the second quarter and June 2019.
Attritional current period catastrophe losses were $9,000,000 and $21,000,000 in the second quarter and June 2020 that represented about two combined ratio points in each of those respective periods, which was higher when compared to $4,000,000 and $9,000,000 or about one combined ratio point of the current period catastrophe losses in the second quarter and June 2019. The impact of COVID-nineteen added $17,000,000 and $20,000,000 or three and one point seven combined ratio points of losses to Crum and Forster's underwriting results in the second quarter and June 2020. Crum and Forster's net premiums written decreased by 3% in the second quarter, principally reflecting reduced exposure stemming from decreased economic activity associated with COVID nineteen. That was partially offset by strong price increases across the group. Net premiums written increased by 8% in the first six months of 02/2020, primarily reflecting growth in surety, credit and programs, and accident and health, partially offset by reduced exposure resulting from decreased economic activity associated with COVID nineteen.
Looking at Venus National. Venus National reported underwriting profits in the second quarter and six months of 2020 of $8,000,000 and $27,000,000 and combined ratios of 94.691%, which compared to underwriting profits of $28,000,000 and $68,000,000 with combined ratios of 84.581.4% in each of those respective periods in 2019. The underwriting profits in the second quarter and six months of twenty twenty included $20,000,000 and $48,000,000 or fourteen point five and fifteen point eight combined ratio points of net favorable prior year reserve development, which compared to $22,000,000 and $59,000,000 or twelve and sixteen point two combined ratio points in the second quarter and June 2019. The net favorable prior year reserve development in the second quarter and June 2020 principally reflected net favorable emergence related to accident years 2014 through 2019. Venus National wrote $116,000,000 and $370,000,000 of net premiums in the second quarter and 2020, which was lower than $154,000,000 and $427,000,000 of net premiums in those respective periods for 2019.
The decreases in net premiums written in 2020 primarily reflected lower payroll exposure due to the impact of COVID-nineteen and price decreases in their workers' compensation business. Looking at Brit. Brit in the second quarter and the 2020 reported underwriting losses of $63,000,000 and $60,000,000 with combined ratios of a 114.9 and a 107.3. That compared to underwriting profits of 17,000,000 and 29,000,000 with combined ratios of ninety six and ninety six point four in each of those same periods in 02/2019. Current period catastrophe losses of $20,000,000 and $32,000,000 represented four point eight and three point nine combined ratio points in the second quarter and six months of twenty twenty, which were higher than the current period catastrophe losses of $2,000,000 and $3,000,000 that represented less than one combined ratio point in the second quarter and June 2019.
The impact of COVID-nineteen added $103,000,000 and $128,000,000 or twenty four point five and fifteen point six combined ratio points of losses to BRIC underwriting results in the second quarter and June 2020. Excluding the impact of those COVID-nineteen losses, BRIC combined ratios in the second quarter and June 2020 was ninety point three and ninety one point seven. Net favorable prior year reserve development was higher in the second quarter and June 2020 at $20,000,000 and $34,000,000 or four point seven and four point two combined ratio points, principally reflecting better than expected claims experienced in 2017 to 2019 catastrophe events. Net favorable prior year reserve development was nominal in the second quarter and June 2019. BRIC's net premiums written increased by 75% in the second quarter and June 2020, reflecting growth in core lines of business generated by increases increased contribution from underwriting initiatives that were launched in recent years, primarily related to Brit's U.
S. Operations. And price increases were noted across most lines of business, and that was partially offset by reductions in noncore lines of business through active portfolio management. Turning to Allied World. Allied World reported profits of $14,000,000 and $48,000,000 in the second quarter and June 2020, with combined ratios of ninety eight percent and ninety six point three in each respective period.
