2023 Annual Report

2023 Annual Report

Fairfax Corporate Performance

(in US$ millions, except as otherwise indicated)(1)

As at and for the years ended December 31(3)

1. All share references are to common shares; Closing share price is in Canadian dollars; Per share amounts are in US dollars; Shares outstanding are in millions.
2. Calculated as common shareholders' equity divided by common shares effectively outstanding.
3. IFRS basis for 2010 to 2023; Canadian GAAP basis for 2009 and prior. Under Canadian GAAP, investments were generally carried at cost or amortized cost in 2006 and prior.
4. When current management took over in September 1985.
5. Book value per share and common shareholders' equity are restated as at January 1, 2022 for the adoption of IFRS 17 on January 1, 2023. See note 3 for details.
6. Restated for the adoption of IFRS 17 on January 1, 2023. See note 3 for details.

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FAIRFAX FINANCIAL HOLDINGS LIMITED

Corporate Profile

Fairfax Financial Holdings Limited is a holding company whose corporate objective is to build long term shareholder value by achieving a high rate of compound growth in book value per share over the long term. The company has been under present management since September 1985.

Property and Casualty Insurance and Reinsurance

North American Insurers

Northbridge Financial, based in Toronto, Canada, provides property and casualty insurance products in the Canadian market through its Northbridge and Federated brands. It is one of the largest commercial property and casualty insurers in Canada based on gross premiums written. In 2023, Northbridge's net premiums written were Cdn$2,895.4 million (approximately US$2,145 million). At year-end, the company had statutory equity of Cdn$2,610.4 million (approximately US$1,980 million) and there were 1,881 employees.

Crum & Forster, based in Morristown, New Jersey, is a national commercial property and casualty insurance company in the United States writing a broad range of commercial, principally specialty, coverages. In 2023, Crum

• Forster's net premiums written were US$3,902.3 million. At year-end, the company had statutory surplus of US$2,281.9 million and there were 2,543 employees.

Zenith National, based in Woodland Hills, California, is primarily engaged in the workers compensation insurance business in the United States. In 2023, Zenith National's net premiums written were US$755.1 million. At year-end, the company had statutory surplus of US$734.1 million and there were 1,447 employees.

Global Insurers and Reinsurers

Odyssey Group, based in Stamford, Connecticut, underwrites treaty and facultative reinsurance and specialty insurance, with principal locations in the United States, Toronto, London, Paris, Singapore and Latin America. In 2023, Odyssey Group's net premiums written were US$5,740.6 million. At year-end, the company had shareholders' equity of US$6,792.8 million and there were 1,427 employees.

Brit, based in London, England, is a market-leading global Lloyd's of London specialty insurer and reinsurer. In 2023, Brit's net premiums written were US$2,982.7 million. At year-end, the company had shareholders' equity of US$2,617.2 million and there were 911 employees.

Allied World, based in Pembroke, Bermuda, provides property, casualty and specialty insurance and reinsurance solutions, with principal locations in the United States, Bermuda, London, Singapore and Canada. In 2023, Allied World's net premiums written were US$4,839.5 million. At year-end, the company had shareholders' equity of US$5,670.0 million and there were 1,631 employees.

International Insurers and Reinsurers

Group Re primarily constitutes the participation by CRC Re, Wentworth and Connemara (all based in Barbados) in the reinsurance of Fairfax's subsidiaries by quota share or through participation in those subsidiaries' third party reinsurance programs on the same terms and pricing as third party reinsurers. Group Re also writes third party business. In 2023, Group Re's net premiums written were US$474.7 million. At year-end, the Group Re companies had combined shareholders' equity of US$741.4 million.

Bryte Insurance, based in South Africa, writes property and casualty insurance in South Africa and Botswana. In 2023, Bryte Insurance's net premiums written were ZAR 5.0 billion (approximately US$271 million). At year-end, the company had shareholders' equity of ZAR 3,028.4 million (approximately US$166 million) and there were 709 employees.

