EX-99.2 3 ffh-2019q3interimreport.htm 2019 THIRD QUARTER INTERIM REPORT Exhibit





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INTERIM REPORT
For the nine months ended
September 30, 2019




CONSOLIDATED BALANCE SHEETS
as at September 30, 2019 and December 31, 2018
(unaudited - US$ millions)
 
Notes 
 
 
September 30, 2019
 
December 31, 2018
Assets
 
 
 
 
 
 
 
 
 
Holding company cash and investments (including assets pledged for short sale and derivative obligations – $8.2; December 31, 2018 – $21.5)
5, 19

 
 
1,701.8

 
 
 
1,557.2

 
Insurance contract receivables
 
 
 
5,654.4

 
 
 
5,110.7

 
 
 
 
 
 
 
 
 
 
 
Portfolio investments
 
 
 
 
 
 
 
 
 
Subsidiary cash and short term investments
5, 19

 
 
10,262.2

 
 
 
6,722.0

 
Bonds (cost $16,312.1; December 31, 2018 – $19,281.8)
5

 
 
16,683.1

 
 
 
19,256.4

 
Preferred stocks (cost $239.6; December 31, 2018 – $327.2)
5

 
 
221.2

 
 
 
260.1

 
Common stocks (cost $5,794.6; December 31, 2018 – $5,014.2)
5

 
 
5,334.2

 
 
 
4,431.4

 
Investments in associates (fair value $3,360.3; December 31, 2018 – $3,279.1)
5, 6

 
 
3,995.2

 
 
 
3,471.9

 
Derivatives and other invested assets (cost $1,219.5; December 31, 2018 – $971.3)
5, 7

 
 
684.9

 
 
 
563.6

 
Assets pledged for short sale and derivative obligations (cost $94.0; December 31, 2018 – $164.8)
5, 7

 
 
94.3

 
 
 
164.6

 
Fairfax India and Fairfax Africa cash, portfolio investments and investments in associates
5, 19

 
 
2,629.5

 
 
 
2,562.9

 
 
 
 
 
39,904.6

 
 
 
37,432.9

 
 
 
 
 
 
 
 
 
 
 
Deferred premium acquisition costs
 
 
 
1,306.6

 
 
 
1,127.3

 
Recoverable from reinsurers (including recoverables on paid losses – $823.9; December 31, 2018 – $651.0)
8, 9

 
 
8,715.3

 
 
 
8,400.9

 
Deferred income taxes
 
 
 
309.5

 
 
 
497.9

 
Goodwill and intangible assets
 
 
 
6,203.6

 
 
 
5,676.9

 
Other assets
3

 
 
5,905.6

 
 
 
4,568.3

 
Total assets
 
 
 
69,701.4

 
 
 
64,372.1

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
3

 
 
4,828.3

 
 
 
3,020.0

 
Short sale and derivative obligations (including at the holding company – $2.8; December 31, 2018 – $6.6)
5, 7

 
 
92.7

 
 
 
149.5

 
Insurance contract payables
3

 
 
2,693.6

 
 
 
2,003.1

 
Insurance contract liabilities
8

 
 
36,662.0

 
 
 
35,353.9

 
Borrowings – holding company and insurance and reinsurance companies
10

 
 
5,648.7

 
 
 
4,855.2

 
Borrowings – non-insurance companies
10

 
 
2,134.2

 
 
 
1,625.2

 
Total liabilities
 
 
 
52,059.5

 
 
 
47,006.9

 
 
 
 
 
 
 
 
 
 
 
Equity    
11

 
 
 
 
 
 
 
 
Common shareholders’ equity
 
 
 
12,417.2

 
 
 
11,779.3

 
Preferred stock
 
 
 
1,335.5

 
 
 
1,335.5

 
Shareholders’ equity attributable to shareholders of Fairfax
 
 
 
13,752.7

 
 
 
13,114.8

 
Non-controlling interests
 
 
 
3,889.2

 
 
 
4,250.4

 
Total equity
 
 
 
17,641.9

 
 
 
17,365.2

 
 
 
 
 
69,701.4

 
 
 
64,372.1

 















See accompanying notes.

