Earnings call transcript: Fairfax Financial beats Q2 2025 earnings expectations

Fairfax Financial Holdings Ltd. reported strong earnings for Q2 2025, surpassing analyst forecasts with an EPS of 61.61 USD, significantly above the expected 45.89 USD. The company also exceeded revenue expectations, reporting 9.18 billion USD compared to the forecasted 9.10 billion USD. According to InvestingPro analysis, the company is currently undervalued, with a FAIR overall financial health score of 2.39. Despite these positive results, the stock experienced a slight decline of 0.15% in after-hours trading, closing at 2,450.76 USD, reflecting a complex investor sentiment.

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Key Takeaways

• Fairfax Financial’s Q2 EPS exceeded expectations by 34.26%.
• Revenue for Q2 2025 was 9.18 billion USD, surpassing forecasts.
• Stock price decreased by 0.15% in after-hours trading.
• Insurance and reinsurance operations contributed significantly to earnings.
• The company plans strategic investments and share repurchases.

Company Performance

Fairfax Financial demonstrated robust performance in Q2 2025, with net earnings rising to 1.4 billion USD from 915 million USD in the same quarter of the previous year. As a prominent player in the insurance industry, the company has maintained dividend payments for 24 consecutive years, currently offering a 3.54% yield. The company benefited from strong underwriting and investment income, reflecting its diversified portfolio and strategic positioning within the global insurance market. The performance was bolstered by growth in international operations, which now account for 20% of total gross premiums.

Financial Highlights

• Revenue: 9.18 billion USD, up 2.6% year-over-year.
• Earnings per share: 61.61 USD, significantly above the forecast.
• Net earnings: 1.4 billion USD, up from 915 million USD in Q2 2024.
• Book value per share increased to 11.58 USD, up 10.8% in the first half of 2025.

Earnings vs. Forecast

Fairfax Financial’s actual EPS of 61.61 USD represented a 34.26% surprise over the anticipated 45.89 USD. This significant beat highlights the company’s strong operational performance and effective cost management. Revenue also exceeded expectations, coming in at 9.18 billion USD against a forecast of 9.10 billion USD.

Market Reaction

Despite the earnings beat, Fairfax Financial’s stock declined by 0.15% to 2,450.76 USD in after-hours trading. With a beta of 0.93, the stock shows slightly lower volatility than the market average. This movement could be attributed to broader market conditions or investor concerns over future growth prospects. The stock trades near its 52-week high, having reached 2,521.95 USD, demonstrating strong momentum over the past year.

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Outlook & Guidance

Looking ahead, Fairfax Financial remains focused on maintaining financial soundness with 3 billion USD in cash at the holding company. The company’s strong financial position is evidenced by an 11% free cash flow yield and liquid assets exceeding short-term obligations. The company has expanded its credit facility to 2 billion USD, maturing in July 2030, and is considering capital deployment in minority interest purchases, share repurchases, and strategic investments.

Executive Commentary

Peter Clark, President and COO, emphasized the company’s diversification strategy, stating, "We write 33,000,000 of premium, and we benefit greatly from that diversification." Wade Burton, Chief Investment Officer, highlighted the company’s cautious approach to market conditions, noting, "We continue to stay on the shorter side of duration as we watch inflation and the Fed actions."

Risks and Challenges

• Potential macroeconomic pressures, including inflation and interest rate changes.
• Competitive pressures in the insurance market.
• Regulatory changes affecting international operations.
• Currency fluctuations impacting overseas revenue.

Q&A

During the earnings call, analysts inquired about Zenith’s workers’ compensation challenges and the company’s investment in Poseidon, where Fairfax holds a 43% ownership stake. Executives also addressed the potential for future full ownership of Allied and Odyssey and clarified the drivers behind interest and dividend income growth.

Full transcript - Fairfax Financial Holdings Ltd (FFH) Q2 2025:

Conference Operator: Good morning, and welcome to Fairfax’s twenty twenty five Second Quarter Results Conference Call. Your lines have been placed in a listen only mode. After the presentation, we will conduct a question and answer session. Today’s conference is being recorded. If you have any objections, you may disconnect at this time.

Now your host for today’s call is Peter Clark with opening remarks from Mr. Derek Bulas. Derek, please begin.

