Fairfax Financial Holdings Limited (FFH) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Fairfax Financial Holding Limited 2020 Annual General Meeting. [Operator Instructions] Questions can be submitted by e-mailing them to [email protected]. Your host for today's call is Prem Watsa. Mr. Watsa, please begin.

Thank you, Marge. Good morning, ladies and gentlemen. Welcome to our 35th Annual Meeting, 34 years since we began in 1985. I am Prem Watsa, Chairman of Fairfax. This is the first time our AGM is conducted online. And hopefully, it will be the last time. A warm welcome to all our shareholders and employees across the world and to all the people who support us. We will miss seeing you in person this year, but we will make up next year. After 13 -- about 13 years ago, under similar circumstances, I related this story to you at our annual meeting. Pastor Robert Schuller, of Crystal Cathedral fame in California, was giving a talk to some farmers in the United States, Midwest, who had gone through some very tough times. No rain, crop failures, many farms were being liquidated, and Pastor Schuller did not know what to say. Just as he walked on to the podium, the words came to him. Tough times don't last, tough people do. Well, as I sit here, speaking to you all, that's the theme of our Annual Meeting today. Tough times don't last, tough people do. And that describes all of you, our shareholders and employees. We have just celebrated 34 years, and we have had some great years and more recently some tough years. As always, we wanted to discuss our company openly with you and then open it up to Q&A, where we have Andy Barnard and I to answer your questions. I have already said, and to repeat, we are very blessed to have such a wonderful group of long-term shareholders who have stood by us through the ups and downs of business life over a long period of time. And like you, I'm very disappointed in what the fear created by COVID-19 has done to our stock price. And I'm working hard to ensure we remain strong and thrive in these difficult times. We had a great 2019, and 2020 has begun in an unprecedented way with the coronavirus pandemic, which has caused the whole world to be locked down. I must say, our unique culture is a very valuable asset and something I've talked to you in the past. It's not shown on our balance sheet, but the creation and preservation of that culture is the biggest achievement for us over the past 34 years and the continuing driver of our success. And as you know, it's protected for all time. This fair and friendly culture, which is in our name, is why companies all over the world want to deal with us. It is our biggest advantage and regarded seriously. And in tough times like these, it comes to the fore. I wanted to take this opportunity to thank John Palmer, who will be retiring from our Board at this AGM. After 8 years on our Board, John has been a strong supporter of Fairfax over all these years, and we've benefited from his broad range of experience. We wish him and his wife Kat well in his retirement. Taking John's space on the Board will be Bill Weldon. Bill worked with Johnson & Johnson for over 40 years and was Chairman and CEO from 2002 to 2012. Bill has been a consultant to Fairfax, giving us the benefits of his experience in running a large, decentralized, highly principled company. So Bill and Fairfax are already familiar with each other. One other Board member, Tony Griffiths, would like to continue as a Director but not as a Lead Director. So I'm pleased to report that Bill McFarland has kindly agreed to assume the Lead Director role after this meeting. Now I mentioned this in our annual report that May 21, 2019 was the saddest day in our 34 years as we learned of the sudden passing of Dave Bonham. Dave was incredibly bright and disciplined as our CFO with a great sense of humor, quick wit and caring nature. He was a great chief financial officer, colleague and friend, and we will all miss him greatly. As I also mentioned in our annual report, Paul Rivett told me recently that for family reasons he wanted to retire as President of Fairfax. It was with great sadness that I accepted his decision. For 17 years, Paul has given us all and has been instrumental in our success over that time period. He retires with our gratitude and best wishes to him, his wife Janice and his children in his retirement. Paul has agreed to be involved in certain Fairfax investees, including Recipe and Fairfax Africa. He is, of course, Chairman of Recipe, Vice Chairman of Fairfax Africa. I and other Fairfax's Executive Officers will be assuming Paul's other responsibilities. Now Ronald Schokking has been a Fairfax officer since 1989, and he will be retiring this year. Ronald has done a great job for us as a Treasurer and several financial roles, most importantly in developing and overseeing our international financial operations. Ronald will be retiring as an officer at the end of 2020, although he will continue to be available to us as a consultant. We also wish him and his wife Lisa and his family the very best in his retirement. We were pleased to announce in August that Jen Allen was appointed CFO of Fairfax. Jen has been with Fairfax for over 13 years, more recently serving as Vice President of Fairfax, and CFO of Fairfax India and Fairfax Africa. Jen has already done an outstanding job in her first year. At the same time, we are happy to announce that Amy Sherk, who've been with us for 16 years, was appointed CFO of Fairfax India and Fairfax Africa. Both Jen and Amy have demonstrated the qualities with my -- as officers of Fairfax. We are so fortunate to have this executive depth within our group. With Paul retiring, I wanted to say that our Chief Operating Officer, Peter Clarke, has more than risen to the occasion, just doing an amazing job. All of us owe a huge thank you to Peter. Our shareholders and our employees, when you meet him, please give him a big thank you. Over our 34-year history, we have always operated at Fairfax with a small team, which with great integrity, team spirit and no egos protects our company from unexpected downside risks and takes advantage of opportunities when they arise. Our outstanding team of officers at Fairfax and Hamblin Watsa is further strengthened by, of course, Andy Barnard, Jonathan Godown and Bijan Khosrowshahi. This group has worked together for a long time with trust and a long-term focus. So today, even though we are all coming together under web, we will, as we have done for the past 34 annual meetings, quickly go through the formal meeting with a short presentation this time without slides, have a question and answer. You have sent your questions in, and you can still send them into [email protected]. Jeff Stacey and Jeff Fenwick will moderate the question and answer. Andy Barnard and I look forward to answering your questions. So just a quick reminder that at 2:00 p.m. today, we will have the Fourth Fairfax India Annual Meeting similarly on the web. Just before moving on to the formal part of the meeting, I'll ask Eric Salsberg to make a statement followed by the formal meeting.