2



CONSOLIDATED STATEMENTS OF EARNINGS
for the three and nine months ended September 30, 2019 and 2018
(unaudited - US$ millions except per share amounts)
 
 
 
Third quarter
 
First nine months
 
Notes 
 
2019
 
2018
 
2019
 
2018
Income
 
 
 
 
 
 
 
 
 
Gross premiums written
17

 
4,211.6

 
3,763.6

 
13,273.6

 
11,763.0

Net premiums written
17

 
3,318.3

 
2,960.8

 
10,614.1

 
9,376.7

 
 
 
 
 
 
 
 
 
 
Gross premiums earned
 
 
4,159.1

 
3,853.3

 
12,341.3

 
10,964.5

Premiums ceded to reinsurers
 
 
(893.6
)
 
(788.5
)
 
(2,394.0
)
 
(2,158.0
)
Net premiums earned
17

 
3,265.5

 
3,064.8

 
9,947.3

 
8,806.5

Interest and dividends
 
 
214.9

 
193.7

 
672.4

 
582.6

Share of profit of associates
6

 
149.6

 
63.9

 
415.1

 
126.9

Net gains (losses) on investments
5

 
(96.7
)
 
41.2

 
1,075.8

 
917.2

Other revenue
17

 
1,392.6

 
1,077.4

 
3,889.2

 
3,144.6


 
 
4,925.9

 
4,441.0

 
15,999.8

 
13,577.8

Expenses
 
 
 
 
 
 
 
 
 
Losses on claims, gross
8

 
2,600.1

 
2,655.4

 
8,283.3

 
7,185.9

Losses on claims ceded to reinsurers
 
 
(488.5
)
 
(658.3
)
 
(1,759.0
)
 
(1,650.9
)
Losses on claims, net
18

 
2,111.6

 
1,997.1

 
6,524.3

 
5,535.0

Operating expenses
18

 
609.3

 
581.9

 
1,821.6

 
1,825.0

Commissions, net
9

 
560.8

 
529.6

 
1,624.8

 
1,497.4

Interest expense
3, 10

 
121.5

 
84.8

 
355.0

 
259.9

Other expenses
17, 18

 
1,452.8

 
1,027.4

 
3,880.5

 
3,049.7

 
 
 
4,856.0

 
4,220.8

 
14,206.2

 
12,167.0

Earnings before income taxes
 
 
69.9

 
220.2

 
1,793.6

 
1,410.8

Provision for (recovery of) income taxes
13

 
(4.5
)
 
71.0

 
325.1

 
139.7

Net earnings
 
 
74.4

 
149.2

 
1,468.5

 
1,271.1

 
 
 
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
 
 
 
 
Shareholders of Fairfax
 
 
68.6

 
106.2

 
1,332.1

 
853.6

Non-controlling interests
 
 
5.8

 
43.0

 
136.4

 
417.5

 
 
 
74.4

 
149.2

 
1,468.5

 
1,271.1

 
 
 
 
 
 
 
 
 
 
Net earnings per share
12

 
$
2.13

 
$
3.46

 
$
48.20

 
$
29.74

Net earnings per diluted share
12

 
$
2.04

 
$
3.34

 
$
46.23

 
$
28.83

Cash dividends paid per share
 
 
$

 
$

 
$
10.00

 
$
10.00

Shares outstanding (000) (weighted average)
12

 
26,851

 
27,419

 
26,926

 
27,566
























See accompanying notes.

3



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the three and nine months ended September 30, 2019 and 2018
(unaudited – US$ millions)
 
 
 
Third quarter

First nine months
 
 
 
2019

2018

2019

2018
 
 
 
 
 
 
 
 
 
 
Net earnings
 
 
74.4

 
149.2

 
1,468.5

 
1,271.1

 
 
 
 
 
 
 
 
 
 
Other comprehensive loss, net of income taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Items that may be subsequently reclassified to net earnings
 
 
 
 
 
 
 
 
 
Net unrealized foreign currency translation losses on foreign operations
 
 
(182.2
)
 
(149.3
)
 
(31.8
)
 
(577.8
)
Gains (losses) on hedge of net investment in Canadian subsidiaries
 
 
27.9

 
(36.2
)
 
(61.2
)
 
54.6

Gains (losses) on hedge of net investment in European operations
 
 
13.5

 
4.5

 
(26.3
)
 
43.3

Share of other comprehensive loss of associates, excluding net gains on defined benefit plans
 
 
(50.9
)
 
(24.5
)
 
(61.9
)
 
(36.6
)
 
 
 
(191.7
)
 
(205.5
)
 
(181.2
)
 
(516.5
)
Items that will not be subsequently reclassified to net earnings
 
 
 
 
 
 
 
 
 
Share of net gains on defined benefit plans of associates
 
 
6.7

 
6.4

 
25.2

 
8.4

 
 
 
 
 
 
 
 
 
 
Other comprehensive loss, net of income taxes
 
 
(185.0
)
 
(199.1
)
 
(156.0
)
 
(508.1
)
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
 
 
(110.6
)
 
(49.9
)
 
1,312.5

 
763.0

 
 
 
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
 
 
 
 
Shareholders of Fairfax
 
 
(49.7
)
 
(10.2
)
 
1,219.4

 
573.2

Non-controlling interests
 
 
(60.9
)
 
(39.7
)
 
