Reinsurance, Investments Decrease Fairfax Q2 Profit by 84%

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Fairfax Financial Holdings Ltd. said second-quarter profit fell 84 percent due to a charge at a subsidiary, and a writedown on investments.

For the three months ended June 30, profit was $27.6 million, or 84 cents a diluted share, the company said Thursday. That compared with net income of $168.1 million, or $8.92 a share, a year earlier.

Fairfax said its results included an $84.2 million pre-tax charge because its U.S. subsidiary, Crum & Forster, canceled a reinsurance contract. This led to a pre-tax underwriting loss at Fairfax’s insurance and reinsurance operations.

The company also recorded a $112.8 million impairment in the value of investments, “principally on common stock positions.” That led to net losses on investments in the quarter of $45.6 million, versus net investment gains of $230 million a year earlier.

Fairfax had posted big investment gains over much of the past year due to the rising value of credit default swaps in its portfolio, but said net gains on swaps sold in the quarter were just $22.9 million, while net mark-to-market losses on swaps were $12 million.

Credit default swaps are contracts that shift bond-default risk between two investors, or allow investors and speculators to bet on the direction of credit markets.

Fairfax said total revenue fell to $1.24 billion in the latest three-month period, from $1.67 billion a year earlier.

The company owns a majority of Toronto-based insurer Northbridge Financial Corp and other property and casualty insurers in the United States and Asia.

Separately, Northbridge Financial said on Thursday that it lost C$82.4 million in the second quarter, or C$1.67 a share, versus net income of C$116.7 million, or C$2.29 a share, a year earlier. It cited net investment losses and a sharply lower underwriting profit for the loss.

(Reporting by Lynne Olver; editing by Rob Wilson)