Good morning, and welcome to Fairfax's 2020 first 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. At at time to ask a question, please press star one on your phone keypad. For time's sake, we ask that you limit your questions to one. 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, welcome to our call to discuss Fairfax's 2020 first quarter results. This call may include forward-looking statements. Actual results may differ, perhaps materially from those contained in such forward-looking statements as a result of a variety of uncertainties and risk factors, the most foreseeable of which are set out under risk factors in our base shelf prospectus, which has been filed with Canadian securities regulators and is available on SEDAR, and which now include the risk of adverse consequences to Fairfax's business, investments, and personnel resulting from or related to the COVID-19 pandemic. Fairfax disclaims any intention or obligation to update or revise any forward-looking statements, except as required by applicable securities law. I'll now turn the call over to our Chair and CEO, Prem Watsa.
Thank you, Derek. Good morning, ladies and gentlemen. Welcome to Fairfax's first quarter 2020 conference call. As always, I plan to give you some of the highlights and then pass the call to Jenn Allen, our Chief Financial Officer, for additional financial and accounting details. Before I do, in these unprecedented times, I want to begin by thanking the people on the front lines, our doctors, nurses in our hospitals, our grocery stores, our policemen, our utilities, and many other essential services in our lives that we take for granted, and who have put themselves in harm's way. I also wanted to thank our employees all over the world who are almost 100% working from home, not missing a beat in our business of providing outstanding service to our customers. I am very grateful to all of them. Coming now to our results for the first quarter.
Fairfax's net loss in the first quarter was $1.26 billion compared to net earnings of $769 million in the first quarter of 2019, primarily reflecting net unrealized losses on investments, a little better than our estimated net loss announced on April 14th, which equates to a net loss of $47.38, versus net earnings per share of $26.98 in 2019. Fairfax's book value per share decreased by 11.1%, adjusted for the $10 per share common dividend paid in the first quarter of 2020. Our book value dropped to $422 per share. Our insurance and reinsurance companies continued to have very good results with a strong combined ratio of 96.8% across the consolidated group, strong reserves, and producing an underwriting profit of $103 million in the first quarter. All of our major insurance companies generated combined ratios of less than 100%.
We've seen it at 88%, Allied World at about 94%, Northbridge at 96.5%, Brit 99.2%, Odyssey 98.5%, and Crum & Forster at 97.4%. A combined ratio includes about $84 million or 2.6 combined ratio points of COVID-19 losses. The majority of our losses remain in IBNR, as our companies have not seen a significant amount of reported claims to date. Each of our companies continue to monitor the situation closely. There is a lot of uncertainty around the effects of COVID-19 and the effect that it could have on our losses, driven by the fact that the lockdown continues to exist, and no one's completely sure how long this could last. Only time will tell, but we are comfortable that with $17 billion of well-diversified book of business, strong reserving, and a strong pricing environment, we will manage well through this unprecedented event.
For the quarter, operating income was strong at $ 226 million. We continue to grow by increasing underwriting profits and increasing our interest in dividend income. Net losses on investments were $1.5 billion, primarily resulting from the significant fall in equity markets in March 2020 due to the global economic disruption caused by the COVID-19 pandemic. It reverses a significant amount of the $1.7 billion net gains on investments we reported in 2019. Net losses on equities of $1.2 billion included unrealized losses on CIB, Kennedy Wilson, Atlas, and BlackBerry. Net losses on other, of $262 million, included unrealized foreign currency losses.
As we have mentioned many times in our annual meetings, 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. In the first quarter of 2020, we had a - 3.6% return on our investment portfolio. If you take a minute to look at page 188 of our Annual Report, that's page 188 of our Annual Report, last column, which shows the annual total return on our investment portfolios for the last 34 years. There were four years when we had a negative return. In each case, we rebounded significantly in the next year. From that table, you can see in 1990, we had a - 4.4% return; 1991, + 14.6%; in 1999, - 2.7%.
In 2000, +12.2%; i n 2013, -4.3%; 2014, +8.6%; in 2016, -2.2%; in 2017, +6.8%. Each time, people worried about our investments. Each time, they were proven wrong. In April 2020, we have already begun to recoup the unrealized losses of the first quarter. Our underwriting income continues to increase with a lower consolidated combined ratio and strong organic growth continuing at our companies. Our insurance and reinsurance business net written premium increased year-over-year by approximately 10%, (12% gross, 10% net), primarily due to growth in Northbridge, Odyssey, Crum & Forster, Allied World. Zenith is our only company not seeing premium increases as workers' compensation rates in the U.S. continue to decrease.
At the subsidiary level, very quickly, the change in net premiums written for the first quarter were as follows: Odyssey Re, Odyssey Group +8%; Crum & Forster +21%; Northbridge +20%; Zenith down 7%, Brit +3%; and Allied World +10%. We expect this trend to continue once we get past COVID-19 and the economy opens up. Now, we continue to look to put more of our cash to work in our insurance operation portfolios without reaching for yield or taking duration risk. The significant opening up in investment-grade spreads has allowed us to sell some of our treasuries and short-dated bonds and buy $2.9 billion in high-quality U.S. corporate bonds with an average yield of 4.25% and an average term of four years.
We now have an annual run rate of approximately $900 billion in interest and dividend income, and continue to focus on redeploying cash and increasing investment income from that base level. On March 31st, 2020, we contributed our wholly owned European Run-off group to RiverStone Barbados, a newly created entity jointly owned with OMERS. We received cash proceeds of $600 million and a 60% equity interest in RiverStone Barbados with a fair value of $605 million. We recorded a pre-tax gain of $117 million and deconsolidated the assets and liabilities of European Run-off that were classified as held for sale at December 31st, 2019. At March 31st, 2020, as discussed in our AGM, we had drawn solely for safety reasons approximately $1.28 billion from our four-year credit facility to protect our company and if these unprecedented, turbulent times continued for an extended period.