Derek Bulas, Unspecified, Fairfax: Good morning, and welcome to our call to discuss Fairfax’s twenty twenty five second quarter results. This call may include forward looking statements. Actual results may differ perhaps materially from those contained in such forward looking statements as a result of a variety of uncertainties and risk factors, the most foreseeable of which are set out under Risk Factors in our base shelf prospectus, which has been filed with Canadian securities regulators and is available on SEDAR plus Fairfax disclaims any intention or obligation to update or revise any forward looking statements except as required by applicable securities law. I’ll now turn the call over to our President and COO, Peter Clark. Thank you, Derek.

Peter Clark, President and COO, Fairfax: Good morning, everyone, and welcome to Fairfax’s twenty twenty five second quarter conference call. I plan to give you some highlights and then pass the call to Wade Burton, our President and Chief Investment Officer of Hambla Watsa to comment on investments and then Amy Schirke, our Chief Financial Officer to provide some additional financial details. We had an excellent second quarter with net earnings of $1,400,000,000 up from $915,000,000 in the 2024. This gives us net earnings of $2,400,000,000 for the 2025. Operating income from our insurance and reinsurance companies, adjusted to an undiscounted basis and before risk margin, was $1,100,000,000 in the 2025.

This is relatively flat from the 2024. Underwriting income was strong in the quarter at $427,000,000 Our interest and dividend income was $666,000,000 up from $614,000,000 in the 2024, while our share of profits of associates was $131,000,000 down $221,000,000 the previous year. Net gains on investments in the quarter were again very healthy at $952,000,000 All in, our book value per share increased to $11.58 in the second quarter, up 10.8% in the first half of the year, adjusted for our $15 dividend. Our insurance and reinsurance companies are in great shape, writing over $33,000,000,000 of annualized premium worldwide. We benefit greatly from our scale and diversification and the exceptional talent and experience of our long serving presidents and the teams that run our insurance and reinsurance operations.

I will now give you some additional detail on the components of our net earnings for the quarter. Our consolidated investment return was solid with a return of 2.6%, driven by increased interest and dividend income, strong net gains on investments, partially offset by the lower profits of associates. Consolidated interest and dividend income of $666,000,000 was up 8.5% year over year, benefiting from a growing investment portfolio and increased dividend income in the quarter. Profits of associates was $131,000,000 down by $90,000,000 compared to the 2024. Profits of associates continues to be driven by Eurobank and Poseidon Corp, offset this quarter by losses on the WaterUS fund from mark to market unrealized losses in its portfolio.

The reduction from last year also reflects Peak Achievements, or Bauer, now being accounted for as a consolidated investment and no longer an associate. In the quarter, we had net gains on investments of $952,000,000 driven by gains on our equity exposures of 800,000,000 gains on our bond portfolio of $75,000,000 primarily from government bonds due to the decrease in interest rates in the second quarter and gains on investments of $77,000,000 primarily reflecting unrealized gains on our preferred shares in DIGIT of $358,000,000 offset by losses of $251,000,000 primarily on foreign exchange contracts used as an economic hedge against our investments in foreign currencies. I should note that the losses on these contracts went through our net earnings, while many of our foreign exchange gains on investments, those investments consolidated or treated as associates are reflected in other comprehensive income and make up a significant amount of the $334,000,000 OCI gain in the quarter. At the end of the day, both are captured in our book value. The net gains of $800,000,000 in our equity and equity related holdings were driven principally by unrealized gains on our

Unidentified Speaker, Fairfax: Fairfax

Peter Clark, President and COO, Fairfax: TRS, Metlin Energy and Metals and Fairfax India’s investment in IIFL Finance. We have always said, and please remember, our net gains or losses on investments only make sense over the long term and will fluctuate from quarter to quarter or for that matter year to year. More on investments from Wade. As mentioned in previous quarters, our book value per share of $11.58 does not include unrealized gains or losses in our equity accounted investments and our consolidated investments, which are not mark to market. At the end of the second quarter, the fair value of these securities is in excess of carrying value by $2,400,000,000 and unrealized gain position or $110 per share on a pretax basis, an increase of approximately $900,000,000 for the year.

As I said before, our insurance and reinsurance businesses had an outstanding quarter, writing $9,100,000,000 of gross premium in the 2025, up 2.6% versus the 2024. Our Global Insurer and Reinsurance segment was up 3.7%, with gross premiums of 4,900,000,000 in the 2025. Brit’s gross premium was $9.00 $2,000,000 in the quarter, up 9.3% year over year, capitalizing on new business opportunities in its FinPro, Cyber and Property and Specialty lines of business as well on the reinsurance side through its Bermuda reinsurer, Brick REIT. In the 2025, Key wrote $230,000,000 of premium, up 6.4% from the 2024, driven by its casualty and cyber business. Odyssey’s premiums were up 2.4 in the quarter with gross written premium of $1,700,000,000 Its insurance business was the driver of the growth at both Newline and Hudson, while its Reinsurance business was relatively flat.