That compared to underwriting profit of 13,000,000 and nil in the combined ratios of 97.9100% in the same periods in 2019. Current period catastrophe losses of $4,000,000 and $30,000,000 in the second quarter and June 2020 represented zero point six and two point four combined ratio points, principally related to the Australian bushfires and natural tornadoes, which compared to no catastrophe losses noted in the comparative periods of 02/2019. The impact of COVID nineteen added eighty three million or twelve point two and six point four combined ratio points of losses to Allied World's underwriting results in second quarter and June 2020. Allied World's underwriting profit in the second quarter and June 2020 benefited from $25,000,000 or 3.72 combined ratio points of net favorable prior year reserve development, reflecting better than expected emergence across all major business segments. This contrast to the second quarter and the first six months of twenty nineteen's net adverse prior year reserve development of $25,000,000 or 3.9 combined ratio points and $80,000,000 primarily reflecting deterioration in the Insurance segment.
Allied World contributed $791,000,000 and $1,600,000,000 to net premiums written in the second quarter and June 2020, representing year over year increases of twenty percent and fifteen percent, primarily due to improved pricing and growth across both the insurance segment and the reinsurance segment. Moving on to Fairfax Asia. Fairfax Asia reported nominal underwriting profit and underwriting loss of 1,000,000 with combined ratios of 99.4 and a 101 in the second quarter and six months of 2,020. This was slightly down from an underwriting profit of 1,000,000 and 2,000,000 and combined ratios of 97.998.4% in those same periods in 2019. The combined ratios in the second quarter and six months of twenty twenty included $5,000,000 and $9,000,000 or eight point one and eight point three combined ratio points of net favorable prior year reserve development.
That compared to $8,000,000 and $13,000,000 or seventeen point five and fourteen point three combined ratio points of net favorable prior year reserve development in the second quarter and June. The net favorable prior year reserve development of both years principally related to automobile, property, workers' compensation and marine loss reserves. Our insurance and reinsurance other segment produced underwriting profit of 2,000,010 million and combined ratios of ninety nine point three and ninety eight point three in the second quarter and six months of 2,020, which compared to an underwriting loss of 1,000,004 million with combined ratios of one hundred point three and one hundred point eight in the same period in 2019. Net favorable prior year reserve development of $16,000,000 and $25,000,000 in the second quarter and six months of twenty twenty reflected emergence across all segments. That compared to net favorable prior year reserve development of $19,000,000 and $21,000,000 in the second quarter and June, principally at Group Re, Bright Insurance, Fairfax Latam and Colonnade.
The impact of COVID-nineteen had a $22,000,000 $26,000,000 or eight point five and four point eight combined ratio points of losses in the insurance, reinsurance other segments underwriting results in the second quarter and six months and were primarily noted at Freight Insurance. Our U. S. Runoff segment, subsequent to the contribution of European Runoff to Riverstone Barbados on 03/31/2020, Starting from 04/01/2020, the operating results presented in our MD and A will include U. S.
Runoff only. Runoff reported operating losses of 16,000,000 in the 2020 compared to operating losses of 13,000,000 in the same period in 02/2019. Excluding the 2020 part seven transfer and a reinsurance transaction in the 2019, run off reported operating losses of $48,000,000 in the 2020, and that compared to operating losses of $36,000,000 in the same period of 2019. The operating results in the second quarter and six 2020 were impacted by the deconsolidation of European runoff as noted on 03/31/2020. And finally, a few comments on our non insurance companies reporting segment.
As presented in our MD and A, restaurants and retail reported a pretax loss before interest and expense and other in the second quarter and first six months of 2,020 of 44,000,000 and a $1,311,000,000, which included noncash impairment charges on right of use assets and finance lease receivables principally related to recipes, previously announced restaurant portfolio restructuring, additional COVID nineteen related impairments, and lower business volumes resulting from the impact of the COVID nineteen pandemic. The restaurants and retail reporting segment did not require any support from Fairfax during the first six months of 02/2020, and necessary credit facility amendments were put in place by those companies to ensure liquidity and covenant compliance will would be noted for the foreseeable future. The majority of their businesses are reopened as the lockdown restrictions and industries that they operate begin to be lifted. Now looking at the consolidated results for Fairfax, our consolidated interest and dividend income decreased year over year from $221,000,022 million and $458,000,000 in the second quarter and six months of twenty nineteen to $2.00 $5,000,000 and $423,000,000 in the 2020, reflecting lower dividend income earned on common stock and lower interest income earned due to sales and maturities of our U.