During the first quarter of 2020, the company provided $420 million of cash and marketable securities in capital support primarily to our insurance and reinsurance operations. Subsequent to March 31st, 2020, on April 29th, 2020, so about a month later, we completed a bond offering of $650 million, principal amounts of 4.625%, 4.58% unsecured notes due April 29, 2030, which is like a 10-year note. With this additional liquidity in this company, we now have repaid $500 million on our credit facility. We continue to have approximately $2.5 billion predominantly in cash and short-term securities in the holding company. This cash is invested in commercial paper, one to three months. We are not making any long-term investments with this cash. Some have mistakenly suggested we have. We have drawn on this line only for safety and expect to pay it back as the world gets back to normalcy.
All our large investments, like Fairfax India, Fairfax Africa, Recipe, and 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. Our cash as a holding company is to meet any and every contingency that Fairfax might face in this uncertain time period. You will remember we continue to hold CPI-linked deflation floor contracts with a notional amount of $87 billion, average remaining term to maturity of 2.9 years. We carry these contracts at only $55 million, and they do provide us with downside protection in the event of a catastrophic turn of world events.
As of March 31st, 2020, we have over $9 billion in subsidiary cash and short-term investments in our insurance portfolio, which is about 25% of our portfolio investments, to take advantage of opportunities that come our way. We have not reached for yields over all these years, and so we've got significant amounts of liquidity in our insurance company portfolios in our subsidiaries. With a run rate of over $17 billion in gross premium, a huge focus on underwriting discipline, a portfolio of approximately $37 billion, not including the RiverStone U.K. portfolio, which we will continue to manage, and our investment team operating in a stock picker's market, all grounded on our fair and friendly culture that we have built over 34 years, we expect to generate a 15% return for our shareholders over time. The best is yet to come.
I will now pass this call to Jenn Allen, our Chief Financial Officer. Jenn?
Thank you, Prem. Before I discuss the first quarter of 2020 results, I would like to begin by providing some context on the quarter from the perspective of the procedures performed to ensure we had addressed the global uncertainty created from the COVID-19 pandemic. On March 11th, the World Health Organization declared COVID-19 a pandemic. Globally, governments and businesses began to react. On March 24, the government of Ontario mandated the closure of all non-essential businesses in the province, effective at midnight. Fairfax's head office team had already started to work from home. We were well prepared to continue to operate effectively. Given the increase in global lockdowns, we looked to supplement our quarterly processes and procedures to address the uncertainty created by the current environment.
Our standard quarterly processes were expanded to ensure we had a good understanding around the known impacts, if any, on our subsidiaries' operations and our investment portfolio, as well as ensuring all of our subsidiaries were able to meet the reporting timelines and deliverables to Fairfax. Through questionnaires, supplemental data submissions, and various discussions with management of our operating companies, we were well prepared for the quarter. These early initiatives allowed Fairfax on April 14th, to issue a press release on our preliminary unaudited financial information and address questions on the company's first quarter results at our AGM on April 16th. Along with Fairfax's head office, all of our insurance and reinsurance companies and some of our non-insurance operations have been able to continue to operate at 100%, and we have benefited from our decentralized structure during these challenging times.
COVID-19 significantly impacted the global financial markets. These macro events can be seen in Fairfax's financial first quarter results. Now, looking specifically at the first quarter results. In the first quarter of 2020, Fairfax reported a net loss of $1.26 billion or a net loss of $47.38 per share on a fully diluted basis. That compared to the first quarter of 2019, when we reported net earnings of $769 million or $26.98 per share on a fully diluted basis, with the decrease primarily related to net unrealized losses on investments resulting from the significant decline in equity markets in March 2020, reflecting the global economic disruption caused by the COVID-19 pandemic.
Despite the decline in the global financial markets, we reported an increase of $15 million in underwriting profits by our insurance and reinsurance operations to $103 million or 96.8 combined ratio points from an underwriting profit of $88 million or a 97% combined ratio in the first quarter of 2019. The improved underwriting results reflected growth in net premiums earned of 11.5% and higher net favorable prior year reserve development, which increased to $96 million or 3 combined ratio points in the first quarter of 2020, from $50 million or 1.7 combined ratio points in the first quarter of 2019.
The combined ratio points of 96.8 in the first quarter of 2020 included COVID-19 losses of $84 million or 2.6 combined ratio points and higher attritional current period catastrophe losses of $106 million or 3.2 combined ratio points, which compared to $48 million or 1.6 combined ratio points current period cat losses in the first quarter of 2019. Looking to our operating company results and starting with Northbridge. Northbridge's underwriting profit of $12 million and a combined ratio of 96.5% in the first quarter of 2020 improved relative to its underwriting profit of $1 million and a combined ratio of 99.8% in the same period 2019.
The increase in underwriting profit principally reflected lower non-catastrophe loss experience related to current accident year across most lines of business, partially offset by net adverse prior year reserve development of $3 million or 1 combined ratio point, reflecting Northbridge's share of emergence from Canadian automobile insurance industry's Facility Association in the first quarter of 2020. That compared to net favorable prior year reserve development of $23 million or 8.3 combined ratio points in the first quarter of 2019. In Canadian dollar terms, net premiums written by Northbridge increased by 21% in the first quarter of 2020, reflecting price increases across the group, strong retention of renewal business, and growth in new business. Odyssey Group: In the first quarter of 2020, Odyssey Group reported an underwriting profit of $13 million and a combined ratio of 98.5%.
That compared to an underwriting profit of $41 million and a combined ratio of 94.3% in the same period last year. The decrease in underwriting profit principally reflected COVID-19 losses of $50 million or 6.1 combined ratio points in the first quarter of 2020 and an increase in attritional current period catastrophe losses, partially offset by decreased commission expense ratio and increased favorable prior year reserve development. Attritional current period catastrophe losses in the first quarter of 2020, totaling $52 million that translated into 6.4 combined ratio points were higher than attritional catastrophe losses of $36 million or 5 combined ratio points in the first quarter of 2019. Net favorable prior year reserve development of $42 million or 5.2 combined ratio points in the first quarter of 2020, principally related to better than expected emergence in U.S. insurance and reinsurance property catastrophe loss reserves.