Allied World premium increased 2.3% in the quarter with gross premiums of almost 2,100,000,000.0 Their North American Insurance segment was up 2.4% from new business and rate increases, primarily on its casualty business.

Unidentified Speaker, Fairfax: The Global Markets segment was up 4.1%, driven by property business and the Reinsurance segment was flat year over year.

Peter Clark, President and COO, Fairfax: Our North American Insurance segment drove gross premiums of $2,300,000,000 in the 2025, down 1% over the 2024. Zenith premium was up 7.3% in the quarter, reflecting new workers’ comp business and price increases in its agribusiness book. Crum and Forster’s premium remained flat, and Northbridge’s gross premium was down 2.9% in Canadian dollar terms. The decrease at Northbridge reflects moderating rates for commercial lines in Canada. The international insurance and reinsurance operations gross premiums were 1,800,000,000 up 4.2% in the 2025 versus the 2024.

Our Central and Eastern European business led by Colonnade and Polish REIT continues to grow profitably, writing $220,000,000 of premium in the quarter, up 38%. Bright in South Africa grew premium 20%, and Fairfax Asia grew 9.4%, with strong growth across all its companies with the exception of Falcon Hong Kong. Offsetting the growth was Fairfax Latin America, down 7.2%, driven by foreign exchange movements in Argentina and at Fairfax Brazil. And Gulf insurance’s premium decreased 1.3%, principally due to the loss of a significant insurance contract that was non renewed in the 2024. Our international operations now make up approximately 20% of our total gross premiums, and the long term prospects of our international operations are excellent and will be a significant source of growth over time, driven by excellent management teams that are more and more collaborating among themselves and leveraging the strengths of the group within our decentralized structure.

Underwriting results in the quarter were very strong with a combined ratio of 93.3%, producing underwriting profit of $427,000,000 All but one of our insurance and reinsurance operations posted an underwriting profit in the quarter. Our global insurers and reinsurers had a combined ratio of $91,700,000 and underwriting profit of $293,000,000 Allied World had a combined ratio of 91.1 Odyssey 91.9%, Brit’s combined ratio was 92.2% and Key was 93.4%, an outstanding result, especially after a difficult first quarter due to the significant catastrophe losses from the California wildfires. Our North American insurers had a combined ratio of 95.2 for the second quarter, led by Northbridge with a combined ratio of 92. Crumforster had underwriting income of $52,000,000 or a combined ratio of 95,400,000 while Zenith, our workers’ compensation specialist, had an elevated combined ratio of 103.3, representing an underwriting loss of $6,000,000 Zenith has been dealing with multiple years of rate decreases in the workers’ compensation space, but we are happy to say rates have now begun to stabilize and Zenith are pleased to see some premium increases coming its way. Our international operations delivered a solid quarter with a combined ratio of 95.5.

Fairfax Asia had a very strong quarter with a combined ratio of 89.5, driven by an outstanding performance at Singapore Re posting a combined ratio in the low 80s. Bright, who has been taking underwriting actions the last number of years, are seeing it come through in their results. They had a combined ratio of 92.8%. Latin America posted a combined ratio of 95.1 and Central And Eastern Europe was at 95.3%. Gulf Insurance, the largest company in our international operations, had a combined ratio of 97.9 in the second quarter, negatively affected by elevated loss ratios on its health business and the expense drag from the loss of the large contract in its Kuwaiti operation.

Gulf’s combined ratio continues to improve, and we are confident they will return to their historical sub-ninety five underwriting results. In the second quarter, our insurance and reinsurance companies recorded favorable reserve development of $163,000,000 or a benefit of 2.5 points on our combined ratio. Each of our major segments recorded favorable reserve development with releases coming primarily on short tailed property business.

Unidentified Speaker, Fairfax: Through our

Peter Clark, President and COO, Fairfax: decentralized operations, our insurance and reinsurance companies continue to thrive, writing over $33,000,000,000 in annualized gross premiums with healthy underlying margins and led by our exceptional management teams. The strong results of our insurance operations have not gone unnoticed by the rating agencies. In the second quarter, Standard and Poor’s upgraded the financial strength ratings of our core operating companies to AA- and our debt rating to A-. Also in the quarter, AM Best upgraded Allied World’s rating to A plus and Fairfax’s debt rating to A-. Our companies are positioned very well to continue capitalizing on their opportunities in their respective markets in the 2025.

