Fairfax Financial's 2008 chairman's letter to shareholders

About this letter

Prem Watsa, chairman and chief executive of Fairfax Financial Holdings, wrote this letter to shareholders on 6 March 2009 for the 2008 annual report, which Fairfax filed with the SEC. He reports that 2008 beat the record set in 2007: Fairfax earned about $1.5 billion after tax, or $79.53 per diluted share, and book value per share grew 21.0% to $278.28. Over 23 years, book value had compounded at 25% a year.

The letter reviews the insurance and reinsurance subsidiaries, the purchase of Polish Re and stakes in two Middle Eastern insurers, management successions, and the decision to take Northbridge private. It discusses the insurance cycle, after an industry year in which almost 10% of capital was lost, sets out the float, reserving and the holding company's net cash position, and closes with a long section on investments and the financial crisis.

What to notice

1. 1

   Watsa says Fairfax met the fall 2008 storm with about 75% of its investment portfolio in cash and government bonds, its stock positions fully hedged and large holdings of credit default swaps.

“Forecasting doesn't count, building an ark does”