Q4 2016 Real-Time Call Brief

Highlights

In 2016, book value per share decreased 6.4% adjusted for the $10 per share common dividend paid in the first quarter of 2016.

Our insurance companies had an excellent year with a combined ratio of 92.5%, with excellent reserving and significant underwriting profits of $576 million.

For the full year, all our operating segments have combined ratios below a 100%, with an overall combined ratio of 92.5%.

Zenith had a very good combined ratio 79.7%, Fairfax Asia 86.4%, and Odyssey Re 88.7%.

All below are 90% combined ratio.

The insurance and reinsurance operations produced strong operating income.

Excluding net gains, our losses on investments one billion.

In 2016, we realized gains on our investment portfolio of $564 million before the equity hedges.

Excluding all hedging losses and before mark-to-market fluctuations in our investment portfolio, we've earned approximately $1.2 billion in pretax income for the year.

Including all hedging losses and mark-to-market fluctuations in our investment portfolio, we reported an after-tax loss of $513 million for 2016.

Our Insurance and Reinsurance businesses's premium volume was up for the full year of 2016 by 3.8%.

Odyssey Re premiums were flat, combined ratio of 88.7%; Crum and Forster up 9%, combined ratio of 98.2%; Northbridge in Canadian dollars up 10%, with a combined ratio of 94.9%; Zenith up 4%, with a combined ratio of 79.7%; Fairfax Asia up 10%, with a combined ratio of 86.4%; and Brit with a combined ratio 97.9%.

Net investment losses are $1.2 billion for the year.

Net losses on equity and equity related investments was $1.3 billion.

resulting from net losses $105 million on our equity investments and a $1.2 billion net loss on our equity hedge, mainly because of our 19.5% increase in the Russell 2000 Index during the year.

We realized losses of $184 million on our equity portfolio, on our equities primarily related to Sandrich Energy and realized $2.6 billion of losses due to the removal of our hedges.

Our CPI linked derivatives with an notional value of approximately $110 billion, produced unrealized losses of $196 million during the year.

The majority of these contracts as you know, are based on the underlying US CPI index of 54% or the European Union CPI index of 40%.

When you review on statements, please remember that when we own more than 20% of a company via equity account and when we own about 50%, we consolidate.

The fair values of our investment and associates is $3.3 billion versus a carrying value of $2.6 billion and unrealized gain of $700 million that's not our balance sheet.

Investment gains have been an important component of our returns over time since.

We began 31 years ago we've had a cumulative $10.2 billion in in realized and unrealized gains.

In December 2016, Fairfax entered into an agreement to acquire Allied World, a market leading global property, casualty, and specialty insurer and reinsurer.

Under the terms of this agreement, Allied World shareholders would receive a combination of Fairfax subordinate shares and cash equal to $54 per Allied World share, for a total equity value of approximately $4.9 billion.

We are in the final round of negotiations with a number of parties that are interested in following almost lead as co-investors and we are confident that we will be able raise an additional $500 million and potentially up to $1.5 billion.

Recently we have created a company called Fairfax Africa and it has been listed on the exchange today having raised $500 million.

At year-end, Fairfax India had invested $1.1 billion that it raised about two years ago.

So, early in 2017, Fairfax India completed a 500 million share offering at a price of $11.75 per share.

Subsequently, Fairfax India purchased additional shares in IIFL for a total consideration of $75 million and now holds approximately 27% of the company.

In 2017, Fairfax India acquired 51% of Saurashtra the largest container freight station at Mundra Airport with $30 million.

As we've said in our third quarter call with the uncertainties of the U.S. elections and a possible new U.S. administration, we decided to sale 90% of our U.S. long treasuries.

The effective sale of our bond portfolios had a cumulative realized gain of $2.3 billion from our original cost, $1 billion from treasuries and $1.3 billion from U.S. Muni bonds.

We believe the new U.S. administrations proposed policies of reducing corporate taxes to 15% to 20% rolling back regulation and business like Obamacare, Duck Frank and Marriott other regulations.

The U.S. economy which is approximately $20 trillion does well, much of the world does well too.

Our recent investments of $150 million in Cara's and Canadian $150 million in Mosaic and a bond and warrant structure are examples of emphasizing downside protection, with potential upside, with great management teams, with excellent track records.