S. Treasury bonds in the 2019 that was partially offset by the reinvestment of the U. S. Treasury bond proceeds principally into higher yielding high quality corporate bonds and short term investments. Consolidated share of loss of associates is $23,000,000 and $228,000,000 in the second quarter and June 2020 compared to share profit of associates of $143,000,000 and $266,000,000 in the second quarter and June 2019, with the second quarter and 2020 reflecting cash impairment charges of 19,000,000 and 211,000,000, primarily on the company's investments in Quest, Resolute, and StartUp that we recorded in the 2020 and reflected share of losses on noninsurance associates from the economic effects of COVID nineteen.
That was partially offset by share of profit at Riverstone Barbados. And to note, the share of profit of associates in 2019 reflected a spin off distribution gain at IFL of $173,000,000 Our consolidated net gains on investments of six forty four million dollars in the second quarter and net losses on investments of $895,000,000 in the 2020 compared to consolidated net gains on investments of $449,000,000 and $1,200,000,000 in the second quarter and 2019. The increase in net gains in the 2020 reflected higher net gains on bonds, reflecting the tightening of the corporate credit spreads, partially offset by lower net gains on net equity exposures. Our net losses in the 2020 compared to net gains in the first six months of 'nineteen and reflected net losses primarily on our net equity exposure, and they were partially offset by higher net gains on our bonds. Fairfax recorded a provision for income taxes of 123,000,000 on pretax earnings out of the 22.3% effective tax rate in the 2020 and a recovery of income taxes of 110,000,000 on a pretax loss of 10.2 and effective tax rate in the first June 2020.
Finishing off with our financial position, Our total debt to total capital ratio, excluding the consolidated noninsurance companies, increased to 31.8 at June 30 from 24.5 at 12/31/2019, primarily reflecting increased total debt that related principally to our short term borrowings on our credit facility at the June that was $970,000,000 drawn and the April debt issuance of $650,000,000 and decreased common shareholders' equity principally related to the six month net loss. During the second quarter, the company repaid $800,000,000 on the credit facility, an additional $270,000,000 was repaid in July, leaving an outstanding balance of $700,000,000 drawn on the facility. At June 30, our book value per share was 435.11 compared to $486.1 at December 3139. That represented a decrease of 8.3 adjusted for a $10 per common share dividend that was paid in the 2020, but an increase in the since the 2020 of 3.1%. And now I'll pass it back over to you, Frank.
Thank you very much, Jan. We now look forward to answering your questions. Please give us your name, your company name, and try to limit your questions to only one so it's fair to everyone on the call. Okay, Ella. We're ready for the questions.
Thank you, speakers. We will now begin the question and answer To all participants who would like to ask questions, please press star followed by number one. Please unmute your phone and record your first and last name together with your company name because your first and last name and company name is required to introduce your question. Speakers, we got questions in the queue. Our first question is coming from the line of Jeff Fenwick from Cormark Securities.
Sir, your line is open.
Hi. Good morning, everyone. Hey. Goodbye, Jeff.
So so just firstly, I wanted to circle back to the COVID discussion. And I know this is a a bit of a fluid environment here, but it seems like when I when I speak to some of the other industry observers that the commentary that a lot of this is politically driven right now, less so than specific policy structures today. I'm just wondering what's your take on the exposure here? We think about it in terms of, you know, is the risk about having contract law change, which seems to be maybe a bit of a challenge, to get the courts to do that. Is it because Fairfax is focused on specific area of insurance, like event cancellation, and and maybe it were just not specific pandemic exclusions and the wordings of those policies?
Or is it more because a lot of this is international and maybe the legal regime there aren't quite as robust as they are in The U. S? So just any color you could offer there?
Yes. I think I think, Jeff, you're exactly right. In The US, contract law is very specific. We feel there's very little chance that business interruption will be provided that unless you have property damage. You need to have property damage, hurricane, earthquake, fire loss, and then you get business interruption, but not business interruption by itself with pandemic coverage.
