Fairfax Finl Hldgs (TSX:FFH) released second-quarter financial results and hosted an earnings call on Friday. Read the complete transcript below.

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Summary

Fairfax Financial Holdings reported strong financial performance in Q2 2026 with operating income of $1.1 billion and net earnings of $1.4 billion. Underwriting income increased to $459 million, while interest and dividend income grew to $737 million.

The company executed significant transactions, including the sale of half its position in Poseidon for $1.9 billion, resulting in a realized gain of $838 million, and the privatization of Kennedy Wilson with a consortium. Fairfax also announced the upcoming privatization of Andrew Peller Ltd. and Sleep Country's acquisition of Sleep Number.

Fairfax's gross premium written in the insurance and reinsurance segments rose by 4.1% year-over-year to $9.4 billion. The combined ratio improved slightly to 93.1, indicating efficient underwriting practices. The international segment showed strong growth, particularly in Asia and LATAM.

Investment portfolio returns were positive, with net gains of $769 million driven by equity exposures. However, there were mark-to-market losses on bonds due to rising interest rates. The company maintains a conservative investment strategy with a focus on high-quality, short-duration fixed income assets.

Management highlighted the resilience of Gulf Insurance amid the conflict in Iran, noting minimal related losses. The company remains focused on long-term growth through strategic partnerships and disciplined underwriting.

Full Transcript

OPERATOR

Good morning and welcome to Fairfax Finl Hldgs' 2026 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. At that time, to ask a question, please press star one on your phone keypad. For time's sake, we ask that you limit your question 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 Peter Clark with opening remarks from Mr. Derek Beulis. Mr. Beulis, please begin.

Derek Beulis

Good morning and welcome to our call to discuss Fairfax Finl Hldgs' 2026 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+.

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 President and COO, Peter Clark.

Peter Clark, President and COO

Thank you, Derek. Good morning and welcome to Fairfax Finl Hldgs' 2026 second quarter conference call. I plan to give you some highlights and then pass the call to Wade Burton, our President and Chief Investment Officer of Hamblin Watsa, to comment on investments, and to Amy Shirk, our Chief Financial Officer, to provide some additional financial details. We had another strong quarter with operating income from our insurance and reinsurance companies adjusted to an undiscounted basis and before risk margin of $1.1 billion in the second quarter of 2026.

Underwriting income was solid at $459 million, up from $427 million in the second quarter of 2025. Interest and dividend income was $737 million, up from $660 million, and our profits of associates were $43 million, down from $131 million in the second quarter of 2025. In addition to our strong operating income, we also had strong net investment gains, $769 million in the quarter. As we have always said, we expect investment gains to perform well over the long term, but they do fluctuate from quarter to quarter.

Our net earnings for the second quarter were $1.4 billion and $2.1 billion for the first six months. Our book value per share at the end of the second quarter was $1,304, up 4.8% from year-end 2025, adjusted for our $15 dividend. During the quarter we purchased 680,000 shares for cancellation for $1.1 billion, or $1,601 per share. We closed two significant transactions in the second quarter of 2026: the sale of half our position in Poseidon for $1.9 billion, a pre-tax realized gain of $838 million, and we continue to hold the remaining half of our original position.

In June, with a consortium led by Bill McMorrow, we closed the privatization of Kennedy Wilson. We have been partners with Bill and his team for more than 15 years and have collaborated on more than $8 billion of real estate transactions over that time. We are very excited about the continued opportunities going forward and a big welcome to Bill and his team. In the quarter, we also announced the privatization of Andrew Peller Ltd. The Peller family has been a leading name in wine in Canada for generations and we are very pleased to partner with John Peller, Paul Duke Dykowski, their Chief Executive Officer, and the rest of the team.

We expect this transaction to close in the third quarter of 2026. Also in June, Sleep Country announced the acquisition of Sleep Number, a U.S. manufacturer and retailer of mattresses. Stuart Schaefer and his team have done an outstanding job working through this acquisition and at the closing of the transaction, Sleep Country will be the world's second largest sleep retailer with over 800 locations across Canada and the United States. Amy will provide some additional financial details on each of these transactions later.