93.1

 
189.8

 
 
 
(110.6
)
 
(49.9
)
 
1,312.5

 
763.0




 
 
 
Third quarter
 
First nine months
 
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
Income tax (expense) recovery included in other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax on items that may be subsequently reclassified to net earnings
 
 
 
 
 
 
 
 
 
Net unrealized foreign currency translation losses on foreign operations
 
 
(2.8
)
 
(0.4
)
 
(4.1
)
 
1.0

Share of other comprehensive loss of associates, excluding net gains on defined benefit plans
 
 
5.0

 
2.3

 
5.7

 
3.5

 
 
 
2.2

 
1.9

 
1.6

 
4.5

Income tax on items that will not be subsequently reclassified to net earnings
 
 
 
 
 
 
 
 
 
Share of net gains on defined benefit plans of associates
 
 
(1.1
)
 
(1.2
)
 
(4.3
)
 
(1.6
)
 
 
 
 
 
 
 
 
 
 
Total income tax (expense) recovery
 
 
1.1

 
0.7

 
(2.7
)
 
2.9


















See accompanying notes.

4



CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
for the nine months ended September 30, 2019 and 2018
(unaudited - US$ millions)
 
Subordinate voting
shares
 
Multiple voting shares
 
Treasury shares at cost
 
Share-based payments and other reserves
 
Retained earnings
 
Accumulated other comprehensive income (loss)
 
Common shareholders’ 
equity
 
Preferred stock
 
Equity attributable to shareholders of Fairfax
 
Non-controlling interests
 
Total equity
Balance as of January 1, 2019
 
6,855.2

 
 
 
3.8

 
 
 
(587.5
)
 
 
 
208.9

 
 
5,864.2

 
 
(565.3
)
 
 
 
11,779.3

 
 
 
1,335.5

 
 
 
13,114.8

 
 
 
4,250.4

 
 
17,365.2

Net earnings for the period
 

 
 
 

 
 
 

 
 
 

 
 
1,332.1

 
 

 
 
 
1,332.1

 
 
 

 
 
 
1,332.1

 
 
 
136.4

 
 
1,468.5

Other comprehensive income (loss), net of income taxes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net unrealized foreign currency translation losses on foreign operations
 

 
 
 

 
 
 

 
 
 

 
 

 
 
(7.6
)
 
 
 
(7.6
)
 
 
 

 
 
 
(7.6
)
 
 
 
(24.2
)
 
 
(31.8
)
Losses on hedge of net investment in Canadian subsidiaries
 

 
 
 

 
 
 

 
 
 

 
 

 
 
(61.2
)
 
 
 
(61.2
)
 
 
 

 
 
 
(61.2
)
 
 
 

 
 
(61.2
)
Losses on hedge of net investment in European operations
 

 
 
 

 
 
 

 
 
 

 
 

 
 
(26.3
)
 
 
 
(26.3
)
 
 
 

 
 
 
(26.3
)
 
 
 

 
 
(26.3
)
Share of other comprehensive loss of associates, excluding net gains (losses) on defined benefit plans
 

 
 
 

 
 
 

 
 
 

 
 

 
 
(43.6
)
 
 
 
(43.6
)
 
 
 

 
 
 
(43.6
)
 
 
 
(18.3
)
 
 
(61.9
)
Share of net gains (losses) on defined benefit plans of associates
 

 
 
 

 
 
 

 
 
 

 
 

 
 
26.0

 
 
 
26.0

 
 
 

 
 
 
26.0

 
 
 
(0.8
)
 
 
25.2

Issuances for share-based payments
 

 
 
 

 
 
 
26.9

 
 
 
(30.2
)
 
 

 
 

 
 
 
(3.3
)
 
 
 

 
 
 
(3.3
)
 
 
 

 
 
(3.3
)
Purchases and amortization for share-based payments
 

 
 
 

 
 
 
(104.3
)
 
 
 
55.4

 
 

 
 

 
 
 
(48.9
)
 
 
 

 
 
 
(48.9
)
 
 
 
3.9

 
 
(45.0
)
Purchases for cancellation
 
(61.8
)
 
 
 

 
 
 

 
 
 

 
 
(56.2
)
 
 

 
 
 
(118.0
)
 
 
 

 
 
 
(118.0
)
 
 
 

 
 
(118.0
)
Common share dividends
 

 
 
 

 
 
 

 
 
 

 
 
(278.0
)
 
 

 
 
 
(278.0
)
 
 
 

 
 
 
(278.0
)
 
 
 
(166.8
)
 
 
(444.8
)
Preferred share dividends
 

 
 
 

 
 
 

 
 
 

 
 
(34.2
)
 
 

 
 
 
(34.2
)
 
 
 

 
 
 
(34.2
)
 