So we think it's highly unlikely. There was many governors who are trying to seven, eight governors who are trying to do this, but I think the industry is very strong on this that it's not covered and no premium. And so unfortunately, those losses and we feel we feel for all of these smaller businesses who've perhaps gone bankrupt, but it's not covered and we never got any premium for it. So we feel very comfortable that will prevail. But internationally, as you point out, the contract not as contract law is not that straightforward.
And so we just have to wait and see. But at the end of the day, we provided, you know, 70% of our reserves are for COVID IBNR. You know, that's incurred but not reported. So so they're not specific to any cases. And so we feel we're well provided for it.
And as I said before, at the end of the day, as we look at 02/2020, we think we'll make an underwriting profit. That means a combined ratio below a 100%.
And if there is
an issue of just duration of these shut ins and and more businesses or more events being disrupted that that could factor in here? I mean, if if if this, you know, extends out longer, do you do you have more potential exposure that might require you to take incremental provisioning against this?
Yeah. If if you have a cancellation, for example, you know, if you go into 2021, then events that could be canceled, you know, because of the if you provided a cancellation insurance, then then he'll be exposed. But a lot of our exposures by the end of the first quarter twenty twenty one will be run off so that it doesn't continue right, Jeff, because of renewals. So so by the 2021, cancellation insurance exposure exposures will will run off. So this is unlike other catastrophes like hurricanes and earthquakes where you it comes, you know the damage, this is sort of what they call a life cat.
So it's continuing. And we provided our best estimate. We think it's a good estimate, but we recognize there's uncertainties in the next six months or year.
Okay. And when I strip away those charges in the quarter and the 91% combined ratio is quite a bit lower than what our fax has been running. I'm trying to get a sense of how much of this is from the more favorable pricing environment we've been seeing taking hold in a hard market versus perhaps a period of time here just with shut downs, shut ins, maybe just lower claims frequency overall helping you out? Maybe it's a bit of a onetime benefit to take the combined ratio lower. So what's the balance, do you think, between just robust pricing Yes. And
better price
That's a very good question, Jeff. And broadly speaking, for across our businesses, we haven't taken that into account. We haven't dropped our loss ratios, broadly speaking, which means, like, they're not reflecting the lower claims that you might see because of the shutdown. But we are seeing significant price increases, Jeff, like 10 to 30%. That's rate on rate.
We've had rate increases, but we are having rate increases again. We think these rates are in excess of loss cost loss cost trends. And it reminds me of 02/2001, you know, the September 11 when February, you had price increases in February. September 11 came into being, and then prices really took off in 02/1934. And in that time period, you might remember, we increased our premiums by a 100% for the whole company.
And we have we're thinking that this is a hard market. Our companies are well reserved. We're well capitalized. We've got a really good management team who've been with us for a long time. We have every plan, every expectation that we'll take advantage of that as we have in the past.
All right. Thank you for that color. I'll pass it along.
Thank you, Jeff. Next question.
Sure. Our next question is coming from the line of Tom MacKinnon from BMO Capital. Sir, your line is open.
Yeah. Thanks very much. Good morning, Prem. Good morning, everybody. Good morning, Tom.
Question about the movement of some money down into the into the subs, the insurance and the reinsurance subsidiaries. I wonder if you can elaborate a little bit more as to which ones you've been putting the money into. Has it been insurance or reinsurance or or runoff? Has it been in The US or Canada or Europe or any other jurisdiction? Jurisdiction?
And just perhaps a little bit more color as to why. I understand markets are firming and capital is needed to write business, but it is the but you also mentioned something about to just to manage, with respect to fluctuations in their investment portfolios. So maybe, if you can help us understand, the need to put money in, to subsidiaries in that regard as well.
Thanks. Yes. And thank you, John. So in our run off, it's very, very marginal increase in capital to run off operations. But I need to remember in Riverstone UK, it's separate.