With the conflict in Iran, members of the Fairfax family are once again, and unfortunately, facing difficult and dangerous circumstances. Gulf Insurance Group is ensuring that all employees in the Gulf region have the support they need to stay safe, which remains our first priority. While the duration of the conflict remains uncertain, Gulf continues to operate as usual under very challenging conditions and related losses have been minimal. Our thoughts and prayers are with our employees at Gulf.

I will now give you some additional detail on the components of our net earnings for the quarter. Our consolidated investment return was 2%, driven by interest and dividend income and strong net gains on investments, partially offset by lower profits of associates. Consolidated interest and dividend income of $737 million was up 11% year over year, benefiting from a growing investment portfolio and increasing government yields. Profits of associates of $43 million in the quarter was lower by $88 million from a year ago, driven by Helios Fairfax Partners' carrying value being lowered to its market price and from mark-to-market losses on the Waterous Fund. We continue to be very excited about the long-term prospects of both those companies; our other underlying associate companies continue to perform very well. Net gains on investments of $769 million were driven by gains on our equity exposures, including the realized gain on our sale of half of our position in Poseidon, offset by mark-to-market losses on our investment in Orla and unrealized losses on our bond portfolio, primarily from U.S. Treasuries due to the increase in interest rates in the second quarter. More on investments from Wade. As mentioned in previous quarters, our book value per share of $1,304 does not include unrealized gains or losses in our equity-accounted investments and our consolidated investments which are not mark-to-market at the end of the second quarter. The fair value of these securities is in excess of carrying value by $4.4 billion—an unrealized gain position, or $220 per share on a pre-tax basis.

This is a significant increase from a year ago at $110 per share and at year-end 2025 at $150 per share. In the second quarter, net earnings included a $103 million unrealized loss due to increasing interest rates in the quarter. This consisted of unrealized losses on our bonds of $122 million offset by the increase in discount under IFRS 17 on our insurance and reinsurance reserves held of $19 million. For the second quarter of 2025, this number was a net gain of $120 million.

This is a swing of over $220 million this quarter versus last quarter 2025. Our insurance and reinsurance businesses wrote $9.4 billion of gross premium in the second quarter of 2026; that is up 4.1% versus the second quarter of 2025. Our North American insurance segment's gross premium was up 3.5% or $81 million. Crum & Forster's premium was up 5.6%, primarily from its accident and health business, while premium was down across its excess and surplus segment, commercial lines, and at Seneca due to softening market conditions.

Zenith increased premium $18 million, or 10%, primarily from its expanding large account workers' compensation segment and through earned pricing increases, while Northbridge's gross premium was down 2.9% in Canadian dollars reflecting a competitive marketplace. Our global insurer and reinsurer segment was up 2.8% with gross premiums of $5.1 billion in the second quarter of 2026. Brit's gross premium was $947 million, up 5% in the second quarter of 2026 versus the second quarter of 2025, with the majority of the growth from the recent expansion of its Brit Re platform in Bermuda.

Odyssey Group's premiums were up 3.1%, with gross premium of $1.8 billion. Insurance premiums increased in its crop and healthcare business, while Odyssey's U.S. and Latin American reinsurance business was down due to a softening rate environment. Allied World premium was flat in the quarter with gross premiums of $2.1 billion. Their Global Markets division was up 9%, while its reinsurance segment was flat and its North American insurance premium was down 3% due to the competitive pricing.

Ki, developed within Brit, is in its second year operating as a standalone business. Ki's gross premium was up 15% in the second quarter of 2026, driven by property treaty, offset by open market North American business. In our international insurance and reinsurance operations, gross premiums were $2 billion, up 8.2% in the second quarter of 2026, benefiting from strong underlying growth and favorable movements of foreign exchange. Fairfax Asia was up 26%, Bryte was up 16%, LATAM 11%, and Gulf Insurance up 5.4%.