Thank you, Prem. Good morning. I'm Eric Salsberg, the Vice President, Corporate Affairs and Corporate Secretary of Fairfax Financial Holdings Limited. Welcome to Fairfax's 2020 Annual Shareholders Meeting, which, as Prem has said, will be followed by a presentation by him and a Q&A session. Forward-looking statements may be included during these proceedings. 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 and which now include the risk of adverse consequences of Fairfax's business investments and personnel resulting from or related to the COVID-19 pandemic. Fairfax disclaims any intention or obligation to update or revise any forward-looking statements except as required by applicable securities law. I'll now ask Prem Watsa to begin the annual meeting.

Thank you very much, Rick. Ladies and gentlemen, welcome to the Fairfax Annual Shareholders Meeting, the formal part. As I mentioned before, I'm Prem Watsa, Chairman and CEO of Fairfax, and I will act as the Chair of the meeting. The meeting will now come to order. I shall ask Rick Salsberg, the Secretary of Fairfax, to act as Secretary of the meeting; and Shirley Tom and David Cavasin of Computershare Trust Company of Canada to act as scrutineers. I can report that as a result of reviewing an affidavit of mailing and a preliminary report of the scrutineers, I'm satisfied that notice of this meeting has been duly given, that a quorum is present and that this meeting is, therefore, properly called and constituted. I propose to move quickly through the formal business. To that end, I announce that the minutes of the previous shareholders' meeting held on April 11, 2019, are available for inspection upon request to Fairfax's Corporate Secretary. As well, I now formally place before this meeting, the annual report of the company for the year ended December 31, 2019, which includes the company's financial statements for its fiscal years ended December 31, 2019 and 2018 and the report of the auditor, PricewaterhouseCoopers, on the 2019 statements. In addition, I declare that the total number of votes attached to shares represented at this meeting by proxy, which had been directed to be voted in favor of each matter to be considered at the meeting, is in each case, not less than 95% of all votes that may be cast in such matters. I will now move directly to the election of directors and invite a nomination for directors.

Yes, I'm Eric Salsberg, and I nominate as directors of the corporation from Monsieur, Messrs and Madame, Anthony Griffiths; Robert Gunn; Karen Jurjevich; R. William McFarland; Christine McLean; Timothy Price; Lauren Templeton; Benjamin Watsa; Prem Watsa; and William Weldon.

Thank you, Rick. As no other nominations for directors have been received and has the number of directors nominated, there's exactly the number to be elected, I instruct the Secretary to cast a single ballot for election of the nominees as directors and declare those 11 nominees elected as directors of the corporation. I now invite a resolution regarding the appointment of an auditor.

I am John Varnell, Vice President, Fairfax, and I move that PricewaterhouseCoopers LLP be appointed as auditor of the corporation to hold office until the next annual meeting.

I'm Eric Salsberg, and I second that motion.

Thank you, John. Thank you, Rick. I will assume that the attendees are voting in favor of this motion, except to the extent that any attendees now indicate otherwise. I declare this motion carried and PricewaterhouseCoopers appointed as auditors. I propose now to terminate this meeting. After that, I would like to talk to you about our operations, and then our moderators will present your questions. I now invite a motion for termination.

I'm Eric Salsberg, and I move that this meeting be terminated.

I'm John Varnell, and I second the motion.

