Fairfax Financial's 2016 letter to shareholders

About this letter

V. Prem Watsa, chairman and chief executive officer of Fairfax Financial Holdings, signed this letter to shareholders on 10 March 2017; it is the chairman's letter in Fairfax's 2016 annual report. Watsa opens by calling 2016 the best of times and the worst of times. All of Fairfax's insurance groups had combined ratios below 100%, and the company announced or completed several acquisitions, including Allied World, yet it reported a 2016 loss of $512 million, the fourth loss in its 31 years.

The letter explains how that loss arose from decisions taken after the US presidential election on 8 November 2016, then reviews the insurance and reinsurance companies, the acquisitions, and investments in India and elsewhere. It also reports how book value per share and the stock price have compounded since Fairfax began, and the returns of its in-house investment manager.

What to notice

1. 1

   After the election Watsa removed all index hedges, some short positions, and cut bond duration to about one year, expecting lower taxes, lighter regulation and infrastructure spending to lift growth and long rates; the move produced a $1.2 billion net investment loss.

“we wanted to protect capital first before making a return”