That compared to net favorable prior year reserve development of $36 million or 5 combined ratio points in the first quarter of 2019, which primarily reflected better than expected emergence related to casualty and property catastrophe loss experience. Odyssey Group's net premiums written increased by 8.2% to $864 million in the first quarter of 2020 from $799 million in the first quarter of 2019, with the increase principally reflecting growth in North America, Euro Asia, and the London market, partially offset by a decrease in the U.S. reinsurance segment, primarily relating to timing of premium recognition in their U.S. crop insurance business. Moving on to Crum & Forster. Crum & Forster's underwriting profit increased to $16 million with a combined ratio of 97.4% in the first quarter of 2020 from an underwriting profit of $11 million and a combined ratio of 97.8% in the first quarter of 2019.
The increase in underwriting profit in the first quarter of 2020 principally reflected increased business volume, partially offset by increased commission expense reflecting growth in the accident and health specialty business unit, student books, and property catastrophe programs, which attract higher commissions. Current period catastrophe losses were marginally higher at $12 million in the first quarter of 2020 and added 1.9 points to Crum & Forster's combined ratio. That compared to the first quarter of 2019, when current period catastrophe losses were $5 million and added just under 1 combined ratio point. Crum & Forster's net premium written increased by 21% year-over-year, principally reflecting strong price increases across the group and growth in accident health, surety credit programs, and surplus specialty lines of business. Zenith National reported an underwriting profit of $20 million and a combined ratio of 87.9% in the first quarter of 2020.
That compared to an underwriting profit of $39 million and a combined ratio of 78.3% in the first quarter of 2019. The year-over-year decline in underwriting profit mainly reflected price decreases and lower net favorable prior year reserve development of $28 million or 16.8 combined ratio points in the first quarter of 2020 compared to $37 million or 20.5 combined ratio points in the same period 2019. Net premiums written by Zenith of $254 million in the first quarter of 2020 decreased by 7% year-over-year compared to net premiums written of $273 million in the first quarter of 2019, principally reflecting price decreases due to continuing favorable loss trends.
Brit reported an underwriting profit of $3 million and a combined ratio of 99.2% in the first quarter of 2020. That compared to an underwriting profit of $12 million and a combined ratio of 97% in the first quarter of 2019. The modest decrease in underwriting profit in the first quarter of 2020 principally reflected COVID-19 losses of $25 million or 6.2 combined ratio points and an increase in attritional current period catastrophe losses. That was partially offset by net favorable prior year reserve development and a decrease in attritional loss ratio. Attritional current period catastrophe losses in the first quarter of 2020, totaling $12 million and translating into 3 combined ratio points, were higher than attritional catastrophe losses of $1 million that translated into 0.3 of a combined ratio point in the first quarter of 2019.
Net favorable prior year reserve development of $14 million or 3.6 combined ratio points in the first quarter of 2020 primarily reflected better than emergence claims experience in property liability, marine liability, and a number of classes written by Brit's U.S. operations. Net premiums written of $448 million in the first quarter of 2020 increased by 3% year-over-year from $434 million in the first quarter of 2019, reflecting the positive impact of underwriting initiatives in prior years, growth in the existing core book of business and price increases. Moving on to Allied World. Allied World reported an underwriting profit of $34 million and a combined ratio of 94.3% in the first quarter of 2020. That compared to an underwriting loss of $13 million and a combined ratio of 102.3% in the first quarter of 2019.
The improvement in underwriting profitability in the first quarter of 2020 principally reflected no net prior year reserve development, that compared to net adverse prior year reserve development of $55 million, or 9.7 combined ratio points in the first quarter of 2020, partially offset by current period casualty losses in the first quarter of 2020. Catastrophe losses in the first quarter of 2020 totaled $26 million and translated into 4.4 combined ratio points, primarily related to the Nashville tornadoes and Australia wildfires. Net premiums written of $801 million in the first quarter of 2020 increased by 10% year-over-year, reflecting the impact of improved pricing and growth across both the insurance, primarily North American global market platforms relating to excess casualty, professional lines, and general property, and the reinsurance segments primarily related to casualty and professional liability treaties. Looking at Fairfax Asia.
Fairfax Asia reported an underwriting loss of $2 million and a combined ratio of 102.7% in the first quarter of 2020. Compare that to the first quarter of 2019 underwriting profit of $1 million and a combined ratio of 98.8%. Net premiums written by Fairfax Asia increased by 15% in the first quarter of 2020, reflecting growth at Falcon on its 25% quota share reinsurance participation on First Capital's net underwriting results. The insurance and reinsurance other segments produced an underwriting profit of $7 million and a combined ratio of 97.4% in the first quarter of 2020. That compared to an underwriting loss of $3 million and a combined ratio of 101.3% in the same period in 2019. The improvement in underwriting profitability principally reflected higher net favorable prior year reserve development of $9 million or 3.2 combined ratio points in the first quarter of 2020.
Compare that to $3 million or 1.1 combined ratio points in the first quarter of 2019 and a lower underwriting expense ratio. Excluding the impact of the 2019 acquisitions of ARX Insurance and Universalna, net premiums increased by 5% year-over-year. Finally, looking to Run-off. As Prem noted, on March 31st, 2020, the company contributed its wholly owned European Run-off group to a newly created joint venture entity, RiverStone Barbados Limited, for cash proceeds of $600 million and a 60% equity interest in RiverStone Barbados with a fair value of $605 million. OMERS jointly manages RiverStone Barbados and had contemporaneously subscribed for a 40% equity interest for cash consideration of $600 million, based on the fair value of European Run-off at December 31, 2019.
At March 31, 2020, the closing date of the transaction, Fairfax deconsolidated the assets and liabilities of European Run-off from its assets held for sale on the consolidated balance sheet and commenced applying the equity method of accounting to its joint venture interest in RiverStone Barbados. The company recorded a pretax gain on deconsolidation of European Run-off of $117 million. Excluding the first quarter of 2020 Part VII transfer and a reinsurance transaction in the first quarter of 2019 on a reinsurance transaction, Run-off reported an underwriting loss of $32 million in the first quarter of 2020, which was higher when compared to the operating loss of $23 million in the same period 2019. The increase in operating loss reflected decreases in net premiums earned and interest and dividend income.
