2009 AGM Slide Presentation

8/14/2019 2009 AGM Slide Presentation

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Annual MeetinApril 15, 2009

1Note: All financial disclosure in this presentation is, unlessotherwise noted, in US$ and, except per share data, in $ millions


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Objectives

We expect to compound our book value per share over thelong term by 15% annually by running Fairfax and itssubsidiaries for the lon term benefit of customers

employees and shareholders at the expense of short term

profits if necessaryur ocus s ong erm grow n oo va ue per s are an

not quarterly earnings. We plan to grow through internalmeans as well as through friendly acquisitions

We always want to be soundly financed

We provide complete disclosure annually to our

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s are o ers


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Structure

Our companies are decentralized and run by the presidentsexcept for performance evaluation, succession planning,ac uisitions and financin which are done b or withFairfax. Cooperation among companies is encouraged to

the benefit of Fairfax in total omp e e an open commun ca on e ween a r ax an s

subsidiaries is an essential requirement at Fairfax

Share ownershi and lar e incentives are encoura edacross the Group

Fairfax head office will always be a very small holding

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company an no an opera ng company


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Values

Honesty and integrity are essential in all of our relationshipsand will never be compromised

We are results-oriented not olitical

We are team players no "egos. A confrontational style is

not appropriate. We value loyalty to Fairfax and our

We are hard working but not at the expense of our families

We always look at opportunities but emphasize downside

protect on an oo or ways to m n m ze oss o cap ta We are entrepreneurial. We encourage calculated risk-taking.

It is all right to fail but we should learn from our mistakes

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We will never bet the company on any project or acquisition

We believe in having fun at work!


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2006 2007 2008

. . .

Growth in Book Value per Share 53% 21%

Investments per Share 1,076$ 1,141$

Earnings per Share (diluted) 58.38$ 79.53$

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2008 Change in Book Value per

Share

23

11%

10%

8%

7%

6%

5%

5%

3%

3%

3%

3%%

(1%

)

(3%

)

(3%

)

(3%

)

(4%

)

(5%

)

(

5%

)

(6%

)

(7

%)

(7

%)

(8%

)

(8%

)

(9%

)

(9%

)

2%

)

3%

)

%)

%)

%) ) ) ) )

( (1(1(1(1(15

(16

(17%

(18%

(18%

)

(19%

)

(19%

)

(19%

)

(22%

)

(24%

)

(31%

)

(32%

)

7%

)

7%

)

) ( (

(43%

(48%

)

%)

7

(65

(

100%

)

SOURCE: Dowling & Partners, IBNR #12Fairfax and AIG calculated using the same methodology as Dowling & Partners, based on company data (AIG excludes government financing)


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U.S. P&C Insurance Companies

-5-Year Compound Annual Growth Rate

2003-2008

BVPS Share Price

1 Fairfax(1) 11.2% 11.5%

2 Chubb 11.0% 8.4%

rave ers . .

4 Markel Corp. 9.6% 3.4%

5 PartnerRe 8.7% 4.2%

6 Loews 8.2% 11.4%7 ACE Ltd. 8.0% 5.0%

8 Berkshire Hathaway 6.9% 2.8%

9 RenaissanceRe 5.5% 1.0%

10 White Mountains 3.9% (10.3%)

11 Leucadia National 2.2% 5.2%12 IPC Re 0.4% (5.1%)

13 Hartford (5.6%) (22.6%)

14 XL Ca ital 19.8% 45.6%

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15 AIG (49.5%) (52.7%)

(1) BVPS in U.S. dollars. Share price in Canadian dollars


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Compound Annual Growth Rate to 2008

Book Value Per Share

5 Years 10 Years 15 Years 23 Years

Rankin 1 4 1 1Growth Rate 11.2% 9.5% 17.0% 25.4%

5 Years 10 Years 15 Years 23 Years

Ranking 1 12 2 1

Number of

. . . .

9For Fairfax: BVPS in U.S. dollars. Share price in Canadian dollars


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Combined Net Return onRatio Earnings Avg. Equity

ort r ge 107.3% 46 3.6%

Crum & Forster (US GAAP) 114.6% 333 27.1%OdysseyRe (US GAAP) 101.2% 549 20.5%

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Crum &

Northbridge Forster OdysseyRe Consolidated

As Reported

Underwriting Loss (78.7) (177.2) (73.5) (457.7)

om ne a o . . . .

Adjustments

Foreign Currency Impact 52.8 - 45.8 99.1

Crum & Forster Reinsurance

Commutation and Lawsuit Settlement - 109.7 - 109.7

Hurricanes Ike and Gustav Losses 25.0 74.3 136.9 242.5

- - - .