The stock markets did not achieve but select we expect to invest our $10 billion in cash overtime, always keeping a watchful eye on the risks outlined earlier.

Over the last few months, there have been media and analyst report, with respect to rumored $1 billion sales of our portion of our 35% stake in ICICI Lombard.

To a rumored application bias with an Indian partner for our new insurance license in India.

These reports have noted benefit new license were issued, we would be required to own no more than 10% of ICICI Lombard.

So for the full year 2016, Fairfax reported a net loss of $513 million or $0.24 per fully diluted share and that would compare to net earnings of $568 million, $23 for fully diluted share in the full year 2015.

Our insurance and reinsurance operations produced an underwriting profit of $576 million and a combined ratio of 92.5% in 2016 that compared to underwriting profit of $705 million and a combined ratio of 89.9% last year.

The decrease in underwriting profit year-over-year of about a $129 million, principally reflected increased in current period catastrophe losses, partially offset by higher net favorable prior year reserve development.

Net premiums written by our insurance and reinsurance operations increased by 11% in 2016, principally reflecting the consolidation of Brit's net premiums written of about $1.5 billion in the full year of 2016, compared to relative $946 million for the period that we own Brit in 2015.

In 2016, OdysseyRe reported an underwriting profit of $235 million, and a combined ratio of 89%.

That compare to underwriting profit of $337 million, and a combined ratio of 85% in 2015.

OdysseyRe wrote of $2.1 billion in net premiums in 2016, and that was fairly consistent with the net premiums they wrote in 2015.

Crum & Forster underwriting profit of $32 million, at a 98% combined ratio in 2016 was slightly lower than the underwriting profit of $35 million, at a 98% combined ratio in 2015.

Crum & Forster net premiums written increased by 9% in 2016, primarily reflecting growth in accident and health and commercial transportation lines of business as well as incremental contributions from the acquisitions from completed in 2015.

Zenith National reported increased underwriting profit in 2016 of a $164 million and a combined ratio of 80% that compared to underwriting profit of $134 million and a combined ratio of 83% in 2015.

Net premiums written by Zenith of $819 million in 2016 increased by 4% year-over-year, principally reflecting an increase in exposure, that's partially offset by modest price decreases.

Northbridge reported underwriting profit of $46 million, and a combined ratio 95% in 2016, compared to an underwriting profits of $71 million, and a combined ratio of 92% in 2015.

In Canadian dollar terms, net premiums written by Northbridge in 2016 increased by 10%, reflecting increased new business writings and Northbridge insurance and modest price increases across the group.

Turning to Brit, in 2016 Brit produced an underwriting profit of $29 million and a combined ratio of 98%.

In 2015, Brit produced an underwriting profit of $45 million and a combined ratio of 95%.

The underwriting profit in 2016 included $76 million of current period catastrophe losses and that was principally comprised the impacts of Hurricane Matthew and the Fort McMurray wildfires.

Fairfax Asia reported increased underwriting profit of $41 million in combined ratio of 86% in 2016 as compared to underwriting profit of $35 million and a combined ratio of 88% in 2015.

Net premiums written by Fairfax Asia increased by 10% in 2016.

The insurance and reinsurance other segment produced the underwriting profit of $28 million, and a combined ratio of 94% in 2016, somewhat lower than the underwriting profit of $46 million, and combined ratio of 90% in 2015.

Net premiums written by the insurance and reinsurance other segment decreased by 6% in 2016, and that decrease reflected the non-recurring impact of the QBE loss portfolio transfer in 2015, and Poultry and decreases a GroupRe, primarily related to the renewable in 2016, of inter-company property quarter share agreement with Brit.

Runoff reported an operating loss of $149 million in 2016, compared to an operating loss of $74 million in 2015.

Consolidated interest in dividend income increased from $512 million in 2015 to $555 million in 2016, reflected higher interest income earned.

Fairfax recorded an income tax recovery of a $160 million in 2016 and that was relative to a pretax loss of $554 million producing on a effective tax rate of 29%.

We ended 2016 with an investment portfolio including holding company cash of $28.4 billion compared to $29 billion at the end of 2015.

Our total debt to total capital ratio increased to 28.7% at the end of 2016 from 21.8% at the end of 2015 and that was primarily as a result of debt issued during 2016 by Fairfax.