Offsetting this growth was Colonnade, down 8%, and Polish Re down 2%. International operations currently account for about 21% of our overall gross premium. Looking ahead, these operations offer strong long-term potential for sustained growth thanks to skilled management teams, emerging insurance markets, and robust local economies. Our combined ratio was 93.1 in the second quarter, with underwriting income of $459 million, compared to a 93.3 combined ratio and underwriting income of $427 million in the second quarter of 2025.

All our major insurance and reinsurance segments continue to post strong results with good underlying margins while remaining disciplined in a softening insurance market, especially in North America. For comparable purposes, our IFRS 17 combined ratio was 81.9% compared to 84.1% a year ago. Our global insurers and reinsurers posted a combined ratio of 92% and underwriting profit of $289 million. Allied World led the way with a combined ratio of 90.2.

Odyssey's combined ratio was 93.6. Brit had a combined ratio of 94.6, and Ki had an outstanding quarter with a combined ratio of 81.5, benefiting from favorable reserve movements. Our North American insurers had a combined ratio of 94.1 for the second quarter. Northbridge had another great quarter with a combined ratio of 89. Crum & Forster had underwriting income of $54 million for a combined ratio of 95.5, while Zenith, our workers' compensation specialist, after a couple years of above-100 combined ratios, posted a small underwriting profit at 98%.

Our international operations delivered a combined ratio of 95.2 for the quarter, with underwriting income of $55 million and all our international segments producing underwriting income. Colonnade in Eastern Europe had an excellent combined ratio of 87.7. Bryte continues to produce strong results with a combined ratio of 94, and Fairfax Asia had a combined ratio of 94.6, led by Singapore Re at 87.3. Gulf Insurance, the largest company under international operations, had a combined ratio of 99.3 in the second quarter, notwithstanding the difficult conditions from the war in Iran.

In the second quarter, our insurance and reinsurance companies recorded favorable reserve development of $152 million for a benefit of 2.3 points on our combined ratio. Each of our major segments recorded favorable reserve development. We are focused on setting our ongoing reserves at conservative levels, especially on long-tail lines of business. Through our decentralized operations, our insurance and reinsurance companies continue to produce strong results writing annualized gross premium of over $34 billion, with underlying margins remaining attractive in the main in spite of softening rates in many lines.

It is becoming more competitive, but we benefit from our size and scale and, more importantly, we have exceptionally long-term management teams that are all focused on the bottom line and have the experience to manage the cyclical nature of our insurance business. Our long-term approach enables our companies to stay disciplined, patient, and focused on profitability rather than top-line growth targets. I will now pass the call to Wade Burton, our President and Chief Investment Officer of Hamblin Watsa, to comment on our investments.

Wade Burton, President and Chief Investment Officer, Hamblin Watsa

Thank you, Peter, and good morning. Our investment portfolio ended the second quarter of 2026 at $77.3 billion. Fixed income made up $52.3 billion. Common and preferred stocks, including our TRS and real estate, came to $13.4 billion, and associate and consolidated investments ended the quarter at $11.6 billion. Within that fixed income portfolio, $8.5 billion was cash and short-term bonds, mainly U.S. T-bills, $32 billion was in government bonds, $6.1 billion in corporate bonds, and $5.6 billion in mortgages.

Credit quality remains outstanding. Over 75% is in government bonds, with the remainder in high-quality corporates and first mortgages. Duration is two years and the yield is 5%. We continue to earn good money on a safe, liquid fixed income portfolio. There are many moving parts in today's economic picture: a new, unproven Fed chair in Kevin Warsh, healthy but stable inflation, heavy fiscal spending, large deficits, the Iran war, tariffs, and steady wage and goods inflation.

One thing we're confident of: the days of zero and, in many cases, negative rates are behind us. The risk is tilted toward inflation running higher than expected, which favors our high-quality, short-duration fixed income portfolio. Within the $25 billion equity and equity-like portfolio, where our target return is 15%, we have $9.9 billion in common stocks, $6.6 billion in associates, and $4.2 billion in consolidated. Associates are investments like Eurobank and Poseidon, where we don't hold a controlling stake.