Adjusted Underwriting Profit (Loss) (0.9) 6.8 109.2 106.0

Adjusted Combined Ratio 100.1% 99.3% 94.7% 97.6%

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Importance of Float

Unlike money management business (royalty on fundsmana ed results ains accrue to owners

Manage money with a long term perspective Underwriting profit (loss) = benefit (cost) of float

Float belongs to policy holders but income accrues toshareholders (with 100% or better combined ratios)

Benefit / Avg. Long Term

Underwriting Average (Cost) Canada Treasury

Profit / (Loss) Float of Float Bond Yield

1986 2.5 21.6 11.6% 9.6%

1996 (37) 1,089 (3.4%) 7.6%

2007 281 8,618 3.3% 4.3%

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2008 (458) 8,918 (5.1%) 4.1%

Weighted Avg. Financing Differential Since Inception 2.3%


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Importance of Float

Unlike money management business (royalty on funds,

Manage money with a long term perspective Underwriting profit (loss) = benefit (cost) of float

Benefit / Av . Lon Term

Float belongs to policy holders but income accrues toshareholders (with 100% or better combined ratios)

Underwriting Average (Cost) Canada Treasury Investment

Profit / (Loss) Float of Float Bond Yield Gains

1986 2.5 21.6 11.6% 9.6% 1

1996 (37) 1,089 (3.4%) 7.6% 91

2007 281 8,618 3.3% 4.3% 976

2008 (458) 8,918 (5.1%) 4.1% 1,559

Weighted Avg. Financing Differential Since Inception 2.3% $5.3B (cumulative)

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Hamblin Watsa Investment Performance

5 Years to 10 Years to 15 Years to

Dec. 31 '08 Dec. 31 '08 Dec. 31 '08

Common Stocks with Equity Hedge 12.2% 19.1% 16.1%

Common Stocks 1.5% 13.3% 12.3%. . .

Bonds 9.6% 9.3% 9.4%

Merrill Lynch U.S. Corporate Index 1.6% 4.4% 5.4%

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Source: Hamblin Watsa Investment Counsel - Annualized Rate of Return (%).

Notes: Bonds do not include returns from credit default swaps.

15 year investment performance includes portfolios managed by Hamblin Watsa which were not owned by Fairfax.

Past performance is no guarantee of future results.


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Other-Than-Temporary Impairment

- -

Crum &ForsterNorthbridge ConsolidatedOdysseyRe

OTTI 274 197 359 996

MTM 103 87 141 504

Total 377 284 500 1,500

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Subsidiary Growth in Book

-

Compound AnnualGrowth Rate

Northbridge 19.2%

Crum & Forster (US GAAP) 18.9%

OdysseyRe (US GAAP) 21.2%

Three excellent companies: Underwriting culture

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Total return investing


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-

1985 2008

Net Premiums Written 12.2 4,332Net Earnings (0.6) 1,474

Investment Portfolio 23.9 18,395

Common Shareholders' Equity 7.6 4,866

Per Share Growth

Book Value 1.52$ 278.28$ 183x

Share Price (C$) 3.25$ 390.00$ 120x

Investments 4.80$ 1,140.85$ 238x

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Net Premiums Written 2.44$ 247.74$ 102x


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International Diversification

For the Years Ended March 31

-

2002 2008 AverageGross Premiums Written 6 894

- . .

Net Income (2) 26

Investment Portfolio 23 626

Total Shareholders' Equity 21 264

Customers (millions) 0.0 3.5

Employees 116 5,570Offices 11 340

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Ownership Interest: 26%


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In USD millions 2002-20082002 2008 Average

ross rem ums r en

Combined Ratio 101.8% 65.9% 71.2%

Net Income (0) 27



Initial Investment: $32MM in 2001, no additional investment

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Combined Ratio 98.5% 158.9% 110.2%

Net Income 2 (14)



Cumulative Investment: $40MM

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Combined Ratio 79.7% 79.3% 85.6%

Net Income 1 3



Initial Investment: $11MM in 2008

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Combined Ratio 74.7% 68.4% 68.9%

Net Income 5 12




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ross rem ums r en

Combined Ratio 96.0% 106.1% 100.0%

Net Income 1 (11)




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2003 2004 2005 2006 2007 2008

Holdco Cash and

Marketable Securities $410 $567 $559 $767 $972 $1,564

Year End Year End Year End

2003 2005 2008Subsidiary Debt 784 933 910Holdco Obligations 1,587 1,610 1,058

Total Debt 2,371 2,543 1,968

Holdco Cash and Marketable Securities 410 559 1 555

Net Debt 1,961 1,984 413

Total Equity & Minority Interests 2,896 3,396 6,352

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Net Debt / Net Total Capital 40.4% 36.9% 6.1%

Total Debt / Total Capital 45.0% 42.8% 23.7%


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The Perfect Storm in the

2) Deleveraging taking place

3) U.S. economy and U.S. stock markets

Pessimism rampant

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U.S. Stock Valuations Back

Stock Market Capitalization as a Percentage of Nominal GDPMonthly - 1924 to Present

140%

160%

180%

100%

120%

40%

60%

80%

Average = 60.6%

0%

20%

26Source: Ned Davis Research Inc.