I will now pass the call to Wade Burton, our President and Chief Investment Officer of Hambla Watson to comment on our investments.

Wade Burton, President and Chief Investment Officer, Hambla Watsa: Thank you, Peter, and good morning.

Peter Clark, President and COO, Fairfax: It was a quiet quarter on the investment front for Fairfax.

Wade Burton, President and Chief Investment Officer, Hambla Watsa: We have weathered the tariff situation well so far and monitor it closely. We continue to look for ways to benefit and protect our float as events evolve. We ended the quarter with $49,000,000,000 in fixed income investments. The yield is 5.1, and our dividend and interest income run rate is a healthy $2,600,000,000 per annum. Our duration is two point four years, including $11,000,000,000 in cash and short term treasuries.

We continue to stay on the shorter side of duration as we watch inflation and the Fed actions. Within the fixed income portfolio, our mortgages continue to perform well. We have been repaid on $1,800,000,000 of mortgages from the Pacific Western Bank transaction, where we purchased approximately $4,000,000,000 in commitments at 95% of par in the 2023. The IRR on the loans repaid thus far is 14.7%. Thanks to the outstanding work of Bill McMorrow, Matt Windisch and their team at Kennedy Wilson, these mortgages are proving to be a fantastic investment for Fairfax.

Our equity and associate investments ended the quarter at almost $25,000,000,000 The largest investments, including Eurobank, Poseidon, Recipe, Sleep Country, Peak Achievement, Fairfax India, are all performing well. All are run by capable managers in the Fairfax mold and adding nicely to our associate and non insurance income. It’s early days in the timeshare investment, Berkeley, run by Caroline Shinn, but so far, it has exceeded expectations. Berkeley has approximately 125,000 available room nights per month. They started the year at virtually nil occupancy for overnight stays.

In month one, Caroline brought that number to 10%, the next month 20%, and the third month 35%. I’m

Unidentified Analyst: happy

Wade Burton, President and Chief Investment Officer, Hambla Watsa: to report year to date operating income has already reached our full year expectations. Again, outstanding and capable partners doing an excellent job for Fairfax shareholders. Our biggest challenge on the investment front is The U. S. Stock market.

It is up a lot from lows and expensive against earnings. This makes it a challenge to find new investment ideas. Our experienced investment team continues to work hard to monitor and search. And the benefit of permanent capital, as always, means we can be patient and let opportunities come to us. Overall, Fairfax continues to be in outstanding shape on the investment side.

That’s it for me. I’ll now turn the call over to Amy Schirk, our CFO.

Amy Schirke, Chief Financial Officer, Fairfax: Thank you, Wade. I’ll begin my comments by discussing the impact changes in interest rates had on our consolidated statement of earnings in the second quarter and 2025, and specifically the effects it had on discounting on prior year net losses on claims and our fixed income portfolio. Net earnings of $1,400,000,000 in the 2025 included a net benefit of $120,000,000 reflecting the effects of changes in interest rates during the quarter comprised of a net benefit on insurance contracts and reinsurance contracts held of $46,000,000 and net gains on bonds of $75,000,000 primarily unrealized. We generally expect that a decrease in interest rates will result in an increase to the carrying values of the company’s fixed income portfolio and liability for incurred claims net of reinsurance, resulting in the partial mitigation of interest rate risk. In the current quarter, however, we recorded a benefit on both as short term interest rates decreased modestly and longer term interest rates increased.

Net gains on bonds reflected a modest decrease in shorter term interest rates, while the net benefit on insurance contracts and reinsurance contract assets held reflected the increase in longer term interest rates. Comparatively, net earnings of $915,000,000 in the 2024 included a net loss of 29,000,000 reflecting the effects of changes in interest rates comprised of net losses on bonds of $191,000,000 partially offset by the net benefit on insurance contracts and reinsurance contract assets held of $161,000,000 When you compare the year over year change on a pretax basis, the changes in interest rates resulted in an approximate $150,000,000 movement in our pretax earnings. Please refer to Page 37 of the MD and A within the company’s interim consolidated financial statements for the 2025 for a table that presents the company’s total effects of discounting and risk adjustment on our net insurance liabilities and the effects of changes in interest rates on the company’s fixed income portfolio set out in a format the company believes assists in understanding its net exposure to interest rate risk. Now a few comments on our non insurance company results for the 2025. Non insurance companies reported an operating income of $126,000,000 in the 2025 compared to $25,000,000 in the 2024, primarily reflecting the acquisition of Sleep Country on 10/01/2024 and the consolidation of Peak Achievement on 12/20/2024.