Eurolife General, based in Greece, writes general insurance in Greece and Romania. In 2023, Eurolife General's net premiums written were €64.9 million (approximately US$70 million). At year-end, the company had shareholders' equity of €66.2 million (approximately US$73 million) and there were 229 employees.

Gulf Insurance, based in Kuwait, writes general risk insurance and life and medical insurance across the Middle East and North Africa region through its subsidiaries. Gulf Insurance was consolidated on December 26, 2023. In 2023, Gulf Insurance's net premiums written were KWD 519.8 million (approximately US$1,691 million), including net premiums written from its life insurance operations which are reported within the Life insurance and Run-off reporting segment. At year-end, the company had shareholders' equity of KWD 236.3 (approximately US$769 million) and there were 3,664 employees.

Fairfax Asia

Falcon Insurance, based in Hong Kong, writes property and casualty insurance in niche markets in Hong Kong. In 2023, Falcon's net premiums written were HKD 666.4 million (approximately US$85 million). At year-end, the company had shareholders' equity of HKD 929.0 million (approximately US$119 million) and there were 66 employees.

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Falcon Thailand, based in Bangkok, writes property and casualty insurance in Bangkok. In 2023, Falcon Thailand's net premiums written were THB 726.1 million (approximately US$21 million). At year-end, the company had shareholders' equity of THB 1,032.9 million (approximately US$30 million) and there were 329 employees.

Pacific Insurance, based in Malaysia, writes all classes of general insurance and medical insurance in Malaysia. In 2023, Pacific's net premiums written were MYR 379.2 million (approximately US$83 million). At year-end, the company had shareholders' equity of MYR 541.2 million (approximately US$118 million) and there were 441 employees.

AMAG Insurance, based in Indonesia, writes all classes of general insurance in Indonesia. In 2023, AMAG's net premiums written were IDR 916.2 billion (approximately US$60 million). At year-end, the company had shareholders' equity of IDR 2,812.8 billion (approximately US$183 million) and there were 763 employees.

Fairfirst Insurance, based in Sri Lanka, writes general insurance in Sri Lanka, specializing in automobile and personal accident lines of business. In 2023, Fairfirst's net premiums written were LKR 6,016.0 million (approximately US$18 million). At year-end, the company had shareholders' equity of LKR 12,230.1 million (approximately US$38 million) and there were 921 employees.

Singapore Re, based in Singapore, underwrites general property and casualty reinsurance in the Asian region. In 2023, Singapore Re's net premiums written were SGD 196.1 million (approximately US$146 million). At year-end, the company had shareholders' equity of SGD 302.1 million (approximately US$229 million) and there were 72 employees.

Fairfax Central and EasteEurope

Colonnade Insurance, based in Luxembourg, writes general insurance through its branches in the Czech Republic, Hungary, Slovakia, Bulgaria, Poland and Romania and through its Ukrainian insurance company. In 2023, Colonnade Insurance's net premiums written were US$234.5 million. At year-end, the company had shareholders' equity of US$203.1 million and there were 657 employees.

Polish Re, based in Warsaw, writes reinsurance in the Central and EasteEuropean regions. In 2023, Polish Re's net premiums written were PLN 791.1 million (approximately US$189 million). At year-end, the company had shareholders' equity of PLN 590.9 million (approximately US$150 million) and there were 53 employees.

Fairfax Ukraine, which comprises ARX Insurance and Universalna, primarily writes property and casualty insurance in Ukraine. In 2023, Fairfax Ukraine's net premiums written were UAH 5,777.5 million (approximately US$157 million). At year-end, the company had shareholders' equity of UAH 3,222.1 million (approximately US$84 million) and there were 1,170 employees.

Fairfax Latin America

Fairfax Brasil, based in São Paulo, writes general insurance in Brazil. In 2023, Fairfax Brasil's net premiums written were BRL 866.0 million (approximately US$173 million). At year-end, the company had shareholders' equity of BRL 985.3 million (approximately US$203 million) and there were 328 employees.