So thank you, Rick and John. I declare the meeting terminated. So this ends the formal meeting. And this is usually when I have a slide presentation for you all, followed by a Q&A. But in lieu of that, I'm going to say a few words about '19 -- 2019 and about the first quarter 2020, and the coronavirus pandemic. So we have no slides this year, but we're looking forward to your -- to answering your questions. 2019 completed 34 years since we began in September 1985. If you look at all the companies listed on the New York Stock Exchange, American Stock Exchange and NASDAQ at the end of 1985, there were 6,100 companies. This is at the end of 1985, 6,100 companies. At the end of 2019, there were only 677 still trading on these 3 exchanges. That is to say, only 1/10th survived, i.e., almost 90% have either gone bankrupt, been taken over, merged or something like that. So we are very blessed to be in the category that have survived because only 10% have survived out of those 6,000-odd companies. If you then ask how many have thrived, i.e., made more than 15% return over that 34-year time period? It's only 1% or about 67 companies. The Fairfax's 17.8% compounded rate of return would, of course, put us in that 1%. So you can see we have been blessed mightily. I am really grateful for that long-term record. But I do know many of our most recent shareholders have not benefited from these long-term returns. And I want you to all know when all of our -- more recent shareholders to know that we are working hard to remedy that. Our insurance companies had another outstanding year in 2019. We had gross premiums of $17 billion, up 10%, with a consolidated combined ratio of 96.9%, with great reserving. As I mentioned in our annual report, we are growing again. After we get past COVID-19, we expect to grow again. If you include our equity accounted insurance companies, Gulf Insurance, Eurolife and Digit Insurance, we have a total of $19 billion in gross premiums from all over the world, a first-class collection of the best insurance companies in the world run by our very talented presidents, who have been with us on average for 13 years with Fairfax, almost 20 years on average in their individual companies. Some of them, of course, 25 years plus. This stability in management is a very huge strength for us and always has been. In 2019, we had an excellent year in our investment portfolio as we earned 6.9% on our portfolio, as shown on Page 8, in the annual report. Our equity investments went up significantly in 2019, $1.6 billion, which, as you will see, we mostly gave up in the first quarter of 2020 due to the coronavirus crash in the stock market. We like the stock and bond investments in our investment portfolio of $39 billion, and we will be happy to answer any questions you have on them. We provide a lot of detail in our annual report. So I didn't want to spend too much time on it other than say that we are very happy to answer your questions. The combination of a 97% combined ratio and a 6.9% return on our investment portfolio led to a 14.8% growth in book value in 2019. On Page 9 of our annual report, we discuss our investments in India. They're significant, and we are excited about that potential long term. Now we -- many of you have asked the question B, and I wanted to emphasize, we continue to be committed to buying back our shares over time at attractive prices. But rest assured that we will not buy back shares at the expense of our financial position or at the expense of taking advantage of a hard market and insurance. This is a balancing act. But even so in the last 27 months ending December 2019, we have purchased approximately 1.3 million shares for cancellation and to provide long-term share incentives for our executives. As you know, we plan to grow organically in the next decade, and our excess capital will be used to retire our shares outstanding, of course, only at attractive prices. We ended 2019 with a very strong financial position. We had no significant bond maturities for the next 3 years because we refinanced them, a cash and marketable securities portfolio at the holding company of $1.1 billion, and an unused 4-year bank line of credit of $2 billion, which brings us to 2020. Wow, the first black swan was the coronavirus impacting China, Asia, Europe and then North America. The second was the collapse in oil prices. And most importantly, the lockdowns that closed down the world's economy. This was unprecedented and totally unexpected. Extreme uncertainty in my experience leads to panic, and this is what happened as the U.S. stock market dropped by 36% in 21 days, the fastest decline since October 1929. Have we experienced this before? By definition, no, as otherwise, it would not have been unprecedented. But over my career, 3 events come to mind that were also unprecedented and created great uncertainty that led to panic in the financial markets. The most recent was the great financial crisis in 2008-2009. Financial institutions were falling down like ten pins, Bear Stearns, Lehman Brothers, AIG, Citibank and many, many more financial institutions bit the dust. And then GM, Chrysler went bankrupt. General Electric, GE, could not roll over its short-term commercial paper. Depression was in the air. The stock markets dropped approximately 