Consolidated investments are where we do hold a controlling stake. We also hold $4.4 billion in preferred shares, insurance associates, real estate, and derivatives, primarily our Fairfax TRS, which Peter's already covered. The vast majority of everything we own in our equity portfolio has three main threads: we like the people running the businesses, the companies are financially sound, and we're carrying them at values where we believe we can earn our 15% return.

Judged on these main criteria, the equity and equity-like portfolio is in a very strong position. The overall pricing of the portfolio is cheap. By that I mean either the stock trades cheaply as a publicly traded common stock, or we're carrying the consolidated investment at conservative values. But more importantly, our lineup of partners and CEOs has never been better—from Kevin Plank at Under Armour, David Sokol at Poseidon, Fakian Karavias at Eurobank, Evangelos Middle and Metlin, and Adam Watras at Greenfire and Strathtona Resources, just to name a few.

All world-class partners focused on making money for our shareholders. Last, a word on AI and software companies. First, AI. We've become heavy users of AI inside our company and it's added real multiples to our analytical productivity. That's good news. Second, software companies. We've studied a number of software companies that AI may put at risk. We haven't yet found one where we can point with certainty to long-term earnings power that makes it impossible to land on an intrinsic value we have confidence in.

So even though many software company prices have come down a lot, none have come down enough for us to invest. With that, I'll turn the call over to our CFO, Amy Shirk.

Amy Shirk, CFO

Thank you, Wade. I'll begin my comments by discussing some of our key transactions. On May 29, 2026, the company sold 23.1% of its 45.3% equity interest in Poseidon for cash consideration of $28.30 per share, or aggregate proceeds of $1.9 billion, which decreased the company's equity interest to 22.2%. Accordingly, the company recorded a realized gain of $838 million in the consolidated statement of earnings. The company continues to apply the equity method of accounting to the retained portion of its investment in Poseidon.

On June 16, 2026, all of the outstanding common shares of Kennedy Wilson not already owned by the company and certain senior executives of Kennedy Wilson, who together with the company form the consortium, were acquired by Kona Bidco, a newly formed holding company established by the consortium. Kona Bidco acquired the common shares of Kennedy Wilson for $10.90 per share in cash, funded principally by $1.3 billion of acquisition financing obtained by Kona Bidco.

Concurrently, the company invested cash of $400 million and also contributed its existing holdings in Kennedy Wilson preferred and common shares into Kona Bidco for Kona Bidco mandatorily redeemable preferred shares with a fair value of $716 million, which the company has classified as bonds, and Kona Bidco common shares with a fair value of $145 million, which the company has recorded as an investment in associates. Although the company received a majority economic interest through its Kona Bidco investments, it does not have control over Kona Bidco or Kennedy Wilson.

Accordingly, the company has concluded that it has significant influence over Kona Bidco and has commenced applying the equity method of accounting to its indirect equity interest in Kennedy Wilson. During the second quarter, the company closed out derivative contracts on 418,795 Fairfax subordinate voting shares with an original notional amount of $132 million, or C$172 million, and received cash of $517 million from its derivative counterparty upon settlement.

At June 30, 2026, the company continues to hold equity total return swaps on just over 1.3 million Fairfax subordinate voting shares with an original notional amount of $532 million, or $396.59 per share—that's C$674 million, or C$502.68 per share. The following transactions are expected to close in the second half of the year. On June 14, 2026, the company formed a consortium with John Edwards Enterprises, Inc., or JEEI, and then entered into an agreement to acquire all voting and non-voting shares of Andrew Peller Ltd. not already owned by JEEI for approximately $233 million, or C$330 million. Together with JEEI's shares, the consortium, which the company expects to consolidate, will own 100% of the equity of Andrew Peller Limited. Closing of the transaction is subject to shareholder, regulatory, and other conditions and is expected to be in the third quarter of 2026. On June 12, 2026, Sleep Country entered into an agreement to acquire the assets and assume certain liabilities of Sleep Number, a U.S. manufacturer and retailer of premium adjustable mattresses. Sleep Country will acquire Sleep Number for purchase consideration of approximately $530 million as determined through a Chapter 11 court-supervised bidding process that has now been approved. The purchase consideration will be funded by additional Sleep Country borrowings as described in Note 11 of our Q2 Interim Report, and closing of this transaction is subject to customary conditions and is expected to be today.