That was partially offset by net favorable prior year reserve development in the first quarter of 2020 compared to net adverse prior year reserve development in the first quarter of 2019 and lower operating expenses. Now, looking at the consolidated results of Fairfax. Our consolidated interest and dividends modestly decreased from $236 million in the first quarter of 2019 to $218 million in the first quarter of 2020, reflecting lower dividend income earned on common stocks and lower interest income earned due to sales and maturities of U.S. treasury bonds in the second half of 2019, partially offset by the reinvestment of the U.S. treasury bond proceeds into higher yielding, high quality U.S. corporate bonds and short-term investments.
Consolidated share of loss of associates of $205 million in the first quarter of 2020 compared to share of profit of associates of $122 million in the first quarter of 2019, with the first quarter of 2020 reflecting a non-cash impairment charges of $192 million, primarily on the company's investments in Quess, Resolute, and Astarta. That compared to a significant share of the company's gain on Atlas Corp., formerly known as Seaspan , of $227 million in the first quarter of 2019.
Consolidated net losses on investments of $1.5 billion in the first quarter of 2020 principally reflected the company's net equity exposures that were negatively impacted by the decline in global financial markets caused by COVID-19 and produced net losses of $1.1 billion, primarily comprised of net losses on common stocks of $840 million, equity warrants and call options of $145 million, and long equity total return swaps of $72 million. Fairfax recorded an income tax recovery of $232 million at an effective tax rate of 14.3% in the first quarter of 2020, compared to an income tax provision of $183 million at an effective tax rate of 18.4% in the first quarter of 2019.
The effective tax rate difference from the 26.5% Canadian statutory rate in the first quarter of 2020 primarily reflected the impact of tax rate differential on income and losses outside of Canada, the change in unreported tax benefit losses and temporary differences, and that was partially offset by non-taxable investment income. Finishing off with our financial position, our total debt to total cap ratio, excluding the consolidated non-insurance companies, increased to 32.5% at March 31st from 24.5% at December 31st, primarily reflecting the short-term borrowings on the company's credit facility of $1.8 billion in decreased common shareholders' equity due to the net loss reported in the quarter. We ended the first quarter of 2020 with an investment portfolio that includes holding company cash and investments of just under $40 billion, which increased from the $39 billion at December 31st, 2019.
We had drawn $1.8 billion on the company's credit facility solely as precaution to support the insurance and reinsurance companies should it be needed as a result of the effects of the COVID-19 pandemic, and to allow them to continue to grow in the strong markets. Our non-insurance companies have an increased focus on liquidity during these uncertain times and have either drawn or have access to credit facilities which are non-recourse to the holding company. On April 29th, 2020, we completed an offering of $650 million principal amount of 4.625% unsecured notes that are due on April 29th, 2030, for net proceeds after commission expenses of $645 million. On April 29th, 2020, the company repaid $500 million of the amount drawn on its credit facility. That concludes my remarks, and Prem, I'll pass it back over to you.
Thank you very much, Jenn. 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 that it is fair to all in the call. Okay, Eunice, we are ready for the questions.
Thank you. We will now begin the question and answer session. To ask a question, please press star one. Please unmute your phone and record your name clearly once prompted. Your name is needed to introduce your question. To cancel your request, please press star two. One moment, please, as we wait for questions to queue up. Our first question came from the line of Jeff Fenwick of Cormark. Your line is now open.
Hi there. Good morning, Prem.
Hey, good morning, Jeff.
My first question had to do with the balance sheet. Taking into account the debt issue that you just completed, you still have, I would guess, about $1.2 billion drawn on the credit facility. I noticed in your disclosures there that on the covenant related to the maximum debt to capital, that you're getting pretty close to that maximum level. Is there something there that we should be thinking about that you may need to do to another step here to shift around that liquidity? Do you need to make some amendments to the covenants on that facility?
Yeah. Jeff, the way to look at it is we had $2.5 billion at the end of March. We drew $1.8 billion. There was $700 million. If we paid all of that line back, we'd have had $700 million. Since that time, we've issued $650 million of debt. We've gone over $1 billion that we like to keep in our holding company in cash. If we take that line to zero after the debt issue, we'd be through $1.3 billion, something like that. The credit line, when we drew it, of course, the bond markets were all closed. As I said, for safety, we wanted to draw that. We paid 36 basis points, as I said, at the AGM, and it's for unexpected events like what we went through in March.
As I said in our prepared remarks, over time, we want to, as the economies of the world, the U.S. has restarted now, we'll restart in a few weeks perhaps. I think next week India restart. As the economies of the world restart, and we get back to normal, we would expect to pay our lines down significantly. As you said, it's $1.2 billion, $1.3 billion right now, but over time, we'll take it down to zero as it was prior to COVID-19.
Your lenders are comfortable with your position, having drawn that, and versus where your balance sheet is today?
Yeah, very much, because all we have to do is just pay off a little bit off the line. We don't need $2.5 billion in cash in the holding company. All we have to do is take the cash and pay off. It's really net cash, right, Jeff? We've borrowed the money, and we've got it in cash. When I say cash, it's a commercial paper, like one month, two months, three months. It's very short. Our liability is short. The lines are like LIBOR- plus, and the investment is LIBOR- plus. We could turn around and pay off those lines anytime we want. We keep $2.5 billion because, as we get to normalcy, and as I said, we're already in the process of doing that, our lines will come down.
If you look at it on a net basis, meaning net debt to total capital of our insurance businesses, we're running at 23%, 24%. This is perhaps the way to look at it, because this cash is not going to be used for anything other than safety. It's sitting in our holding company, and we're not going to make acquisitions. We're not going to buy back any significant amounts of shares or do anything that's out of the ordinary. It's for safety. We're in a storm, going through the storm, and we want to have a lot of cash in the holding company. That's really all it is.