50%. The U.S. government and the Fed responded, the Dow Jones made a low in March 2009, and we've never seen it again. The second event that comes to mind for me was September 11, 2001. All of you will remember the 2 planes crashing into the World Trade Center, making them collapse within 2 hours in front of our eyes on TV, followed by the collapse of 4 more buildings. A third plane crashing into the Pentagon and a fourth plane taken down in Pennsylvania. New York City felt like it would never be safe again. Stock markets closed for a week. No planes were allowed to land in the United States for a week. Insurance for large buildings, like the Sears building in Chicago, was no longer available. Fear was palpable. Extreme uncertainty led to panic. Again, stock prices went down approximately 30% from its 2000 high over the next year. We learnt about security for stadiums, buildings, and the stock market bottomed out in 2002 and never saw that level of gain other than briefly in 2009. The last event for me was long ago in 1974. President Nixon was being impeached and resigned, and OPEC was trying to flex its muscles by raising oil prices from $2 per barrel to $10 per barrel, a fivefold increase. And they increased stock -- stock prices were down approximately 30% again from the 1972 high and depression was in the air. Oil prices were used by every country and the oil was used by every country in the world and the fivefold increase was affecting every country. The Dow Jones low of 577 in December 1974 was never seen again. All of this is to say that extreme uncertainty causes panic but it also creates great opportunity. The lesson from the past is that this too shall pass. So no complacency as we go through this trying period. But there is the other side of the coronavirus. Social distancing is working. The curve is being flattened. We will get even faster testing, which is now at 5 minutes. We will have medicine to fight and prevent the spread of COVID-19, and we will get a vaccine. The U.S. and world economy will get restarted again and normalcy will return. We don't know when, but it will happen. In this environment, we thought it prudent to draw on our 4-year credit line of $2 billion, for which we have paid standby fees of 34 basis points annually. And we invested this draw from the bank line at a positive spread. So there was no cost to us. Including our draw from our credit line of $1.8 billion, $600 million from the sale of RiverStone U.K. and after providing approximately $400 million of capital support to our insurance companies and paying $300 million in dividends, we have $2.5 billion in cash and marketable securities in our holding company. On top of that, we have approximately $500 million in our consolidated and associate investments, which are -- which can be used if necessary at our insurance companies. We disclosed in our press release on Tuesday, April 14, based on preliminary indications and current estimates, we anticipate that the drop in stock prices and strengthening of the U.S. dollar will result in our book value dropping approximately 12% in the first quarter of 2020. And we anticipate a first quarter loss of approximately $1.4 billion because of mark-to-market losses in our portfolio. Now we have mentioned at our past annual meetings and in our annual reports and quarterly calls, with IFRS accounting where stocks and bonds are recorded at market and subject to mark-to-market gains or losses, quarterly and annual income will fluctuate, and investment results will only make sense over the longer term. Our insurance companies are in great shape with combined ratios below 100% in the first quarter, very good reserving and growth in premiums on a consolidated basis of 12%. We expect that growth to slow down until the U.S. economy and the world economy recovers. Now we have never reached for yield in our bond portfolios. The significant opening up in investment-grade spreads in the last 6 weeks has allowed us to sell some of our treasuries. We have about -- we have $9 billion plus in treasury and short-dated bonds and $2.9 billion in high-quality large company corporate bonds and some municipal bonds with an average yield of approximately 4.25% and an average term of 4 years. We also added some high-quality common stocks like Exxon at a 10% yield to our portfolios. Our operating income, underwriting profit and interest and dividend income remained solid in the first quarter. So yes, this has been a trying period for all of us at Fairfax as it has been for individuals and businesses all over the world. But make no mistake, we expect to successfully navigate this time period and with some of the best insurance companies in the world and great investment talent. And $2.5 billion in cash and marketable securities in our holding company, we expect to do very well in the years to come. So this comes to the end of my prepared remarks, and we will now move to the question-and-answer session with Jeff Stacey and Jeff Fenwick. Jeff Stacey has been a shareholder of us almost from inception, and many of you know him. And Jeff Fenwick is an analyst at Cormark, followed Fairfax for long time -- much in excess of 10 years. And a big thank you to them for being the moderators today. So with that, and I pass it over to you, Jeff Stacey.

