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Fairfax Financial back in the red in 2013; cites unrealized investment losses

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TORONTO - Fairfax Financial Holdings Ltd. (TSX:FFH) was back in the red in both the fourth quarter and full year 2013, reflecting what the property and casualty insurer were unrealized losses on its investment portfolio only partly offset by improved underwriting results.

Fairfax, which reports in U.S. dollars, says its full-year net loss was US$573.4 million or US$31.15 per diluted share, compared with a profit of $526.9 million or $22.68 per share in 2012.

In the fourth quarter of 2013, Fairfax had a net loss of US$5.5 million or 98 cents per diluted share, compared with net earnings of US$402.4 million or $18.82 in the fourth quarter of 2012.

"Our insurance companies had an outstanding year in 2013 ... with excellent reserving and record underwriting profits," chairman and CEO Prem Watsa said in releasing the results after markets closed.

Watsa said the company realized gains from our common stock portfolios of US$1.3 billion in 2013, adding that excluding all hedging losses and before mark to market fluctuations in its investment portfolio, Fairfax earned $1.9 billion in pre-tax income.

Including all hedging losses and mark to market fluctuations, however, the company "we reported a US$600-million after-tax loss for 2013," he said, adding that "we expect the unrealized mark to market losses to reverse in the future."

Meanwhile, Fairfax's common stock portfolios continue to be fully hedged and the company continues to be "soundly financed, with year-end cash and marketable securities in the holding company of $1.3 billion," Watsa said.

In its results, Fairfax said the combined ratio of the insurance and reinsurance operations was 92.7 per cent on a consolidated basis, producing an underwriting profit of US$440.0 million, compared with a combined ratio and underwriting profit of 99.9 per cent and $6.1 million respectively in 2012.

Net premiums written by the insurance and reinsurance operations increased by 0.2 per cent to just over US$6 billion from $5.99 billion in 2012.

Insurance and reinsurance operations produced operating income, excluding net gains or losses on investments, of $770.2 million, compared with $298.5 million in 2012, primarily as a result of the improved underwriting.

Interest and dividend income of $376.9 million decreased from $409.3 million in 2012, primarily because of large holdings of cash and short-term investments totalling some $8 billion as of Dec. 31, when subsidiary cash and short-term investments accounted for 31.8 per cent of the company's portfolio investments.

Net investment losses were US$1.56 billion versus net investment gains of $642.6 million in 2012.

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