Okay. One question here on the COVID-19 exposures. I am just wondering if you should be thinking about, or how we should be thinking about, regulatory risk here. In your disclosures, you do say that some U.S. state insurance commissioners are taking some action to protect consumers. Are there changes here that could, in the near term, make the exposure maybe bigger than you might expect because of the regulatory change?
Yeah. The COVID-19 is still there, right? The economy hasn't totally opened up. Small business hasn't opened up. It's very clear, in the United States particularly, very clear that you have to have a property loss before you have business interruption. Now, in the U.S., there's some governors who want to retroactively make coverage for the COVID-19. There'll be a lot of lawsuits. There'll be some legal expenses for our companies. The whole U.S. industry will defend that right to the Supreme Court, and contracts are sacred in the United States, as I said at our AGM. We look at our exposures in our company, and we have not much. We have only Brit in London and Fairfax Asia, and all of these other places where we have insurance operations. We think our exposure is very limited.
In Brit, we have some cancellation insurance and we have some exposure there. When you look at our company, Jeff, $17 billion in gross premium, $13 billion, $14 billion in net premium, operating at 96%, 97% combined. Our underwriting profit itself is so significant that we think not only will we come through this handling our COVID-19 claims well, but we'll be one of the strong companies on the other side of it.
Okay. Thanks for that color, over to you.
Thank you. Thank you, Jeff. Next question, Eunice.
Next question is from the line of Junior Ra, private investor. Your line is now open.
Good morning, Prem. How's it going?
Hey, very good, Junior. How are you doing?
Pretty good, thanks. I have two questions. One question is about the short exposure on the balance sheet. What is that composed of? The second question would be, the stock price right now is under book value. What do you guys plan on doing to bring that back up? It seems like there's an investor confidence issue?
We've gone through periods in the past, Junior, where we've sold below book value. That said, that our stock prices are very cheap, so it won't be there long. Your answer to your second question is just performance. We're going to perform. We had a fluctuation in the first quarter. You had coronavirus; you had the price of oil come down. You had a shutdown, unexpected shutdown in the world's economy. You had great uncertainty, and extreme uncertainty creates panic. Stock prices have come down dramatically, not only of Fairfax, but stock prices in Canada, stock prices in the United States have gone through individual stock prices, and I'm really surprised. We're taking advantage of some of that. All over the world, by the way, the stock prices have gone down, because the economies have shut down.
We're increasing our interest in dividend income. It's running at $900 billion. I told you, we're taking it higher than that as time goes by. We got lots of cash and marketable securities on our insurance company portfolios. As I mentioned, if history is any guide, whenever we've had a decline in our investment portfolios, and in the first quarter, it's 3.6%, the next year, we've been significantly above. These are fluctuations we've faced over 35 years, and we expect to do well over time. In terms of the short position, this small remnants that we've decided not to short, this is the last remnant. It'll be gone soon.
Okay, thanks.
Thank you, Junior. Next question, Eunice.
Next question is from the line of Tom MacKinnon of BMO Capital. Your line is now open.
Yeah, thanks. Good morning, Prem.
Hey, good morning, Tom.
A question with respect to $84 million in COVID losses in the quarter. I was wondering if you might be able to give us a little bit more color as to what they were. Were they actually paid claims? Was it IBNR- related? You mentioned some cancellation stuff, I think at Brit, but it was in some of the other divisions as well. What was that related to, and maybe the jurisdictions it was related to?
Tom, good question. It's basically IBNR, Tom, and it's too early to get the claims. IBNR, we look through our book. All our companies go through the book of insurance, reinsurance, we put some in Brit. Brit decided to put some, Odyssey decided to put some, basically IBNR. When we look at cancellation insurance is one. Where does COVID-19 hit you? Cancellation insurance, credit insurance, travel insurance. We look through our exposures. We do have some cancellation insurance, mainly through Brit. In the total perspective of our business, it's small. When we look at Europe, where they don't have specific language against viruses and pandemics, there's more exposure there. We'd be very small on that. You're going to get some claims through because of the market volatility.
D&O, you'll get some directors and officers losses, and it'll depend on how long these markets stay down, and how they rebound, and what the effects are. There'll be some losses on that. There'll be some litigation expenses. In the main, the first quarter, we've been up 12%. In the AGM, I said, "No crystal ball, we're just looking at what the possibilities are." Second and third quarter will likely be down, and the fourth quarter will likely be up. We look at it, and it's different for each of our companies. Over the year, our best guess right now is flat, even though we're up 12%. In the end, likely we'd be up 10%, perhaps. Rates are still strong, and after this COVID-19, on the other side of it, rates will go up again because lots of companies have losses.
We had an 11% drop in book value. You look at any company in the U.S. that has equity exposures, and you'll see decreases of 16%, because we did. We went and looked, 16% down to 7.5%, 8%. We're in the range in terms of our drop in book value per share. As I said, Tom, in the past, and the past is no guarantee, of course, as you know. In the past, our stock positions have all come back pretty handsomely in the year to follow. We think these COVID-19 losses for us will be quite limited. The risk on the property side in the United States, business interruption through the governors that I talked about earlier, there is that risk.
We think it's minimal, but there is that risk that the governors will take it and try to change it. It's minimized by the fact that the U.S. government CARES Act, the Federal Reserve, have come and put so much money into the U.S. economy, more than 30% of GDP. More recently, the Fed came and said they were going to back $2 trillion in terms of all sorts of bonds they were going to buy, including some junk bonds. The small business is getting money, so it's not like they need the monies from business interruption. They've got other sources. We'll just have to wait and see. If the U.S. government did not respond, then perhaps it would be a little more serious. We feel comfortable at the moment, Tom, watching it very carefully, and the industry feels very comfortable.
We're part of the U.S. industry, of course. The industry association feels very comfortable.