Sleep Country and Peak Achievement reported operating income of $20,000,000 and $38,000,000 respectively in the 2025. In addition, Fairfax India reported increased operating income driven by share of profits of associates in the 2025 compared to share of losses on associates in the 2024. Looking at our share of profit from investments in associates in the second quarter, as Peter has said, our consolidated share of profit of associates of $131,000,000 in the 2025, principally reflected our share of profit of $105,000,000 from Eurobank and $69,000,000 from Poseidon, partially offset by our share of loss of $60,000,000 from the WaterUS Energy Fund, a limited partnership investment that recorded unrealized mark to market losses on a publicly traded common stock holding during the second quarter and 2025. A few comments on transactions within the quarter. On 04/21/2025, Quest spun off Digitide Solutions Limited and Blue Springs Enterprise Limited, and both Digitide and Blue Spring commenced trading publicly in India on June 11.

At listing, the aggregate fair value of the three companies, Digitide, Blue Spring and Quest post spin off was substantially the same as Quest’s fair value immediately prior to the spin off. The company applies the equity method of accounting to its 34.8% equity interest in each entity. On 05/13/2025, the company acquired a 33% equity interest in Alpinjia for cash consideration of EUR $237,000,000 or EUR $210,000,000 and commenced applying the equity method of accounting to its investments. Albingia is a French insurance company that has been operating in the French market since ’62, and it writes specialty property and casualty insurance. Subsequent to 06/30/2025 on June sorry, on 06/16/2025, the company entered into an agreement with KEGG Royalties Income Fund to acquire all issued and outstanding units of the KEGG fund that it does not already own for CAD1860 per unit or approximately CAD 151,000,000 or CAD $2.00 7,000,000 payable in cash.

The transaction is subject to the approval of the CAG fund unitholders and other closing conditions and is expected to close in the 2025. Lastly, as an update to the Boat Rocker transaction disclosed in our Q1 twenty twenty five interim report, Boat Rocker received shareholder approval to proceed with the transaction on 06/17/2025, and the transaction is expected to close imminently. I will close with a few comments on our financial condition. Maintaining an emphasis on financial soundness at 06/30/2025, the company held $3,000,000,000 of cash and investments at the holding company with access to our fully drawn $2,000,000,000 unsecured revolving credit facility. And we also have an additional $1,900,000,000 at fair value of investments in associates and consolidated non insurance companies owned by the holding company.

Holding company cash and investments support the company’s decentralized structure and enable the company to deploy capital efficiently to its insurance and reinsurance companies. On 05/20/2025, the company completed offerings of $500000000.5.75 percent ten year unsecured senior notes due in 2035 and $400,000,000 principal amount of six point five percent thirty year unsecured senior notes due in 2055 for total net proceeds of $890,000,000 after discount commissions and expenses. On 06/17/2025, pursuant to an agreement and in exchange for cash and cash equivalents received from the holding company of CAD $522,000,000 or CAD $7.00 8,000,000 including accrued interest, BRIT became the primary co obligor of Fairfax’s CAD450 million principal amount of 4.73% unsecured senior notes due 2034 and CAD $250,000,000 principal amount of 5.23% unsecured senior notes due in 02/1954. These notes are now the joint and several obligations of the holding company and Brit, with Brit being the primary co obligor and at first instance responsible for payment of principal, premium, if any, and interest on these notes. At 06/30/2025, the excess of fair value over carrying value of investments in non insurance associates and market traded consolidated non insurance subsidiaries was $2,400,000,000 compared to $1,500,000,000 at 12/31/2024.

The pretax excess of $2,400,000,000 is not reflected in the company’s book value per share, but is regularly reviewed by management as an indicator of investment performance. The company’s total debt to total capital ratio, excluding non insurance companies, increased to 25.9% at 06/30/2025, compared to 24.8% at 12/31/2024. This primarily reflected increased total debt and redemption of the company’s Series E, F and M preferred shares, partially offset by increased common shareholders’ equity. Subsequent to 06/30/2025, on 07/16/2025, the company extended the expiry date of its $2,000,000,000 unsecured revolving credit facility from 07/17/2029 to 07/16/2030 on substantially the same terms with the syndicate of lenders. Book value per basic share was $11.58 at 06/30/2025 compared to $10.60 at 12/31/2024, representing an increase per basic share in the 2025 of 10.8%, adjusted to include the $15 per share common dividend paid in the 2025.