 
 

 
 
(34.2
)
Acquisitions of subsidiaries
 

 
 
 

 
 
 

 
 
 

 
 

 
 

 
 
 

 
 
 

 
 
 

 
 
 
145.8

 
 
145.8

Deconsolidation of subsidiary
 

 
 
 

 
 
 

 
 
 

 
 

 
 

 
 
 

 
 
 

 
 
 

 
 
 
(466.2
)
 
 
(466.2
)
Other net changes in capitalization
 

 
 
 

 
 
 

 
 
 
(5.7
)
 
 
(93.4
)
 
 

 
 
 
(99.1
)
 
 
 

 
 
 
(99.1
)
 
 
 
29.0

 
 
(70.1
)
Balance as of September 30, 2019
 
6,793.4

 
 
 
3.8

 
 
 
(664.9
)
 
 
 
228.4

 
 
6,734.5

 
 
(678.0
)
 
 
 
12,417.2

 
 
 
1,335.5

 
 
 
13,752.7

 
 
 
3,889.2

 
 
17,641.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of January 1, 2018
 
6,901.6

 
 
 
3.8

 
 
 
(408.2
)
 
 
 
194.5

 
 
6,048.0

 
 
(264.1
)
 
 
 
12,475.6

 
 
 
1,335.5

 
 
 
13,811.1

 
 
 
4,600.9

 
 
18,412.0

Net earnings for the period
 

 
 
 

 
 
 

 
 
 

 
 
853.6

 
 

 
 
 
853.6

 
 
 

 
 
 
853.6

 
 
 
417.5

 
 
1,271.1

Other comprehensive income (loss), net of income taxes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net unrealized foreign currency translation losses on foreign operations
 

 
 
 

 
 
 

 
 
 

 
 

 
 
(354.8
)
 
 
 
(354.8
)
 
 
 

 
 
 
(354.8
)
 
 
 
(223.0
)
 
 
(577.8
)
Gains on hedge of net investment in Canadian subsidiaries
 

 
 
 

 
 
 

 
 
 

 
 

 
 
54.6

 
 
 
54.6

 
 
 

 
 
 
54.6

 
 
 

 
 
54.6

Gains on hedge of net investment in European operations
 

 
 
 

 
 
 

 
 
 

 
 

 
 
43.3

 
 
 
43.3

 
 
 

 
 
 
43.3

 
 
 

 
 
43.3

Share of other comprehensive loss of associates, excluding net gains on defined benefit plans
 

 
 
 

 
 
 

 
 
 

 
 

 
 
(31.5
)
 
 
 
(31.5
)
 
 
 

 
 
 
(31.5
)
 
 
 
(5.1
)
 
 
(36.6
)
Share of net gains on defined benefit plans of associates
 

 
 
 

 
 
 

 
 
 

 
 

 
 
8.0

 
 
 
8.0

 
 
 

 
 
 
8.0

 
 
 
0.4

 
 
8.4

Issuances for share-based payments
 

 
 
 

 
 
 
29.2

 
 
 
(26.8
)
 
 

 
 

 
 
 
2.4

 
 
 

 
 
 
2.4

 
 
 

 
 
2.4

Purchases and amortization for share-based payments
 

 
 
 

 
 
 
(169.8
)
 
 
 
49.1

 
 

 
 

 
 
 
(120.7
)
 
 
 

 
 
 
(120.7
)
 
 
 
1.9

 
 
(118.8
)
Purchases for cancellation
 
(33.5
)
 
 
 

 
 
 

 
 
 

 
 
(36.6
)
 
 

 
 
 
(70.1
)
 
 
 

 
 
 
(70.1
)
 
 
 

 
 
(70.1
)
Common share dividends
 

 
 
 

 
 
 

 
 
 

 
 
(283.2
)
 
 

 
 
 
(283.2
)
 
 
 

 
 
 
(283.2
)
 
 
 
(155.2
)
 
 
(438.4
)
Preferred share dividends
 

 
 
 

 
 
 

 
 
 

 
 
(33.8
)
 
 

 
 
 
(33.8
)
 
 
 

 
 
 
(33.8
)
 
 
 

 
 
(33.8
)
Acquisitions of subsidiaries
 

 
 
 

 
 
 

 
 
 

 
 

 
 

 
 
 

 
 
 

 
 
 

 
 
 
(5.2
)
 
 
(5.2
)
Deconsolidation of subsidiary
 

 
 
 

 
 
 

 
 
 

 
 

 
 

 
 
 

 
 
 

 
 
 

 
 
 
(212.5
)
 
 
(212.5
)
Other net changes in capitalization
 

 
 
 

 
 
 

 
 
 
(11.8
)
 
 
(181.2
)
 
 
9.5

 
 
 
(183.5
)
 
 
 

 
 
 
(183.5
)
 
 
 
(159.0
)
 
 
(342.5
)
Balance as of September 30, 2018
 
6,868.1

 
 
 
3.8

 
 
 
(548.8
)
 
 
 
205.0

 
 
6,366.8

 
 
(535.0
)
 
 
 
12,359.9

 
 
 
1,335.5

 
 
 
13,695.4

 
 
 
4,260.7

 
 
17,956.1














See accompanying notes.