Just as a follow-up, COVID-19 had some impact on insurance, but when you look at your non-insurance holdings, like the restaurants and retail, I'm thinking like Recipe or Thomas Cook, you may have felt a little bit of that in the first quarter, but you're certainly feeling the pain of COVID-19 in those investments in the second quarter and likely in the third as well. Do you have any comments with respect to what you're seeing there?
Yeah, that's a very good question. That's why I addressed it, because some of you are concerned that we'll need monies for Thomas Cook, or Fairfax India, or Africa, or Recipe, or any other. All of them, at the moment, you know, Fairfax India has got a couple of hundred million dollars of cash and marketable securities. Fairfax Africa has got $130 million, and l ines to draw on and on and on. Thomas Cook is basically net cash. They are of course, very much impacted, perhaps impacted for the rest of the year. The fellow who runs it, Madhavan, is prepared for it and reacted very significantly. There's no question he'll be there on the other side. Our Recipe as all of the restaurants are closed, and very soon in the next few weeks, they should start opening up. The question is, will customers come back?
You have to remember, people said the same thing in 2001, September 11th. After that, airlines were empty for some time, and we were all worried about security, and stadiums got securities, and convention halls got security, and buildings in New York and Toronto ultimately got tons of security. Here we think it's testing, and the big amount of testing which everyone's working on is like a pregnancy test. You get a test that's immediate, that you and I can take and know if you've got it or not. Remember, for more in Canada, numbers just came out, 79% of the deaths in Canada from COVID-19, 79% Canada, all of Canada, these are Health Canada statistics, were from long-term nursing homes. Most of us are not only going to survive, but we'll be able to handle it. You've got testing that's improving.
You're seeing it all over the place. You've seen Gilead, the treatment of this disease is improving. They've got all these medicines that are coming through. Remember, this is only a month now, a month and a half. You've got vaccines. Most people take vaccines a year, 18 months out. Well, Oxford University and AstraZeneca have said they're coming out in September. It's worked on monkeys. Their human trials will be all over in June, July, and they're ramping production up immediately. There's another, I think it was Pfizer that came out and said their human trials will be done in June. The vaccines are coming in. If you had a vaccine tomorrow, you'd feel very comfortable, right, Tom? The same thing with a test. If you had a pregnancy type test that we could all use, you'd feel very comfortable.
Well, the whole world is working on that. I know Abbott's working on it. Johnson & Johnson's working on it. All of the companies are working on it, and some of the brightest minds in the world. The incentives, particularly in the United States. This will change, and it will change significantly when it happens. The only problem is you can't say when it'll happen, and that's just something we have to live with.
Okay. Thanks for that, Prem.
Thank you, Tom. Next question, Eunice.
Thank you. The next question is from the line of Paul Holden of CIBC. Your line is now open, Paul.
Hi. Thank you. Good morning.
Good morning, Paul.
Two questions, both sort of related to balance sheet/regulatory capital. The first one would be around your target. Maybe remind us what your long-term target is for financial leverage, and given that you just recently raised $650 million of bonds, sort of what's the plan to get back to that target leverage ratio?
Yes. The way we look at it is net cash. I told you if it's net debt to total capital, we've always maintained cash in the holding company. We've had $1 billion for the past 10 years. Most rating agencies don't give us credit for that, but that's how we look at it. People look at it on a gross basis. A gross basis is about 34%, and we expect that to come down significantly, on a net basis, as I said, it's more like 24%. Our debt equity ratio, debt to total capital, will come down significantly as we pay that line down. That's what we plan to do over time. Once normalcy returns, we don't need $2.5 billion in our holding company. We just have it because it's for safety, for the uncertainty.
We can take it down significantly. We've already paid $ 500 million, as you know.
Understand. What you're saying is if you get it back to that, say, that net basis, but on a gross basis of 24%, you're comfortable operating at that level?
Yeah, very much. We expect it to come down over time.
Got it. Okay. Second question. You provided some capital to your insurance subs in Q1, as you have already highlighted. A question I frequently get is around the regulatory statutory ratios for those subs and capital adequacy there. Are there any sort of quantifiable measures you can provide us to give investors comfort that your insurance subs are indeed well-capitalized?
Yeah. We monitor each of them at different, if you're in Brit, it's different from the U.S. and Canada. We always want to keep extra capital in each of our companies. When we needed to put some money, as you mentioned, $400 million, I talked about that in the AGM. We put that money in. If any money's needed over the next year or so, we'll put some money in to make sure they have that excess capital in relationship to the insurance companies. Statutory, I think they will report at the end of May, so you'll be able to look at those statutory reports when they come out. Our insurance companies, we always want them to be well-capitalized, particularly in this time period when rates are increasing, and the environment's good for insurance business.
We have, probably fair to say, and I'm biased, so take this with a ton of salt, but probably fair to say that we have the best group of insurance companies ever in 35 years, and a really good group of presidents running it who've been with our company for the longest time. I mentioned that at the AGM. We've got $17 billion with the equity accounted interests in our Middle Eastern operations called GIC, the Greek operation, which is called Eurolife, and our Indian operation called Digit. We're pretty close to $20 billion. $20 billion U.S. all over the world, diversified, run by terrific management presidents, a very decentralized structure that we have, and g reat reserving. We reserved well. We expect to come out on the other side very strong.
Like we have in the past, take advantage of the high rates and find our business.
Great. Thank you.
Thank you very much. Eunice, next question.
Next question is from the line of Mark Dwelle of RBC Capital Markets. Your line is now open.
Yeah, good morning. I've got a couple of questions.
Hi, Mark.
The first question, maybe for Jennifer, I suppose. There were impairments in the quarter related to investments in associates. Can you talk through the process of how those were calculated and derived? When I look at the exhibit in, I think it's note six in the financials. I mean, I see quite a number of companies that have a fair value below carrying value. You only seem to have taken an impairment related to two or three of these. Could you talk through that process a little bit?