In closing, common shareholders’ equity increased by approximately $2,000,000,000 to $25,000,000,000 at 06/30/2025, up from $23,000,000,000 at 12/31/2024, primarily reflecting net earnings attributable to shareholders of Fairfax of 2,400,000,000.0 other comprehensive income of $450,000,000 primarily related to unrealized foreign currency translation gains, net of hedges as a result of the strengthening of foreign currencies against the U. S. Dollar, partially offset by payments of common and preferred share dividends of $358 and purchases of 256,650 subordinate voting shares for cancellation for cash consideration of $361,000,000 or $14.00 $6.22 per share. That concludes my remarks, and I will now pass the call back to Peter. Thank you.

Peter Clark, President and COO, Fairfax: Thank you, Amy. We are now happy to take any questions you might have.

Conference Operator: Thank you. We’ll now begin the question and answer session. Our first question now is from Jamie Gloyn with National Bank Financial. Your line is open.

Derek Bulas, Unspecified, Fairfax: Yes. Thank you. Just Good wanted to first touch on the commercial lines themes that we’re seeing in The U. S. Market, but I guess it’s also in Northbridge as well, where it seemed to have the most bite this quarter.

What are the what are your updated views and perspectives on commercial lines? How is that impacting your U. S. Businesses and in particular property? And maybe a follow-up after that.

Peter Clark, President and COO, Fairfax: Sure, Jamie. Just on the pricing front, I think it depends on each company and by geography. But generally, the theme is that on the property business, rates are coming in some countries, low to single rate increases, but in many, it can be down low single digits to up to 10. While on the liability side and casualty, we’re still seeing strong rate and anywhere high single digits to up to 20%. In Canada, Northbridge, their commercial lines are about mid single digit in total with property down, casualty up.

Same at Crum and Forster, their liability business is up about 7.5%, property low single digits. Odyssey on the reinsurance side, property is down single digits casualty up single digits. And probably where we’re seeing most of the rate negative rate pressure that’s in Lloyd’s at Brit and Quay, where we’re seeing small single digit decreases. So at a high level, that’s where it is. But we write $33,000,000,000 of premium, and we benefit greatly from that diversification.

So there may be some lines that are going down, some lines going up, and we have the flexibility to be able to grow. And of course, number one is discipline. Underwriting focus is number one for all our companies, and we take a long term approach. So there’s no top line focus at any one of our companies. Next question, please.

Conference Operator: Our next is from Tom MacKinnon with BMO Capital Markets. Your line is now open.

Unidentified Analyst: Yes, thanks. Good morning, everyone. Question just with respect to Zenith here. Can you see high loss trends here? What is really driving this?

Is it is the legal environment getting worse here? And you are seeing you mentioned you’re starting to see rates stabilizing here. Would that lead us to believe that these loss trends won’t be higher? Or you’re going to just be able to price for them? Are you going to be able to get a combined ratio here below 100 because you’ve been running above

Yes.

Peter Clark, President and COO, Fairfax: Thanks, Tom. Thanks for the question. Yes, Zenith really their combined ratio has come under pressure from rate decreases. There’s been like probably close to five years of rate decreases. Now they’ve benefited in the past from reserve redundancies that helped the current calendar year numbers.

But those rate decreases are starting to compound and came through. But they have been stabilizing over the last six to twelve months. And so we don’t see decreases anymore. Rates are stabilizing. And in the second half of the year, they’re expecting to get price increases.

So we’re very pleased with that, Sarah, 100 focused on getting that combined ratio below 100. And the workers’ compensation market is a cyclical market. And Zenith has done an outstanding job over the last thirty years of managing the cycle, and they continue to do that. And they’re doing their very best to get that underwriting profit back in the short term. Next question, please.

Conference Operator: Our next is from Charles Frischer with LF Partners. Your line is now open.

Charles Frischer, Analyst, LF Partners: Good morning, Peter, Amy and Wade. Congrats on another great quarter.