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Can the Japanese Experience Be

Nikkei 225 Index vs. Japanese 10-Year Gov't Bond YieldsMonthly - 1986 to Present

35,000

40,000

7%

8%

9%

25,000

30,000

5%

6%

5Index

nd

Yield

15,000

20,000

2%

3%

4%

Nikkei2

10-YearB

5,000

10,000

0%

1%

27

Bond Yields Nikkei 225


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Dow Jones Industrial Average vs.Long Term U.S. Treasury Yields

350

4005%

geld

200

250

300

3%

4%

us

trialAvera

.TreasuryYi

100

150

2%ow

JonesIn

ongTermU.

0

50

1%

1925 1927 1929 1931 1933 1935 1937 1939

28Source: Bloomberg and Hoisington Investment Management

Long Term U.S. Treasury Yield DJIA


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Long Term U.S. Treasury Rate

-

14%

12%Onset of Iron andBamboo Curtains

Fall of Berlin Wall

8%

4%

6%

Average = 4.24%

2%

GlobalmarketGlobal market Restricted market

29Source: Hoisington Investment Management

1872 1889 1906 1923 1940 1957 1974 1991 2008


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1-10 Year High Yield Spreads

1 600

1,800

2,000

ies

1,200

1,400

U.S.

Treasur

600

800

1,000

ad(bps)ove

200

400Sp

r

30Source: Merrill Lynch

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008


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1-10 Year Investment Grade Spreads

700

ies

500

U.S.

Treasur

300

ad(bps)ove

100Sp

r

31Source: Merrill Lynch

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008


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Results of Fairfax's CDS Portfolio Since Inception

16.0

18.0

20.0

2,500

3,000

billions

)

andCum

ulativ

($million

s)

12.0

14.02,000

SPortfolio(

ainsonSale

les

Proceeds

6.0

8.0

10.0

1,000

1,500

mountofC

t,Cumulative

eIncluding

S

2.0

4.0500

Notional

umulativeC

os

MarketV

al

.

31-Dec-04 31-Dec-05 31-Dec-06 31-Dec-07 31-Dec-08

C

Notional Amount of CDS Portfolio Market Value Realized Proceeds Cost


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U.S. Real Housing Price Index

-

220

180

200

32% decrease

140

160

100

120

Average = 101.2

124.21979122.1

1894123.9

60

80

33Source: Hoisington Investment Management and Robert Shiller, Yale University

1890 1899 1908 1917 1926 1935 1944 1953 1962 1971 1980 1989 1998 2007


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Fairfax Investment Portfolio

2007 2008

Government Bonds 50% 16%

Corporate Bonds 4% 7%Total Fixed Income 55% 43%

Yield 4.2% 6.9% (1)

Common Stocks 17%(2) 22%

Other Investments 7% 3%

Total 100% 100%

Total Investment Portfolio(3)

$19.1B $20.0B

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(1) Pre-tax equivalent yield

(2) Approximately 85% hedged(3) Includes holding company cash and marketable securities

C it l E i H P d d


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Capital Erosion Has Preceded

0%

'69 '73 '74 '00 '01 '02 '08P

-10%U.S. P&CSurplus

S&P 500

GAAP

-20%

-30%

Cumulative realpremium growth 16% 30%31%

Sources: Swiss Re, Thomson Financial, A.M. Best, Towers Perrin, Swiss Re Economic Research & Consulting 35-40%

n ree o ow ngyears


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3,000

2,500

Odyssey Re

Crum & Forster

2,000

m

sWritten

1,000

,

rossPremi

500

Soft Market Hard Market

36

0

1999 2000 2001 2002 2003 2004 2005

F i f S h


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Fairfaxs Strengths

1. Operations Disciplined operating management

reserving P&C Insurance Operations

United States large commercial operation across

the country

Asia Hon Kon Sin a ore Thailand and lar estprivate operation in India

Middle East Dubai and Jordan Eastern Euro e Poland

P&C Reinsurance Operations Worldwide To 5 broker reinsurer in the U.S. to

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20 in the world

F i f St th


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Fairfaxs Strengths

2. InvestmentsLong term, value-oriented philosophy

Worldwide

Stocks

Bonds

Distressed debt

erever va ue preva s

Many large successful investments like Zenith,, , .

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R d f th N t D d


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Ready for the Next Decade -

Our guiding principles have remained intact

Excellent long term performance

Demonstrated strengths

Strong operating subsidiaries focused onunderwriting profitability and prudent reserving

excellent long term returns

Well ositioned for the future

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2009 AGM Slide Presentation

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