Yeah. Jenn, I'll take a quick crack at it, pass it on to you. What I mentioned, first of all, Mark, when you have a 35% drop in the stock market in March, 21 days, biggest drop since 1929, I think it was. A huge drop. You have to go through individual stock prices to see how significant the drop was. Sort of scattered, it didn't make a difference what stock it was, what company it was. The stock prices came down in a panic because of that extreme uncertainty. We expect a lot of that to come back. I look at these situations myself where we have a big difference between what we carry it at and, if it's an associate, what we carried and what the stock price is. For example, just to use one example, Seaspan.
The stock price has come down about 50% from the end of the year. Which, if you look at the company and examine it, other than the COVID-19 pandemic worry and the effect on the economy and all of that, it's very stable, run by terrific management. As much as we're talking here on this call, within a year, perhaps a little longer, it'll be back at that price and higher than that, because you've got some terrific management team running it. Some of those impairments that we took, we look at each one of them separately, and I'm involved in looking at it. Feel very comfortable. Let me pass it on to Jenn to give you the process as to how we went through it. Jenn?
Sure. Thanks, Prem. Mark, as you indicated on note six, we do give quite extensive disclosure around our investments in the associates. Particularly, if we look at the chart on table six, you can see that most of the drivers on that impairment really did relate to the discount rates that we had to change based off of current environments and looking at the underlying cash flows. Our process for COVID-19 was probably more robust than we would normally do on any given quarter. From the ones that Prem indicated that had just gone underwater, I would say mid-March, they were very strong performers up until the last couple of weeks. It didn't indicate that there was any long-term impairment on those investments. As you take Seaspan, for example, very strong company, was well above our carrying value at year-end.
We go through a very robust process on a quarter to look at those underlying; it's not a fair value concept, w e do disclose fair value, but it's a value in use. Which is a longer-term view, and looking at cash flows, speaking with management, understanding the operations, and implications. At that time, we knew there was no underlying impairments that we needed to recognize in the quarter on some of those other positions. We did focus on the ones that we have disclosed in the past, being the chart in note six. As we indicated, we did take an impairment of $ 192 million in the quarter.
Thank you for that.
Thank you.
I appreciate the extra color.
Thank you, Mark. Any other questions, Mark?
One other question.
Sure.
You already covered a number of topics related to the COVID-19 provision. I wanted to ask additionally, with respect to workers' compensation exposures, I guess I noticed that neither Crum nor Zenith set up any type of reserves at this point. Is there any color that you can give in terms of any exposure that those businesses might have to frontline workers or people involved in healthcare or things of that nature? To give a sense of perhaps what might be in the pipeline eventually, as the virus progresses?
We have a very limited exposure to employees providing direct patient care, and really no exposure to first responders, workers' compensation. This is at Zenith. Zenith, Mark, as you know, is really well-reserved and very conservative. Prices are going down, rates are going down, so that's why the business is going down. Their combined ratio, as you saw in the first quarter, was very good. They will be responsive to their customers in terms of deferring payments as some requirements by California from the California government. I must say, we have a really good management team there that will manage through this as we go through it. We have limited exposure at the moment, Mark, but we monitor it all the time, though.
Okay. Thank you. Thank you for the answers, and good luck on the upcoming quarter.
Thank you very much. Eunice, next question.
Next question is from the line of Jaeme Gloyn of National Bank Financial. Your line is now open.
Morning, Jaeme.
Thank you. Good morning. First question, I just want to maybe quantify some of the commentary that you provided around the exposure outside of the U.S. to business interruption, and then again to the workers' compensation. Were you saying it is limited or minimal? Should I interpret that as being less than 5% of the individual company's exposure or the consolidated exposure? How should I think about that in terms of quantifying the commentary?
It's tough to quantify, but the way we look at it is individually. If you look at workers' compensation and Zenith, we really do think it'll be manageable at their level. You put it at Fairfax and, if I can use the word, gets lost in the rounding, right? They write about $700 million in premium, we write $17 billion in premium in total, gross premium. That's what I meant, Jaeme.
Yeah. Let me probably ask it a little bit differently. When we think about catastrophes.
Yeah.
Generally speaking, the rule of thumb is around 1.5% of the global catastrophe is going to be Fairfax's share. We can look at COVID as being a global catastrophe. Would Fairfax's share of those estimates land at that 1.5%? Or would it be something significantly below that based on some of the commentary?
Yes. From all that we know, Jaeme, right now, significantly below. First of all, people have all sorts of numbers because it's ongoing; t he economy is still not totally opened up. I was just looking at Marsh McLennan, I think, came out with $ 10 billion on the low side, $ 140 billion on the high side. It's all guesstimates. With catastrophes, when you get a hurricane, you can really put some models on, and you can figure out the way it's gone, and you can get a pretty good sense for what the insured values are. Here, you're stabbing in the dark. Our thinking is from all the work we've done, we'll have some losses. Don't get me wrong. We'll have some losses, but we don't think it'll affect our underwriting profit. Let's put it that way. We expect to make an underwriting profit in 2020.
Okay, great. The losses taken to date, and your estimates to date, how far out did you look in terms of assessing event cancellation and travel cancellation? Is that a three-month, six-month, 12-month outlook that you took to arrive at those estimates?
For the rest of the year, I think, is the way to look at it, 2020. We'll have some cancellation losses, particularly at Brit. No question we'll have some losses there, because it's a Lloyd's business, right? A lot of it is done. We might get a little from Allied and a little from Odyssey, but small. The one that we'll get some more is in Brit. Again, as I said well within our ability to handle it as a company at Fairfax.
Thanks. One more just around the investment portfolio. You talked about this at the AGM, investing in some higher-yielding bonds. I'm seeing some increases in BB in particular, small on the grand scheme, but still an increase in BB, then also in the BBB space. Can you talk about some of the industries that you were investing in on the fixed income side? Then also, given your commentary around what seems to be a bullish outlook for the markets in general, why not be more aggressive in terms of utilizing some of that credit line and holding company cash to pick up some assets here, maybe at distressed levels?