Peter Clark, President and COO, Fairfax: Way I think about book value today, I take the quarter ending number at $11.58 dollars as a base. And what I do is I add $110

Charles Frischer, Analyst, LF Partners: for the per share in excess value,

Peter Clark, President and COO, Fairfax: not included in book. I take another $100

Charles Frischer, Analyst, LF Partners: for what I believe to be the true value of Poseidon and another 100 for the low mark on Bengal and Key and assume a 20% tax rate on those additions. I therefore conclude an adjusted book value of closer to 1,400 versus the $11.50 that you report, giving us about a 1.3x on my adjusted book. Is there something in that approach that you think is not accurate or might not be fair?

Peter Clark, President and COO, Fairfax: No, I think that’s a fair approach. Yes, we mentioned that our consolidated investments and investments in associates, we carry them based on equity accounting. And for the listed companies, the market value is almost $2,400,000,000 above that. So that’s a fair adjustment to make to the book value. That’s why we think our intrinsic value is higher than our current book value.

Unidentified Speaker, Fairfax: Our

Conference Operator: next question is from Bart Jarski with RBC Capital Markets. And your line is open.

Unidentified Analyst: Hi, good morning. Thanks for taking the question. Just one on capital allocation in terms of we’ve got a healthy cash position at $3,000,000,000 leverage mid-20s. So just wondering how you’re thinking about buying back more stock at current levels, especially with the disconnect in the intrinsic value?

Peter Clark, President and COO, Fairfax: No. Thanks for the question, Bart. Yes, we ended the quarter with about $3,000,000,000 in cash and marketable securities at the holding company. That does include we did a bond issue in May for approximately or for $900,000,000 And we haven’t deployed that capital as of now. We’re going to look in the second half of the year, see what our excess capital is, where our cash is and the dividends that we’ll be getting out of our subs.

And then we’ll take a harder look at where do we deploy that excess capital. But as we said in the past, our capital priorities have not changed. Number one is we want to be strongly financed. And we say that is significant cash in the holding company, no bond maturities for three years we look at, And then our credit facility of $2,000,000,000 unused bank lines of $2,000,000,000 which Amy said we expanded to five years ago again in the second quarter. Next is we want to make sure our insurance companies are adequately capitalized.

And we’ve been taking less dividends out the last number of years as their premium volume has gone significantly. As that slows down, there could be more capital there. We also as we said in the past, we have minority interest in some of our insurance operations. We’re always interested in purchasing that and share repurchases as well. Slowed down a little bit in the second quarter, but we think we will we always would like to buy back our own shares.

Unidentified Analyst: Great.

Peter Clark, President and COO, Fairfax: Next question, please.

Conference Operator: Our next question now is from David Pierce with Raymond James. And your line is open.

Unidentified Speaker, Fairfax: Good morning. Just just on Good morning. Just just on that that last point about buyback, can you provide a bit of context about why it slowed this quarter? And then on a related note, I’m just looking at the TRS sizing. Think banking on a large gain this quarter given how the shares performed.

Are you at the stage now where you’re considering reducing that position at any time in the near future? Thanks.

Peter Clark, President and COO, Fairfax: Thanks, David. Regards to the share buyback, for the first six months of the year, we bought back about 250,000 shares. And so we’re happy with that. As I said, that slowed down in the second quarter with about 51,000. But our stock was up almost 18% in the quarter.

So we’ll wait and see and see what we do in the second half. On the TRS, the Fairfax TRS, that’s been a great investment for us. We continue to think it will be going forward. And as we do with all our investments, we continually monitor and we look at our exposures, and we’re quite happy where we are today on that. Next question, please.

Conference Operator: Our next question from Jaeme Gloyn with National Bank Financial. Your line is open now.

Derek Bulas, Unspecified, Fairfax: Yes. I just wanted to clarify something on the water risk mark to market. Is it all investments within the WaterUS that would be mark to market? So I’m thinking of another publicly traded investment there that had a nice rebound this quarter and of larger scale. So is it isolated?

Or is it do they all mark to market and flow through that share profit?

Peter Clark, President and COO, Fairfax: Yes. In this fund, it’s a little odd because we equity account the fund because we’re a major shareholder in it. But this is a separate fund from the previous WaterUS One fund. And because this is the only holding in the fund, it’s mark to market, so it goes through our associate income. So a little different than our normal associates.

I hope that answers your question, Jamie. Next question, please.

Conference Operator: Now from Tom MacKinnon with BMO Capital Markets. Your line is open.