We've got 60% of it, 40% is with almost separately capitalized. But in our in our insurance and reinsurance business, you've got you're you're having significant growth. Like, we're seeing rate increases. We're seeing, as I said before, and we're seeing significant growth. And then, of course, you've got the volatility of stock prices going up and down.
And so we want each of our companies to be really well capitalized to take advantage of these opportunities, and so that's what we've done. And the cash in our holding company term, that's the purpose for it. It's not meant for any investments. It's meant for supporting our companies through this hard market. The hard market is not gonna last for long, as you know.
Lasted the last time, picking September 11, three or four years. And so our companies, want them to be really well capitalized to take advantage of the opportunity.
Our next question is coming from the line of Mark Dwelle from RBC Capital Markets. Your line is open.
Hey. Good
morning. Hey. Good morning, Mark.
Good morning. Tom actually stole my first question, so I'll I'll I'll proceed to my second one. Kinda runs together. I noticed you made some partial repayment of the line of credit draws, but there's still a fairly substantial amount of that held at the holding company. Can you just talk about your thinking there, why you decided to keep the money?
Certainly, volatility in the markets has died down quite a bit. You did raise the money in April. So I would have thought most of that would have been repaid.
Yes. We do, I think, 1.8 and we've taken it down to 700,000,000. And so, you know, we just wanted to keep a large amount of cash in the holding company, and I think we got 1.9 at the June. And and so 700 of that is through our lines. It's for your lines.
That's why we have these lines, Tom. So it's very it's very much where we wanna keep it. Over time, we we wanna pay it off totally. Reduce it and add it to zero. But right now, we we thought we'd we're paying it off slowly.
As you said, you know, we've in the third quarter, in July, we paid $270,000,000 And so it's about $700,000,000 net. But over time, we'll reduce it even more and take it down to zero.
Okay. And then a question maybe for Jennifer. And I appreciate all the really good disclosures in Note six related to the investments in associates and the impairment assessments. Could you just talk about that in a little bit more detail? Several of these holdings, Eurobank is one that comes to mind, but there are others.
The fair value is pretty significantly below the carrying value. I'm just trying to understand the process, primarily as a way of understanding what might actually trigger the need for potentially a sizable impairment?
So let me just take a first crack at Eurobank, for example. We've had, Tom, Eurobank is a equity accounted investment now and we have some of our investments are consolidated. For example, Fairfax India and Africa and Recipe and Thomas Cook for you. I take all of the so you have these companies that are consolidated. And and so they that's just how the accounting works.
And Thomas Cook and companies like that, we've been on hold for a long time. Share prices fluctuate. Eurobank was at about, I think, the year at 92¢ and a drop to 40¢ in the first quarter, maybe even lower. And and nothing to do with the marketplace reflecting COVID nineteen, nothing to do with the bank. It's the finest bank in Greece.
And we expect that to come back in space. We began equity accounting equity accounting back position because we own the third at the end of the year. So if this thing lasts for, you know, two or three years and you look at impairments, but we feel pretty comfortable that we don't take we're very conservative in taking marking up our investments and we're similarly conservative and similarly, we don't react to things on a quarter by quarter basis. So we think over time, our investments have been marked appropriately. Jen, you wanna add to that?
Sure. That's fine. So, Mark, as you noted in note six, we go through the accounting standard requires you if you've got a publicly listed or or private company to provide a fair value and assess that for impairment anytime your carrying value, as Prem indicated on an equity accounted basis, is higher than that fair value. Not like your mark to market investments, we hold significant influence. So the the guidance allows you to look for what's called a value in use.
And I just wanna highlight that similar to our equity position in the six months ended, we haven't yet seen a rebound yet in a lot of these primary holdings that we have. So as an example, our Eurobank, as you noted, you know, the market hasn't come back yet and and fully rebounded to where it should be. So what we do is we look at the underlying cash flows of each of these companies for the next five years. You know, look at Seaspan or Atlas Atlas Corp as an example, very strong company underneath. It's just unfortunate that that stock price hasn't rebounded, so we take a five year view of those cash flows, apply a discount rate.