Yeah. First of all, the holding company cash that we'll never use. That's just for safety. It's very inexpensive. The last time I said, I think we paid like 2.5%, and we put in commercial paper, and we get a little more than that, maybe 100 basis points. Some people, when we did the bond issue, they thought we were using that money to buy bonds. We're not buying bonds. We're buying commercial paper. It's literally cash. The way to look at it is we can take that money and pay it off tomorrow. There's no risk on that at all. In our insurance company portfolio, Jaeme, the spreads widened significantly in March. They've all come down now, as you know. When they widened, we didn't go down in quality. We were buying minimum would be like BBB +, but lots of As.
Where the spreads were. Disney was borrowing money at 50 basis points above five-year treasuries; t hey had to pay 250 basis points when they came in. Berkshire Hathaway, the energy company, came out, and they paid at 350 basis points, I think, above for five-year bonds, 350 basis points above five-year treasuries. We got 4.5% , but they were all very high quality in our minds, and we don't take rating agencies. We would do our risk analysis ourselves. Very high quality, good. Because we didn't reach for yield. Now we are seeing good opportunity. There's some secondary stuff. If you ask Brian Bradstreet, who leads the charge, he said $1.465 billion of that $2.93 billion in bond purchases in the insurance company portfolios, $1.465 billion of it was secondary, and $1.465 billion of it was brand new issues.
We still have a lot of cash in terms of bonds, as I mentioned, we're going to be looking at opportunity. There's lots of opportunity, we bought debt plus warrants, companies are comfortable giving us 25%, 30%, 40% of the company because they know we are not hostile, t hey're friendly, and we have a long-term view. This is a good time for us. We're selective, of course. Our investment team, led by Wade Burton, is looking at opportunities. If you have any anyone on the call, if you think we could be helpful, please let us know. Jaeme, thank you for that question. Eunice, next one.
Next question is from the line of Mikel Abasolo of Solo Capital Management. Your line is now open.
Yes. Thank you for taking my call, Mr. Watsa. Good morning.
Good morning, Mikel. You're welcome.
Yes. Thank you. I just wanted to ask you two quick ones. One is, looking at your airport in India, you marked up your holding in there last year with the Anchorage transaction. This year, you have not marked down to model other than for the foreign exchange exposure, and I wanted to ask you about that. My second question, if I may, is that I was wondering and taking a bit of a higher view and seeing how well it has worked for Fairfax, your position in bonds where you haven't reached for yield.
I was wondering if your stated goal of 15% annual rate of return isn't being counterproductive on the equity exposure of Fairfax, where perhaps you have been, I would say, perhaps guilty of what Ben Graham described as fair- weather investing, where you have purchased perhaps low-quality securities at times of favorable business conditions because of that urge to reach that 15% per year. Is that a correct assessment?
Mikel, both very good questions. On Bangalore International Airport, you've got an airport that has going from 30 million, 60 million in a few years, and then ultimately to 90 million. You have a purchaser buying 10% from us of our holding company for $2.7 billion. When you have an asset like that, to worry about COVID-19 or the fact that the Indian economy shut down, do you think that affects the long-term value of Bangalore International Airport, the third largest airport in India, with that type of growth? When Shanghai Airport might be at $20 billion, and other airports would be multiples of $3 billion. We don't think it has any impact at all, Mikel. The second point you make is a good point. We're very careful. That's why we're quite optimistic because stock prices are dirt cheap.
The markets might be high because of Microsoft and Amazon and all of these, but I'm looking at stock prices, actual stock prices of companies that I know, and there's a ton of them that are very cheap. That doesn't mean it won't go lower. It might go lower. Who knows? We think there's enough there that meets our Ben Graham, as you said, buying below intrinsic value and taking a long-term approach. As I began our prepared remarks, every year we've gone down, Mikel, the next year we've gone up. That's no guarantee that will happen, but we're hoping that'll be the case. Mikel, thank you for the question. Eunice, next question. Thank you.
Thank you. The next question is from the line of Mujib Kuya of Talage. Your line is now open.
Good morning. I have two questions. I just want to know, given the cash that you took from the credit line, what kind of doomsday scenario can we assume you're forecasting that you think you might need that cash?
Very simply, when we took that cash, the bond market won't open. Nobody could do a bond issue. By the end of April, we did a bond issue, $ 650 million, right? In March, if you were trying, there was 10 or 15 days there was no bond issue. No one could do a bond issue. The AAA company couldn't do a bond issue. The bond market opened up. It's opened up. Federal Reserve has been fantastic. The CARES Act has been huge. All of these things have the unprecedented COVID-19 that took place and an unprecedented shutting down lockdown of the world's economy changed when there was unprecedented activity by the U.S. government, the Federal Reserve. Never before have they done this. We were able to do a bond issue of $ 650 million.
Of course, the conditions now are much, much better. We just wanted to look and see how everything worked out, Mujib. We think over time, we'll pay the line out down significantly. At that time, there was a major amount of uncertainty, as I'm sure you noticed.
Thank you.
Any other questions? Yes. Thank you, Eunice.
Our final question is from the line of Iniya Shinde, individual investor. Your line is now open.
Thank you. Good morning, Prem. I was just wondering with the stock price being at, if you call it $0.65 on a dollar on a BV, and if you're expecting the dollar to grow at a 15% in the long run rate, are you looking at churning some of your investment portfolio cash into this opportunity, which obviously sounds like a very good opportunity to kind of go into? I'm just trying to get your views on that. Thank you.
Yeah, no. Thank you. That is a very good question. I have said publicly at the AGM and elsewhere that first order of priority, this is a company that is being built over the long term, long after I have gone. Number one is financial soundness. Number two is to make sure that because our insurance companies are in that growth mode right now, to make sure we have enough resources to support them. Finally, we always look at our stock price. We bought over 35 years. There was a time in the past where we bought 25% of our shares outstanding. We look at all of that, but not at the expense of the first two items, financial soundness and the ability of our insurance, reinsurance companies to take advantage of the opportunity. Thank you again for your questions.
Eunice, if there are no further questions, thank you all for joining us on this call. We look forward to the next one. Thank you, Eunice, for your work. Thank you very much.
You're welcome. Thank you, speakers. This does conclude today's conference call. Thank you all for participating. You may disconnect now.