Fairfax Latam, based in Miami, writes property and casualty insurance through its operating companies in Chile, Colombia, Argentina and Uruguay. In 2023, Fairfax Latam's net premiums written were US$346.3 million. At year-end, the company had shareholders' equity of US$184.1 million and there were 1,138 employees.

Life Insurance and Run-off

Eurolife, based in Greece, writes primarily life insurance in Greece and Romania. In 2023, Eurolife's net premiums written were €180.4 million (approximately US$195.1 million). At year-end, the company had shareholders' equity of €549.2 million (approximately US$607 million) and there were 212 employees.

The Resolution Group (TRG), based in Manchester, New Hampshire, manages run-off businesses in the U.S. under the RiverStone name. At year-end, TRG/RiverStone had shareholders' equity of US$414.2 million and there were 416 employees.

Other

Fairfax India Holdings is a Toronto Stock Exchange-listed investment holding company whose objective is to achieve long term capital appreciation, while preserving capital, by investing in public and private equity securities and debt instruments in India and Indian businesses or other businesses with customers, suppliers or business primarily conducted in, or dependent on, India. At year-end, the company had shareholders' equity of US$1,783.2 million.

Hamblin Watsa Investment Counsel, founded in 1984 and based in Toronto, provides investment management to the insurance, reinsurance and run-off subsidiaries of Fairfax.

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FAIRFAX FINANCIAL HOLDINGS LIMITED

Notes:

1. All of the above companies are wholly owned except for 90.0%-owned Odyssey Group, 86.2%-owned Brit, 83.4%-owned Allied World, 90.0%-owned Gulf Insurance, 85.0%-owned Pacific Insurance, 78.0%-owned Fairfirst Insurance, 96.7%-owned Falcon Thailand, 80.3%-owned AMAG Insurance, 70.0%-owned Fairfax Ukraine, 80.0%-owned Eurolife and Eurolife General, and Fairfax India Holdings (95.2% voting control, 42.5%-owned).
2. The foregoing lists all of Fairfax's operating subsidiaries (many of which operate through their own operating structure, primarily involving wholly-owned operating subsidiaries). The Fairfax corporate structure also includes a 47.7% interest in Thai Re (a Thai reinsurance and insurance company), a 15.0% interest in Alltrust Insurance (a Chinese property and casualty insurance company), a 35.0% interest in BIC Insurance (a Vietnamese property and casualty insurance company), a 49.0% interest in Digit (a digital insurance company in India), a 24.2% interest in Digit Life (a life insurance company in India) and a 7.3% interest in Africa Re as well as investments in a number of non-insurance-related companies. The other companies in the Fairfax corporate structure, which include a number of intermediate holding companies, have no insurance, reinsurance, run-off or other operations.

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FAIRFAX FINANCIAL HOLDINGS LIMITED

To Our Shareholders:

We had, by far, the best year in our history. Fairfax has transformed itself to become one of the largest property and casualty companies in the world with $32 billion1 in gross written premium, including the acquisition of Gulf Insurance. We posted a record underwriting profit of $1.5 billion and record net earnings of $4.4 billion, or $173 per share. Book value per share increased 25% to $940 a share. In the last three years, our book value per share has doubled and our stock price has almost tripled. More importantly, our adjusted operating income (undiscounted underwriting profit, interest and dividends plus income from associates) of $3.9 billion may continue at these levels for the next four years (more on this later).

Since we began in 1985, 38 years ago, our book value per share has compounded by 18.9% per year (including dividends) while our common stock price has compounded at 18.2% (including dividends) annually. Our success throughout our history, and again in 2023, has come under a decentralized structure with outstanding management executing a disciplined approach to underwriting.

The table below shows our growth since 2017, after we purchased Allied World. We have benefited greatly from a hard market in insurance that began in 2019.

