Fairfax Financial (TSE:FFH) reported underwriting income of $427 million for the second quarter of 2026, supported by favorable reserve development and continued profitability across its insurance and reinsurance operations, even as management described a softening market—particularly in North American property insurance.
For comparable purposes, the company’s IFRS 17 combined ratio improved to 81.9% from 84.1% a year earlier. A combined ratio below 100% indicates underwriting profitability. Fairfax said its global insurers and reinsurers generated underwriting profit of $289 million with a 92% combined ratio, while its North American insurers posted a 94.1% combined ratio.
Insurance Operations Remain Profitable
In North America, Northbridge reported an 89% combined ratio. Crum & Forster generated $54 million of underwriting income and a 95.5% combined ratio, while workers’ compensation specialist Zenith returned to a small underwriting profit with a 98% combined ratio after reporting ratios above 100% in each of the prior two years, according to management.
Fairfax’s international operations produced $55 million in underwriting income and a 95.2% combined ratio, with each international segment reporting underwriting income. Colonnade, which operates in Eastern Europe, reported an 87.7% combined ratio. Bryte recorded a 94% ratio, while Fairfax Asia posted 94.6%, led by Singapore Re at 87.3%. Gulf Insurance’s combined ratio was 99.3% despite difficult conditions associated with the war in Iran.
The company recorded $152 million in favorable reserve development during the quarter, equivalent to a 2.3-point benefit to its combined ratio. Management said every major segment contributed favorable development and emphasized that Fairfax continues to establish reserves conservatively, particularly for long-tail insurance lines.
Fairfax’s insurance and reinsurance companies wrote annualized gross premiums of more than $34 billion. Management said underlying margins remain attractive overall, though pricing has become more competitive in several areas.
Softening Property Market Drives Underwriting Discipline
During the question-and-answer session, management said market softening has persisted across many operations, particularly in North American property insurance. The company characterized property as the line facing the greatest pricing pressure, which has made premium growth more challenging.
Rather than pursuing top-line expansion, Fairfax said its companies are emphasizing portfolio optimization, favoring higher-margin business and reducing exposure to less attractive opportunities. Management noted that property represents roughly 35% of total premium volume, providing diversification against pressure in that market.
The company also pointed to international growth as an offset. Fairfax’s standalone international segment grew 8% during the quarter, and management said international operations represent about 20% of total business. Including international business written by larger operations such as Allied World, Odyssey Group and Brit, international exposure is closer to 35% and growing.
Management said the company had not seen material claims impacts from European wildfires as of the call, though it was monitoring the situation. It also said Northbridge had not been materially affected by Canadian wildfires.
Investment Portfolio Emphasizes Liquidity and Short Duration
Wade Burton, President and Chief Investment Officer of Hamblin Watsa Investment Counsel, said Fairfax ended the second quarter with a C$77.3 billion investment portfolio. Fixed-income investments accounted for C$52.3 billion, while common and preferred stocks, total return swaps and real estate totaled C$13.4 billion. Associate and consolidated investments were C$11.6 billion.
The fixed-income portfolio included C$8.5 billion of cash and short-term bonds, largely U.S. Treasury bills; C$32 billion of government bonds; C$6.1 billion of corporate bonds; and C$5.6 billion of mortgages. Burton said more than 75% of the portfolio was invested in government bonds, with the balance in high-quality corporate bonds and first mortgages. The portfolio had a two-year duration and a 5% yield.
Burton said Fairfax believes inflation risks are tilted higher amid fiscal spending, deficits, tariffs, wage and goods inflation, and geopolitical developments. He said the company’s high-quality, short-duration fixed-income positioning is suited to that environment.
Fairfax’s equity and equity-like portfolio totaled about C$25 billion. Burton said the company targets a 15% return from these investments and evaluates holdings based on management quality, financial soundness and the valuation at which they are carried.
Burton also said Fairfax is using artificial intelligence internally and has seen gains in analytical productivity. However, he said the company has not identified software businesses whose long-term earnings power can be assessed with sufficient confidence amid potential AI disruption, despite declines in some software-company valuations.
Poseidon Sale, Kennedy Wilson Transaction and Financial Position
Amy Sherk, Vice President and Chief Financial Officer, said Fairfax sold 23.1% of its prior 45.3% equity interest in Poseidon on May 29 for $1.9 billion in proceeds. The sale reduced Fairfax’s stake to 22.2% and resulted in an $838 million realized gain. The company continues to account for its retained Poseidon investment using the equity method.
Fairfax also participated in the acquisition of the outstanding Kennedy Wilson shares not already owned by the company and certain Kennedy Wilson executives. Fairfax invested $400 million in cash and contributed its existing Kennedy Wilson preferred and common holdings to the acquisition vehicle. Although Fairfax has a majority economic interest through its investments in the vehicle, it does not control Kennedy Wilson and is accounting for its indirect equity interest using the equity method.
Non-insurance companies generated operating income of $194 million in the second quarter, up from $126 million in the prior-year period. Sherk attributed the increase primarily to improved operating income at a majority of operating companies and at Fairfax India.
At June 30, Fairfax held C$2.3 billion of cash and investments at the holding company and had an undrawn C$2 billion unsecured revolving credit facility. Book value per basic share was $1,304.39, up 4.8% in the first six months of 2026 after adjusting for the $15-per-share dividend paid during the first quarter.
About Fairfax Financial (TSE:FFH)
Fairfax Financial is a holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and the associated investment management.