5



CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three and nine months ended September 30, 2019 and 2018
(unaudited - US$ millions)
 
 
 
Third quarter
 
First nine months
 
Notes
 
2019
 
2018
 
2019
 
2018
Operating activities
 
 
 
 
 
 
 
 
 
Net earnings
 
 
74.4

 
149.2

 
1,468.5

 
1,271.1

Depreciation, amortization and impairment charges
18

 
185.7

 
93.2

 
459.4

 
257.6

Net bond discount amortization
 
 
(47.2
)
 
(36.4
)
 
(101.1
)
 
(96.0
)
Amortization of share-based payment awards
 
 
19.1

 
17.3

 
55.4

 
49.1

Share of profit of associates
6

 
(149.6
)
 
(63.9
)
 
(415.1
)
 
(126.9
)
Deferred income taxes
13

 
(51.1
)
 
5.2

 
180.2

 
23.1

Net (gains) losses on investments
5

 
96.4

 
(41.1
)
 
(1,068.2
)
 
(912.2
)
Loss on repurchase of long term debt
10

 
23.7

 

 
23.7

 
58.9

Net (increase) decrease in fair value of investment property
5

 
0.3

 

 
(7.6
)
 
(14.1
)
Net (purchases) sales of investments classified at FVTPL
19

 
(126.1
)
 
663.4

 
(1,068.3
)
 
(1,183.0
)
Changes in operating assets and liabilities
 
 
690.2

 
533.2

 
1,197.7

 
(232.8
)
Cash provided by (used in) operating activities
 
 
715.8

 
1,320.1

 
724.6

 
(905.2
)
 
 
 
 
 
 
 
 
 
 
Investing activities
 
 
 
 
 
 
 
 
 
Sales of investments in associates
6

 
14.3

 
49.4

 
249.8

 
174.0

Purchases of investments in associates
6

 
(111.7
)
 
(287.4
)
 
(529.3
)
 
(455.4
)
Net purchases of premises and equipment and intangible assets
 
 
(99.7
)
 
(78.2
)
 
(221.9
)
 
(196.9
)
Net purchases of investment property
5

 
(4.8
)
 
(0.4
)
 
(175.8
)
 
(63.5
)
Purchases of subsidiaries, net of cash acquired
15

 
(16.2
)
 
(18.4
)
 
(211.7
)
 
(157.0
)
Sale of subsidiary, net of cash divested
 
 

 

 

 
71.4

Deconsolidation of subsidiaries
15

 

 

 
(41.6
)
 
(67.7
)
Cash used in investing activities
 
 
(218.1
)
 
(335.0
)
 
(930.5
)
 
(695.1
)
 
 
 
 
 
 
 
 
 
 
Financing activities
 
 
 
 
 
 
 
 
 
Borrowings - holding company and insurance and reinsurance companies:
10

 
 
 
 
 
 
 
 
Proceeds, net of issuance costs
 
 

 

 
456.5

 
1,490.7

Repayments
 
 
(326.7
)
 

 
(326.7
)
 
(1,246.5
)
      Net borrowings from (repayments to) revolving credit facilities
 
 
(5.0
)
 
(5.1
)
 
614.1

 
(50.1
)
Borrowings - non-insurance companies:
10

 
 
 
 
 
 
 
 
Proceeds, net of issuance costs
 
 
2.0

 

 
269.1

 
605.5

Repayments
 
 
(3.6
)
 
(15.4
)
 
(271.9
)
 
(651.7
)
Net borrowings from (repayments to) revolving credit facilities and short term loans
 
 
94.9

 
(151.6
)
 
86.7

 
39.1

Decrease in restricted cash related to financing activities
 
 

 
151.8

 

 
150.5

Principal payments on lease liabilities - holding company and insurance and reinsurance companies
3

 
(17.5
)
 

 
(41.0
)
 

Principal payments on lease liabilities - non-insurance companies
3

 
(41.6
)
 

 
(121.6
)
 

Subordinate voting shares:
11

 
 
 
 
 
 
 
 
Purchases for treasury
 
 
(29.8
)
 
(47.5
)
 
(104.3
)
 
(169.8
)
Purchases for cancellation
 
 

 
(8.4
)
 
(118.0
)
 
(70.1
)
Common share dividends
 
 

