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April 15, 2009
2
Guiding Principles
Objectives
We expect to compound our book value per share over the
long term by 15% annually by running Fairfax and its
subsidiaries for the long term benefit of customers,
employees and shareholders – at the expense of short term
profits if necessary
Our focus
O f is
i long
l term
t growth
th in
i book
b k value
l per share
h andd
not quarterly earnings. We plan to grow through internal
means as well as through friendly acquisitions
We always want to be soundly financed
We provide complete disclosure annually to our
shareholders
h h ld
3
Guiding Principles
Structure
Our companies are decentralized and run by the presidents
except for performance evaluation, succession planning,
acquisitions and financing, which are done by or with
Fairfax. Cooperation among companies is encouraged to
the benefit of Fairfax in total
C
Complete
l t and d open communication
i ti bbetween
t F
Fairfax
i f and
d it
its
subsidiaries is an essential requirement at Fairfax
Share ownershipp and large
g incentives are encouraged
g
across the Group
Fairfax head office will always be a very small holding
company and d nott an operating
ti company
4
Guiding Principles
Values
Honesty and integrity are essential in all of our relationships
and will never be compromised
We are results-oriented — not politicalp
We are team players — no "egos”. A confrontational style is
not appropriate. We value loyalty — to Fairfax and our
colleagues
We are hard working but not at the expense of our families
We always look at opportunities but emphasize downside
protection
t ti and d llookk ffor ways tto minimize
i i i lloss off capital
it l
We are entrepreneurial. We encourage calculated risk-taking.
It is all right to fail but we should learn from our mistakes
We will never bet the company on any project or acquisition
We believe in having fun — at work! 5
Financial Results
6
23%
%
11%
10%
8%
7%
6%
5%
Share
5%
3%
3%
3%
3%
2
2%
(18% %)
(18%)
(19%)
(19%)
(19%)
(22%)
(24%)
(31%)
(32%)
(3
37%)
Fairfax and AIG calculated using the same methodology as Dowling & Partners, based on company data (AIG excludes government financing)
(3
37%)
(43%))
(48%)
(65%)
(100%)
7
U.S. P&C Insurance Companies
5-Year
5 Year BVPS and Share Price
5-Year Compound Annual Growth Rate
2003-2008
BVPS Share Price
1 Fairfax (1) 11.2% 11.5%
2 Chubb 11.0% 8.4%
3 T
Travelers
l 9 9%
9.9% 2 7%
2.7%
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 Capital
p ((19.8%)) ((45.6%))
15 AIG (49.5%) (52.7%)
(1)
BVPS in U.S. dollars. Share price in Canadian dollars
8
Fairfax Long Term Performance
Compound Annual Growth Rate to 2008
Share Price
5 Years 10 Years 15 Years 23 Years
Ranking 1 12 2 1
Growth Rate 11 5%
11.5% (3 2%)
(3.2%) 13 1%
13.1% 23 1%
23.1%
Number of
Companies 15 15 12 8
10
2008 Underwriting Results
Crum &
Northbridge Forster OdysseyRe Consolidated
As Reported
Underwriting Loss (78.7) (177.2) (73.5) (457.7)
Combined Ratio 107 3%
107.3% 117 6%
117.6% 103 5%
103.5% 110 1%
110.1%
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
Advent Underwriting Loss - - - 112 4
112.4
11
Importance of Float –
Operating Companies
Unlike money management business (royalty on funds
managed),
g ), results (g
(gains)) 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 to
shareholders (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%
Crum &
Northbridge Forster OdysseyRe Consolidated
OTTI 274 197 359 996
MTM 103 87 141 504
15
Subsidiary Growth in Book
Value Per Share
2001-2008
Compound Annual
Growth Rate
Northbridge 19.2%
Crum & Forster (US GAAP) 18.9%
OdysseyRe (US GAAP) 21.2%
1985 2008
Net Premiums Written 12.2 4,332
Net Earnings (0.6) 1,474
Investment Portfolio 23.9 18,395
Common Shareholders' Equity 7.6 4,866
17
International Diversification
India – ICICI Lombard General Insurance
For the Years Ended March 31
In USD millions 2002-2008
2002 2008
2002 2008 Average
Investment Portfolio 59 88
Total Shareholders' Equity 20 39
Investment Portfolio 6 25
Total Shareholders' Equity 4 20
Investment Portfolio 62 74
Total Shareholders' Equity 18 65
1) Risk repriced
25
U.S. Stock Valuations Back
To Normal
Stock Market Capitalization as a Percentage of Nominal GDP
Monthly - 1924 to Present
180%
160%
140%
120%
100%
80%
Average = 60.6%
60%
40%
20%
0%
8%
35,000
7%
30,000
6%
ond Yield
25 Index
5% 25,000
10-Year Bo
Nikkei 22
4% 20,000
3%
15,000
2%
10,000
1%
0% 5,000
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
27
Stock Market Crash of 1929
Dow Jones Industrial Average vs.