Unidentified Analyst: Yes. Just a question overall on the expense ratio. It’s up one point quarter over quarter, not due to commissions here. You note increasing technology spends as you kind of separate key from the pack. How should we be thinking about the trend in the expense ratio?

Is it more like it was in the first quarter? Or is it more like it was in the second quarter? Thoughts there. Sure.

Peter Clark, President and COO, Fairfax: I think a few things in the second quarter that affected the expense ratio. One is the separation costs at Key. You’re right. That should reduce over the second half of the year. Also at Gulf insurance, they had a significant insurance contract that non renewed at the end of last year.

And so the top line, the premium has come down, and that’s affected the expenses there. A number of our companies are doing systems new systems in place, Allied, Odyssey, and you’ll see the effects of that coming through. So it’s hard to say quarter to quarter where that might be, but all our companies are focused on the expense ratio, especially as premiums moderate. So I hope that gives you some clarity on that. Next question, please.

Conference Operator: Our next is from Bart Jarski with BMO Capital Markets. Your line is open.

Unidentified Analyst: Hi, it’s RBC Capital Markets, but all good.

Peter Clark, President and COO, Fairfax: Just wanted to follow-up. Can we get a bit of a deeper dive on Poseidon? It seems to be doing well, notwithstanding kind of what’s going on in

Unidentified Analyst: the macro environment. So I’d love to get updated views on that investment.

Peter Clark, President and COO, Fairfax: Sure. Yes, Poseidon, one of the big strengths at Poseidon is that they’re a shipping company. And a number of years ago, they’ve locked in the rates for the next ten years, five to ten years. And so they’re benefiting from that significantly. They’re not feeling the effects of the tariffs.

And we have about a 43% ownership in Poseidon. It’s led has an outstanding management team led by David Sokel and Bing Cheng. And we’re really just one thing supporting the management, riding with the management. And we’ve been extremely happy with that investment. Next question, please.

Conference Operator: Our next is from David Pierce with Raymond James. And your line is now open.

Unidentified Speaker, Fairfax: Morning. Just going back to the minority interest positions in Allied and Odyssey. My understanding is the Allied call option expires next year, I believe. Odyssey is a couple of years further out. Are you in a position yet to provide timing on when you might take those scenarios and partners out or just any guidance on what that might look like over the next year would be helpful.

Peter Clark, President and COO, Fairfax: Yes. No, months on the the auction. So we’re looking at that, and it will be part of our capital decision making in the second half of the year. There’s really there’s no significant lead time that we need to give direction on that. But both over time, we do hope we’d like to own 100 of both Allied and Odyssey.

Next question, please.

Conference Operator: Our next question is again from James Gloyn with National Bank Financial. Your line is open.

Derek Bulas, Unspecified, Fairfax: Yes, thank you. Just a couple questions

Unidentified Speaker, Fairfax: if

Derek Bulas, Unspecified, Fairfax: I can sneak into here. First, just on the interest and dividend income stepped up this quarter nicely run rate, like $2,700,000,000 Was there anything one timey in that number? Where we shouldn’t sort of run that through in the future quarters? And then secondly, on the the the noninsurance biz businesses, With Sleep Country and peak achievement in there, does this sort of reflect a fairly normal quarter? Or are there still some other moving parts we should consider in that business?

So two parts there.

Peter Clark, President and COO, Fairfax: Yes, sure. Just on the interest and dividend income, we had, I think, total $666,000,000 in the quarter. It was up. Big part of that is our investment portfolio is growing. Our fixed income portfolio, think, was around $49,000,000,000 it ended the quarter at.

That redeploying that cash that we’re earning, we get additional interest income from that. And our mortgage book still continues to develop very strong results, and we benefit greatly from that. So I’d say those would be probably the two things that are driving the increase. And so as our portfolio grows, our interest and dividend income will go up as well. Second, on the nonconsolidated companies.

Yes, we’re very pleased with we added Sleep Country at the end of last year, and we began to consolidate Peak at the end of the year. We think two both very good businesses will produce strong cash flows. And I think you’re right, Jamie, when you say it’s sort of more reflective in our in the results we can expect in that consolidated non insurance income going forward. So thank you again for the question. Next question, please.

Conference Operator: As I have no further questions in queue, I would like to turn it back to management for closing results.

Peter Clark, President and COO, Fairfax: Well, if there are no further questions, thank you for joining us on our second quarter twenty twenty five conference call. Thank you again, Fran.

Conference Operator: Most welcome. As we are concluded, again, thank you everyone for your participation. You may please disconnect at this time.

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