 

 
(278.0
)
 
(283.2
)
Preferred share dividends
 
 
(11.4
)
 
(11.4
)
 
(34.2
)
 
(33.8
)
Subsidiary shares:
 
 
 
 
 
 
 
 
 
Issuances to non-controlling interests, net of issuance costs
 
 
1.4

 

 
43.2

 
103.1

Purchases of non-controlling interests
 
 
(85.5
)
 
(270.6
)
 
(122.2
)
 
(353.0
)
Sales to non-controlling interests
 
 

 

 
1.3

 

Dividends paid to non-controlling interests
11

 
(7.3
)
 
(17.8
)
 
(188.7
)
 
(155.2
)
Cash used in financing activities
 
 
(430.1
)
 
(376.0
)
 
(135.7
)
 
(624.5
)
Increase (decrease) in cash and cash equivalents
 
 
67.6

 
609.1

 
(341.6
)
 
(2,224.8
)
Cash and cash equivalents – beginning of period
 
 
4,159.2

 
5,070.8

 
4,536.9

 
7,935.0

Foreign currency translation
 
 
(37.2
)
 
(81.1
)
 
(5.7
)
 
(111.4
)
Cash and cash equivalents – end of period
19

 
4,189.6

 
5,598.8

 
4,189.6

 
5,598.8


See accompanying notes.

6


Index to Notes to Interim Consolidated Financial Statements


7



Notes to Interim Consolidated Financial Statements
for the three and nine months ended September 30, 2019 and 2018
(unaudited – in US$ and $ millions except per share amounts and as otherwise indicated)
1.
Business Operations
Fairfax Financial Holdings Limited (“the company” or “Fairfax”) is a holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and the associated investment management. The holding company is federally incorporated and domiciled in Ontario, Canada.
2.
Basis of Presentation
These interim consolidated financial statements of the company for the three and nine months ended September 30, 2019 have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements, including International Accounting Standard 34 Interim Financial Reporting. Accordingly, certain information and disclosures typically included in annual consolidated financial statements prepared in accordance with IFRS as issued by the IASB have been omitted or condensed. These interim consolidated financial statements should be read in conjunction with the company’s annual consolidated financial statements for the year ended December 31, 2018, which have been prepared in accordance with IFRS as issued by the IASB. These interim consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments, investment property and fair value through profit and loss (“FVTPL”) financial assets and liabilities that have been measured at fair value.
These interim consolidated financial statements were approved for issue by the company’s Board of Directors on October 31, 2019.
3.
Summary of Significant Accounting Policies
The principal accounting policies applied to the preparation of these interim consolidated financial statements are as set out in the company's annual consolidated financial statements for the year ended December 31, 2018, prepared in accordance with IFRS as issued by the IASB. Those policies and methods of computation have been consistently applied to all periods presented except as described below.

New accounting pronouncements adopted in 2019
IFRS 16 Leases ("IFRS 16")
IFRS 16 removes the distinction between finance and operating leases and recognizes substantially all leases on the balance sheet. On the transition date of January 1, 2019, the company recognized the following in its consolidated financial statements:
Lease liabilities of $1,495.4 in accounts payable and accrued liabilities on the consolidated balance sheet, inclusive of finance lease amounts under IAS 17 Leases ("IAS 17") that were carried forward;
Right-of-use assets of $1,037.2 in other assets on the consolidated balance sheet, inclusive of reclassification adjustments for prepaid and accrued lease payments, deferred tenant inducements and leased premises and equipment previously recognized separately on the consolidated balance sheet at December 31, 2018;
Finance lease receivables of $368.4 in other assets on the consolidated balance sheet; and
Net decreases to retained earnings of $4.2 and non-controlling interests of $3.1 in other net changes in capitalization in the consolidated statement of changes in equity.
As permitted by IFRS 16, comparative information for periods prior to the transition date have not been restated and continue to be reported in accordance with IAS 17 and IFRIC 4 Determining Whether an Arrangement Contains a Lease ("IFRIC 4").
On initial application of IFRS 16 the company applied the following permitted practical expedients: carried forward the assessment of which contracts contain leases as previously assessed under IAS 17 and IFRIC 4; accounted for operating leases under IAS 17 with a remaining lease term of less than 12 months as short-term leases; measured right-of-use assets at an amount equal to the related lease liabilities; excluded initial direct costs in the measurement of right-of-use assets; and used hindsight in determining the lease term where a contract contains options to extend or terminate the lease.
Lease liabilities for leases previously classified as operating leases under IAS 17 and with remaining terms of greater than 12 months at the transition date were measured at the present value of the lease payments over the remaining lease term, discounted at the company’s incremental borrowing rate. Right-of-use assets for those leases were measured as the amount of the lease liabilities, adjusted by any prepaid or accrued lease payments and deferred tenant inducements reclassified from the consolidated balance sheet at December 31, 2018. Asset and liability balances for leases classified as finance leases under IAS 17 were carried forward under IFRS 16 and reclassified as right-of-use assets and lease liabilities, respectively.
Sub-leases previously classified as operating leases under IAS 17 were reassessed at the transition date. Those sub-leases classified as finance leases under IFRS 16 were accounted for as new finance leases entered into on the transition date.

