Fairfax Financial’s Watsa Sees ‘Short-term Uncertainty, ‘Ultimate ‘Rewards’

Fairfax Financial Holdings Ltd. Chairman and CEO Prem Watsa warned that global stock markets are still subject to a lot of uncertainties. He told analysts during the company’s quarterly conference call Friday that the Toronto-based insurance and investment manager may have to weather this short-term uncertainty, but he believes Fairfax’s books could reap the rewards of buying during a downturn. “We think five years from now, if we have chosen properly, our book value will be up significantly because of the high quality stocks that we have purchased recently,” he stated.

The Company’s bulletin, which featured Watsa’s remarks, also noted that “Fairfax has made a series of acquisitions over the past year, even as a number of its major investments in struggling Canadian companies delivered poor results during the economic downturn or even went sour.

“Last year, Fairfax bought up the shares of Odyssey Re Holdings Corp. that it did not already own in a deal worth about $960 million. Then in the fall, its 22 per cent stake in Canwest failed when the company filed for creditor protection.”
Earlier this year Fairfax acquired all of the shares [it had a previously acquired 8.23 percent stake] of U.S. workers’ compensation specialist Zenith National Insurance Corp. for about US$1.4 billion, a deal that’s expected to close in the second quarter [See IJ web site – https://www.insurancejournal.com/news/national/2010/02/18/107455.htm].

Fairfax is in the rather comfortable position of being cash rich. It nonetheless raised additional funds to pay for the Zenith acquisition. Watsa defended the decision to keep $1.79 billion of cash in its portfolio, an increase from $1.25 billion in the same period last year. “The cash is there for safety – we always maintain a certain amount of cash in each of our insurance companies and also to be opportunistic,” he told analysts.”If we see opportunity come our way, we’ll look at deploying some of it.”

He added that “hanging onto cash was a prudent move, particularly when considering unforeseen losses, such as those caused by the Chilean earthquake, which had an effect on the latest quarterly results.”

Source: Fairfax Financial