Long Term U.S. Treasury Yields
1925 to 1939
5% 400
350
eld
ge
dustrial Averag
S. Treasury Yie
4% 300
250
3% 200
00
150
2% 100
D
L
50
1% 0
1925 1927 1929 1931 1933 1935 1937 1939
14%
Fall of Berlin Wall
12%
Onset of Iron and
Bamboo Curtains
10%
8%
6%
Average = 4.24%
4%
2%
Global
Global market Restricted market market
0%
1872 1889 1906 1923 1940 1957 1974 1991 2008
Source: Hoisington Investment Management
29
High Yield Spreads
1-10 Year High Yield Spreads
2,000
1,800
ead (bps) overr U.S. Treasurries
1,600
,
1,400
1,200
1,000
800
600
Spre
400
200
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
700
ead (bps) overr U.S. Treasuriies
600
500
400
300
200
Spre
100
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
3,000 20.0
ales Proceeds ($ millions)
$ billions)
18.0
2,500
Gains on Sale and
16.0
a
DS Portfolio ($
14.0
2,000
12.0
st, Cumulative G
Amount of CD
ue Including Sa
1,500 10.0
8.0
1,000
6.0
Notional A
Market Valu
Cumulative Cos
4.0
500
2.0
0 00
0.0
C
220
200
32% decrease
180
160
140 1989
1894 1979
123.9 124.2
122.1
120
80
60
1890 1899 1908 1917 1926 1935 1944 1953 1962 1971 1980 1989 1998 2007
(2)
Common Stocks 17% 22%
Other Investments 7% 3%
Total 100% 100%
(3)
Total Investment Portfolio $19.1B $20.0B
-10%
0%
U.S.
U S P&C
Surplus
GAAP
S&P 500
-20%
-30%
Cumulative real
premium growth 16% 31% 30%
i three
in th following
f ll i
years
-40%
Sources: Swiss Re, Thomson Financial, A.M. Best, Towers Perrin, Swiss Re Economic Research & Consulting 35
Well Positioned for a Turn in the Cycle
3,000
Northbridge (C$)
Odyssey Re
Crum & Forster
2,500
ums Written
2,000
1 500
1,500
Gross Premiu
1,000
G
500
0
1999 2000 2001 2002 2003 2004 2005
36
Fairfax’s Strengths
Demonstrated Over 23 Years
1. Operations – Disciplined operating management
focused on underwriting profitability and prudent
reserving
¾ P&C Insurance Operations
• Canada – leading commercial insurance operation
• United States – large commercial operation across
the country
• Asia – Hong Kong, Singapore, Thailand and largest
private operation in India
• Middle East – Dubai and Jordan
• Eastern Europe
p – Poland
37
Fairfax’s Strengths
Demonstrated Over 23 Years
38
Ready for the Next Decade -
Building on Fairfax’s
Fairfax s Strengths
Our guiding principles have remained intact
Excellent long term performance
Demonstrated strengths
¾ Strong operating subsidiaries focused on
underwriting profitability and prudent reserving
¾ Conservative investment management providing
excellent long term returns
Well positioned for the future
39
40