8



Presented in the table below are details of the lease commitments and obligations included in the company’s consolidated financial statements for the year ended December 31, 2018, compared to the lease liabilities, right-of-use assets and finance lease receivables recognized on initial application of IFRS 16 at January 1, 2019:
 
Insurance and reinsurance companies
 
Non-insurance companies
 
Total
 
 
 
 
 
 
Operating lease commitments at December 31, 2018
540.2

 
1,103.5

 
1,643.7

Adjustments for:
 
 
 
 


Short-term and low value leases
(2.0
)
 
(20.7
)
 
(22.7
)
Extension and termination options
32.3

 
106.5

 
138.8

Lease commitments to be recognized under IFRS 16
570.5

 
1,189.3

 
1,759.8

Incremental borrowing rate (weighted average)
4.2
%
 
5.1
%
 
4.8
%
 
 
 
 
 
 
Present value of lease commitments recognized under IFRS 16
454.4

 
992.4

 
1,446.8

Finance lease obligations at December 31, 2018 and other
0.8

 
47.8

 
48.6

Lease liabilities at January 1, 2019
455.2

 
1,040.2

 
1,495.4

 
 
 
 
 
 
Right-of-use assets at January 1, 2019
424.3

 
612.9

 
1,037.2

 
 
 
 
 
 
Finance lease receivables at January 1, 2019
5.3

 
363.1

 
368.4


The company's lease liabilities, right-of-use assets and finance lease receivables at January 1, 2019 related predominantly to premises.

Plan Amendment, Curtailment or Settlement (Amendments to IAS 19)
The amendments to IAS 19 Employee Benefits clarify the calculation of current service cost and net interest for the remainder of an annual period when a plan amendment, curtailment or settlement occurs, and are effective for such changes to the company's defined benefit pension and post retirement plans occurring on or after January 1, 2019. Adoption of these amendments on January 1, 2019 did not have a significant impact on the company's consolidated financial statements.

IFRIC Interpretation 23 Uncertainty over Income Tax Treatments ("IFRIC 23")
IFRIC 23 clarifies how IAS 12 Income Taxes should be applied when there is uncertainty over income tax treatments. Adoption of IFRIC 23 on January 1, 2019 did not have a significant impact on the company's consolidated financial statements.

IFRS Annual Improvements 2015-2017
The Annual Improvements amended IAS 12 Income Taxes to clarify that the income tax consequences (if any) of dividend distributions are recognized at the same time as the liability to pay those dividends, and that the income tax consequences are recorded in profit or loss, other comprehensive income, or in equity, according to where the past transactions or events that generated those distributable profits were recorded. Adoption of this amendment on January 1, 2019 did not have a significant impact on the company's consolidated financial statements.

Leases (policy applicable from January 1, 2019)
Lessees
The company, primarily through its non-insurance companies, is a lessee under various leases related principally to premises, automobiles and equipment.
A right-of-use asset and a lease liability are recognized at the commencement date of a lease. Right-of-use assets are initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made before the commencement date, and any initial direct costs incurred. Lease liabilities are initially measured at the present value of lease payments, discounted using the interest rate implicit in the lease, or if that rate cannot be readily determined, the company’s incremental borrowing rate. The company typically uses its incremental borrowing rate. Right-of-use assets are included in other assets and lease liabilities are included in accounts payable and accrued liabilities on the consolidated balance sheet.
Subsequent to initial recognition, right-of-use assets are depreciated using the straight-line method over the shorter of the lease term and the right-of-use asset's useful life, with depreciation expense recorded as operating expenses or other expenses in the consolidated statement of earnings, and lease liabilities are measured at amortized cost using the effective interest method, with accretion of lease liabilities recorded as interest expense in the consolidated statement of earnings. Each lease payment is allocated between principal and interest expense to produce a constant periodic rate of interest on the remaining balance of the lease liability. The interest and principal portions of cash payments on lease liabilities are reported as operating activities and financing activities respectively in the consolidated statement of cash flows.
Right-of-use assets and lease liabilities are not recognized for short-term leases that have a lease term of twelve months or less, or for low value leases, which principally relate to office equipment, furniture and fixtures. Payments for short-term and low value leases are recorded on a straight-line basis over the lease term in the consolidated statement of earnings and reported as operating activities in the consolidated statement of cash flows.