We we compare that to peers and its industry to make sure we're a reasonable range. And it's a longer term view on that, so there's no impairment taken in the second quarter as we can substantiate that carrying value. And just to note, you know, this is, as Prem noted, a more conservative view. It's almost like a mini consolidation that you do on one line because we have significant influence. So although we're looking at ones that are underwater, stuff like a Bangalore airport, we only carry it at 650,000,000, but fair value of 1.4.
We're not taking that fair value increment to our our book value per share either. So it is a very conservative view and a longer term view on the holdings of these positions.
Thank you, Jan. Any other questions there, Mark?
No. No. That was that that that was very helpful. Thank you for the the additional color on those.
Thank you, Mark. We'll we'll we presented for a little more time, Ella, so we'll continue the questions. Go ahead and ask the next question.
Sure. Thank you so much. Our next question is coming from the line of Jim Gloyn from National Bank Financial. Your line is open.
Thank you. Good morning. Hey. Good morning, Jamie.
I just wanted to drill down on the leverage, which ticked up a point or two across various metrics. Can you refresh my memory on which metric you're specifically focused on as it relates to credit rating agencies and what they're focused on in terms of maintaining or upgrading current BBB ratings. And then the follow-up to that is if you're significantly onside on the leverage, granted you do want to keep some capital for growing premiums in your subsidiaries, But why not be a little bit more aggressive here on the share buybacks?
Yes. So we are cautious on the share buyback right now, particularly with the opportunity in the insurance business and particularly given the fact that the hard markets don't last that long. But, Jimmy, in terms of there's so many definitions. All of the m best has a different definition than s and b, and we look at both. We look at gross debt to capital, but we also look at net.
So we keep a lot of cash. Unlike a lot of companies, we these are this is cash in the holding company as opposed to cash in the insurance company. We have lots of cash in the insurance company. But in the holding company, we keep a lot of cash. And if you take it on a net basis, which I always look at, you know, with with our leverage is not extensive.
And it's all bond other than the money that we use with the with the bank line. All of it is long term debt. And so we our financial position now, we think is very, very sound. And but the definitions, Jamie, vary. And sometime if you talk to Peter Clark, he might be able to give give you a sense for them.
Thank you. Okay, Jamie. Next question, please.
Thank you. Our next question is coming from the line of Christopher Gable from Individual Investor. Sir, your line is open.
Thank you. Good morning. My question relates to rate of dividend share buybacks. But first, I want to recognize the shares large investment purchased at around three twenty five level of stock earlier this year. Appreciate the vote of confidence in the greater alignment of economic to voting interest.
I'm going back to the 02/07/2018 AGM meeting when the suggestion was made that over time, see that we buy back the shares issued, member shares issued to for the Allied World acquisition. It's suffice it to say that that's been slower, almost slower than anticipated. We're three and a half years into it. And although when I'd ask, you the the answer was plausible, and that was, well, we're going to use the money to buy back minority interest and to fund operations. Well, fast forward a little bit, and I just looked this up yesterday.
Based on first quarter book value, Berkshire and current market price, Berkshire was selling at 1.3 times book. Martell was selling 1.4 times book. And Fairfax is at 0.7 times book, about one half, which is a tremendous buy on one side, but also not a good verdict by the market on the other. And I was wondering if the firm would consider using the have the subsidiaries fund their own expansion, recognize that it's a good market, but just said that they're adequately financed. Debt's cheap, and they're offset by asset financial assets on either side.
And that would free up cash to go into a more aggressive share buyback program. But currently, it appears to me anyway, that investors are, you know, voting with their feet and walking away from Fairfax. I just went back and checked on relative performance, and I can appreciate a bad couple of years or more than that. But it looks to me that, you know, I haven't been here ten years. I've been here about seven.
And Fairfax investors have had a lost decade. The share price in '2 in February 2009 is similar to the share price today. Suffice it to say that I'm sure that Berkshire and Markel have done considerably better. And I'm wondering what consideration may you and the management would give to an aggressive buyback program because I didn't really see it here that mentioned in the meeting in the presentation, and I don't see any other way out of this discount problem.