On May 7, 2026, Fairfax India entered into an investment agreement with IIFL Capital and its existing promoters to increase the company's equity interest in IIFL Capital through a series of transactions to a minimum of 51% for aggregate consideration of approximately $417 million, or 39.3 billion Indian rupees. Closing of the transaction is subject to customary closing conditions including regulatory approvals and is expected to be in the latter half of 2026.

Also on May 6, 2026, the company entered into definitive agreements on its previously announced transaction with Eurobank, pursuant to which Eurobank will acquire the company's 80% equity interest in the life insurance operations of Eurolife for cash consideration of approximately $930 million, or €813 million. The company will continue to maintain its 80% equity interest in Eurolife General, the property and casualty insurance business operated by Eurolife, and concurrently the company will purchase a 45% equity interest in Eurobank's Cyprus non-life insurance company ERBA for cash consideration of approximately $68 million, or €59 million, with an option to acquire the remainder of ERBA in the future. The proposed transactions are subject to regulatory approval and customary closing conditions and are expected to close in the third quarter of 2026. Now a few comments on our non-insurance companies' results. In the second quarter and first six months of 2026, non-insurance companies reported operating income of $194 million in the second quarter of 2026 compared to $126 million in the second quarter of 2025.

This primarily reflected higher operating income in our Other segment due to improved operating income at a majority of the operating companies and at Fairfax India, principally driven by increased share of profit of associates. Non-insurance companies reported operating income of $231 million in the first six months of 2026 compared to $85 million in the first six months of 2025, primarily reflecting higher operating income in the Other segment, principally driven by non-recurring, non-cash impairment charges recorded by Boat Rocker in the first six months of 2025 prior to its deconsolidation on August 1, 2025.

Looking at our share of profit from investments in associates in the second quarter and first six months of 2026, consolidated share of profit of associates of $43 million in the second quarter of 2026 principally reflected share of profit of $108 million from Eurobank and $33 million from the company's reduced share of Poseidon, all partially offset by a write-down of $92 million of Helios Fairfax Partners to its fair value and share of loss of $46 million from Waterous Energy Fund 3, a limited partnership investment that recorded unrealized mark-to-market losses on a publicly traded common stock holding.

Consolidated share of profit of associates of $414 million in the first six months of 2026 principally reflected share of profit of $237 million from Eurobank, $109 million from Poseidon, and $71 million from Waterous Energy Fund 3, partially offset by a write-down of $92 million of Helios Fairfax Partners to its fair value. I will close with a few comments on our financial condition, maintaining an emphasis on financial soundness. At June 30, 2026, the company held $2.3 billion of cash and investments at the holding company, has access to our $2 billion unsecured revolving credit facility, and an additional $2.2 billion at fair value of investments in associates and market-traded consolidated non-insurance companies. Its $2 billion unsecured revolving credit facility was undrawn at June 30. The excess of fair value over carrying value of investments in non-insurance associates and market-traded consolidated non-insurance subsidiaries was $4.4 billion compared to $3.1 billion at 12-31-2025, with the increased excess principally related to the company's investment in publicly traded Eurobank and the remaining shares held in Poseidon.

The pre-tax excess of $4.4 billion is not reflected in the company's book value per share but is regularly reviewed by management as an indicator of investment performance. The company's total debt to total capital ratio, excluding non-insurance companies, increased to 28% at June 30, 2026 compared to 26.2% at December 31, 2025.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.