9



Lessors
The company, primarily through its non-insurance companies, holds certain head leases where it acts as an intermediate lessor in a sub-lease. Interests in head leases and sub-leases are accounted for separately.
Classification of a sub-lease is determined with reference to the right-of-use asset arising from the head lease, and not with reference to the underlying leased asset. If substantially all of the risk and rewards of ownership of the right-of-use asset are transferred, then the sub-lease is classified as a finance lease, where the right-of-use asset is derecognized, a finance lease receivable is recorded, representing the present value of future lease payments to be received, and any difference is recorded in the consolidated statement of earnings. Finance lease receivables are included within other assets on the consolidated balance sheet.
Sub-leases classified as operating leases do not result in any change to the amounts initially recognized on the head lease. Payments received from operating leases are recorded on a straight-line basis over the lease term as other revenue in the consolidated statement of earnings.

Operating leases (policy applicable prior to January 1, 2019)
The company and its subsidiaries are lessees under various operating leases related primarily to premises, automobiles and equipment. Payments made under an operating lease, net of any incentives received from the lessor, are recorded as an expense on a straight-line basis over the lease term in operating expenses or other expenses in the consolidated statement of earnings.

Comparatives
Certain prior year comparatives have been reclassified to conform with the current year’s presentation.
Insurance contract payables is a new line on the consolidated balance sheet, comprised of certain insurance related amounts previously included in accounts payable and accrued liabilities. Income taxes payable and funds withheld payable to reinsurers were previously presented as separate lines on the consolidated balance sheet, and are now included within accounts payable and accrued liabilities and insurance contract payables respectively. The company believes these reclassifications provide a better distinction between payables related to insurance and reinsurance contracts and those related to other aspects of the company's operations including investments, non-insurance companies, leases, and administration.
 
December 31, 2018
Insurance contract payables
 
Amounts previously included in accounts payable and accrued liabilities:
 
Payable to reinsurers
576.4

Ceded deferred premium acquisition costs
254.8

Amounts payable to agents and brokers
93.8

Accrued commissions
87.3

Accrued premium taxes
74.6

Other insurance contract payables
241.9

 
1,328.8

Funds withheld payable to reinsurers (previously presented separately on the consolidated balance sheet)
674.3

Insurance contract payables as presented on the consolidated balance sheet
2,003.1

 
 
Accounts payable and accrued liabilities
 
Accounts payable and accrued liabilities as previously presented on the consolidated balance sheet
4,268.7

Amounts reclassified to insurance contract payables
(1,328.8
)
Income taxes payable (previously presented separately on the consolidated balance sheet)
80.1

Accounts payable and accrued liabilities as presented on the consolidated balance sheet
3,020.0

 
 
Total liabilities as presented on the consolidated balance sheet
47,006.9


4.
Critical Accounting Estimates and Judgments
In the preparation of the company's interim consolidated financial statements, management has made a number of critical estimates and judgments in the preparation of notes 5, 6, 8, 13, 14 and 15 in a manner consistent with those described in the company's annual consolidated financial statements for the year ended December 31, 2018.



10



5.
Cash and Investments
Holding company cash and investments, portfolio investments and short sale and derivative obligations are classified at FVTPL, except for investments in associates and other invested assets, and are shown in the table below:
 
 
 
September 30, 2019
 
December 31, 2018
Holding company:
 
 
 
 
 
 
 
 
Cash and cash equivalents(1)
 
 
464.9

 
 
 
227.7

 
Short term investments
 
 
98.6

 
 
 
19.8

 
Bonds
 
 
410.9

 
 
 
503.4

 
Preferred stocks
 
 
4.6

 
 
 
4.5

 
Common stocks(2)
 
 
665.8

 
 
 
704.7

 
Derivatives (note 7)
 
 
48.8

 
 
 
75.6

 
 
 
 
1,693.6

 
 
 
1,535.7

 
Assets pledged for short sale and derivative obligations:
 
 
 
 
 
 
 
 
Short term investments
 
 
8.2

 
 
 
13.7

 
Bonds
 
 

 
 
 
7.8

 
 
 
 
8.2

 
 
 
21.5

 
 
 
 
 
 
 
 
 
 
Holding company cash and investments as presented in the consolidated balance sheet
 
 
1,701.8

 
 
 
1,557.2

 
Short sale and derivative obligations (note 7)
 
 
(2.8
)
 
 
 
(6.6
)
 
 
 
 
1,699.0

 
 
 
1,550.6

 
Portfolio investments:
 
 
 
 
 
 
 
 
Cash and cash equivalents(1)
 
 
3,872.8

 
 
 
4,583.7

 
Short term investments
 
 
6,389.4