We have more than doubled our premium since 2017 - and almost all the growth has been organic! We paid $4.2 billion for Allied World in 2017 (which had $3.1 billion in gross premiums at the time) and $1.6 billion for Brit in 2015 (with $2.0 billion in gross premiums at the time). That's $5.8 billion spent for $5.1 billion in gross premiums. But those assets have been instrumental in helping to drive $15.1 billion in added gross premiums in the last six years - at no cost. The build-up of intrinsic value, or the ability of our assets to drive future top-line and bottom-line growth is very significant, as shown in the table below:

As you can see, as a result of a more than doubling of gross premiums since 2017, our float has increased 53% and the investment portfolio is up 65%. Underwriting profit improved from a loss to $1.5 billion in profit, interest and dividend income has seen a threefold increase, profit from associates is up fivefold and adjusted operating income managed to swing from a loss to $3.9 billion profit. This is what I mean by the very significant increase in intrinsic value!

• Amounts in this letter are in U.S. dollars unless specified otherwise. Numbers in the tables in this letter are in U.S. dollars and $millions except as otherwise indicated. Some numbers may not add due to rounding. Certain of the performance measures and ratios in this letter do not have a prescribed meaning under IFRS Accounting Standards and may not be comparable to similar measures presented by other companies. See the Glossary of Non-GAAP and Other Financial Measures in the MD&A (MD&A Glossary) and the Appendix to Chairman's Letter to Shareholders (Appendix) for details.

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Of course, this has been magnified on a per-share basis as shares outstanding have decreased by 17% since 2017.

We can see sustaining our adjusted operating income for the next four years at $4.0 billion (no guarantees), consisting of: underwriting profit of $1.25 billion or more; interest and dividend income of at least $2.0 billion; and income from associates of $750 million, or about $125 per share after taxes, interest expense, corporate overhead and other costs. These figures are all, of course, before fluctuations in realized and unrealized gains in stocks and bonds!

On a per-share basis, our shareholders' equity or book value per share has increased 109% over the same period and the operating income of our insurance and reinsurance operations (before fluctuations in stock and bond prices) increased from a loss of $8 per share to a gain of $171 per share. To be clear, we expect to make significant profits from our common stock positions - but only in the long term! Remember we have $15.5 billion in common stock investments which we expect to realize significant profits over time. Since inception, we have made approximately $8.5 billion in common stock profits! Our operating income will give us a lot of stability going forward, but stock profits, even though lumpy, will be significant in the long term.

Here's how our insurance companies performed in 2023 (on an undiscounted basis):

We had record underwriting profit again in 2023 of $1.5 billion as all our major insurance companies had a combined ratio, in the mid 90s or below, despite absorbing catastrophe losses of $900 million. At 4 combined ratio points catastrophe losses were lower than the average 5.6 combined ratio points in the past decade. Our reserves continue to be very strong with favourable development in 2023 of $310 million, with average favourable development of more than $450 million annually over the last 10 years. Premium growth moderated in 2023 with gross premium up 5%, as our companies remained disciplined in writing only profitable business. Odyssey Group, for example, had a 3% decline in premium due to the non-renewal of a large-quota-share account over pricing. Profitable underwriting continues to be key at Fairfax, not just growing the top line!

In 2023, like in 2022, Northbridge and Allied World had the lowest combined ratios of 91% and 89%, respectively, with Allied World producing record underwriting profits. With gross premiums of $6.8 billion and $6.3 billion, respectively, Allied World and Odyssey Group were our largest companies.

Brit had an excellent combined ratio of 92% in 2023, almost making up for the cumulative underwriting losses we have had since we acquired them - in one year! Brit's premium dropped in 2023 as it reduced and rebalanced its catastrophe exposures and the benefits can be seen on the bottom line.

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FAIRFAX FINANCIAL HOLDINGS LIMITED

These record underwriting results were due to the outstanding Presidents and management teams we have at each of our decentralized insurance companies (26 in total). We list them here for you and the tenure of each of the Presidents.

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