Thank you. So, Christopher, so I understand what your question. Let me just say that I I I just said that that our share price has been ridiculously cheap. I said that at the annual meeting. I said that in the first quarter.
Saying it again, and, of course, I've disclosed that I've taken advantage of it and bought as many shares as I could and to let everyone know it's ridiculously cheap. In thirty five years, we never know when the stock price is going up or down. We just know it's cheap. Is it gonna go up in the next six months? Or is it I bought it so that in the next five years, I think it'll be a terrific return.
And Fairfax is a company we've when we retire stock we're retire a ton of stock if it's available. But we have to be careful when we retire it in relationship to the potential we have in the insurance business, in terms of our financial positions, in terms of the uncertainty in the marketplace. So we have to take all of that into account. Our stock price is dirty, you know, and it and and I can tell you, and I don't know if it'll be six months or a year or when it'll go up, but it's gonna go up very significantly. And that's been my experience over thirty five years.
And to our shareholders, I say take advantage of it if you got the opportunity to, but otherwise, we just have to focus on the long term. So next question, Ella.
Thank you. Our next question is coming from the line of Chris Pearson from Davenport Asset Management. Sir, your line is open.
Hey. Good good morning, everyone. Thanks for taking the question. Not to be too redundant or beat a dead horse, but I just got a question on capital allocation and don't need you to review the answer you just gave, Prem, but maybe to expand upon that and just help us as shareholders with the math around writing insurance versus buying back stock. Given the 30% disconnected book value, how is writing insurance right now?
I understand the hard market, it's a great opportunity and these opportunities don't last very long, but how is that allocation of capital more accretive to shareholder value than buying back stock at these levels? Thank you.
Good question, Chris. First of all, we bought in the past significant amount of our stock. We continue to buy some shares in the last year or two. We bought quite a bit within our capability to buy the shares. In the past, we bought you know, I remember we bought 20% plus of our stock.
So we understand buying shares. We understand the ability to take advantage of them. Let me just tell you what happened in Odyssey way in terms of a hard market. Odyssey went from in 02/2001, it wrote about 800,000,000. It went to 2 and a half billion.
And it's that premium could expand it significantly. And its investment portfolios went from something like 2,000,000,000 to eventually about 8,000,000,000, 7 or 8,000,000,000 without any new money going in. And so if you're taking if you're taking a long term view, you're really building significant economic value when you expand in the at the right time. And that was the right time in 02/2001. We think it's the right time right now.
But your point's well taken about buying back stock. This is not something we're not thinking of all the time. Believe me. But we don't want to, as I said it before, at the expense of our financial position. And so we are always looking long term.
And but, yeah, we're looking at taking full advantage of our our share price as and when we can. Next question next question, Ella, and we'll we'll make it given the time, we'll make it the last question.
Okay. The next question is coming from the line of Junior Roth from Private Investor. Sir, your line is open.
Good morning, everyone. Two questions. So the first question is the BlackBerry convertible that you guys are gonna be doing at 1.75%. Isn't that too low, or is that because you guys are getting now the convertible at $6? And the question is Yeah.
Sorry. Yeah. Just on that question, it's because it's the conversion prices dropped to $6 a share. And and compared to their alternatives that the company had, that this is a very good alternative. Okay.
And the second question is the stocks that you guys bought in March, like Enron, Chevrolet, Google, have you guys sold any
of those positions? Or do we have
to wait till the next quarterly filings to see those? Yeah. Some of them we we're holding. Some of them have gone up significantly, and we're selling. So You know, we don't discuss the names because we might be buying or selling them.
And so but some of them have gone up quite significantly and up 40%, 50% and we've sold them. Okay. Thanks a lot. Thank you. Thank you very much.
Ella, I think that brings us to the end of our conference call. Thank you all for joining us on this call. We look forward to presenting to you on the after the third quarter. And thank you very much, Ella.
You're welcome. And that concludes today's conference. Thank you so much everyone for your participation. You may now disconnect. Have a
great day.