Thank you, Prem. Good morning, and a warm welcome to everyone who's participating in today's annual meeting webcast. Before we get started with questions, I just want to remind everyone one last time that it is still possible to submit questions by sending them to [email protected]. That link is also available in the press release announcing the annual meeting webcast details on the Fairfax Financial website. We will be monitoring this e-mail during the meeting, and we will do our best to get any questions that come in. As you would expect, we received many questions over the last week. Jeff and Rick and I reviewed all of the questions and have grouped them into common themes and topics to avoid duplication. And I would just also add that we got a lot of questions about Fairfax India, which won't be covered in this meeting and we'll leave them to the meeting this afternoon for discussing Fairfax India. And then finally, just before we get started, Jeff and I thought it was appropriate that we acknowledge Fairfax's press release from Monday announcing a USD 2 million donation to food banks and communities where Fairfax operates throughout Canada and the United States. Clearly, the COVID-19 pandemic is creating hardship and stress for many, many people. We've been told repeatedly by political, community and public health leaders that we are all in this together. So Prem, just -- Jeff and I just wanted to say congratulations to you and everyone at Fairfax for making a difference in these difficult times. So with that, let's get to the questions. And it's my pleasure to turn it over to Jeff Fenwick to get things started.

Okay. Thank you, Jeff, and good morning, everyone. Prem, for the first question, the first one is somewhat high level. And the question is, in this current environment, do you think that it impairs Fairfax's ability to operate right now? Or on the other hand, perhaps it creates an opportunity to expand the business if Fairfax is positioned better than its peers?

Good question. Jeff, thank you very much. No, it does not impair our ability. In fact, we plan to take full advantage of the expansion -- potential expansion in the insurance business. Our business has already grown at 12%, as you know, in the first quarter. In the fourth quarter last year, it grew at about 17%. So that momentum continues. We've got a very good decentralized group of businesses. And we plan to take full advantage of the opportunities in the insurance business for us. Thank you for that question, Jeff. I'll pass it on now to Jeff Stacey. And I'll remind you, we have Andy Barnard on the line also. And whenever appropriate, I'll pass it on to Andy Barnard.

So Prem, we had a number of questions come in about the company's capital position and the balance sheet. So there's some speculation that Fairfax will be downgraded due to the equities portfolio being marked significantly lower. Will the Q1 loss require Fairfax to raise additional equity to maintain its credit ratings? Could you please comment on the conversations you are having with rating agencies and the ramifications if you are downgraded?

Yes. No, thank you very much. No. There's no discussions on being downgraded. These fluctuations we reported fully, but that's what they are. And so there's no ratification on our rating agencies, all the big rating agencies, we've talked to them and shared all of these results for them -- with them. And Jeff, we're focused on taking advantage of the opportunities. We took down the credit line because we felt that $2.5 billion of cash and marketable securities is the best way to go through this time period. We have a ton of opportunity in front of us. We have access to the bond markets all over the world. The premiums will be -- because of the slowdown, premiums will be flat in this next few quarters. And -- but we have many, many opportunities to raise money if we wanted to. And we have no plans to raise any common stock positions and [ meaning ] issue any common shares because we think common shares are very inexpensive. But in our mind that we have a lot of options. So thank you for that, Jeff Stacey, because both of them are Jeffs, I'm going to call Jeff Stacey and I'll pass it on to Jeff Fenwick.

Great. Thank you, Prem. Perhaps with a brief follow-on to that question that we've received, specifically asking about debt covenants and is there anything there that we, as shareholders, should be concerned about?

So the debt covenants is on our bonds. They're all the investment grade bonds, Jeff. So there's no debt covenants. They're all, pay your interest, pay your principal. On the -- on our bank line, we have the -- it's a 4-year bank line. And we have disclosed in our -- I think in our year-end annual report that we have a covenant of 35% debt to equity. And that definition is -- we're well within that definition of 35%. That's the only covenant we have, 35%, and that's in our annual report 2019 and 2018. Thank you, Jeff. We pass it on to Jeff Stacey.

So Prem, we had a lot of questions about the insurance operations specifically come in. You have alluded at different times over the last year about the hardening market and so we had a lot of questions around. Could you please discuss whether the current environment has specifically changed the hardening market? And do you think that hard market conditions can continue for insurance?

It's a very good question. It's -- as you know, it continued well. That 12% was mainly rate increases that we had, 12% growth in the consolidated insurance premiums, gross premiums. But to put a little more color why not pass that on to Andy Barnard. Andy?

Sure, Prem. Good morning, everyone. No, we're of the view that the hard market conditions that we have been experiencing through 2019 and into the first quarter of 2020 will continue. As Prem mentioned, we experienced very strong growth in the first quarter. We are seeing continued very strong rate action, rate improvement in our major companies. Allied World and Northbridge in the first quarter had rate increases in the double-digit category across their portfolios, Odyssey, Crum and Northbridge had high single-digit rate increases. So we are of the view that rates will continue moving in a positive direction. Clearly, the impact of the coronavirus and the shutdown of the economy is another major variable, and we will see how that plays out. But as we look at our business today, things are continuing to look very strong in terms of market conditions.

Thank you, Andy. I'll pass it on to Jeff Fenwick.

Okay. Perhaps one more question here on insurance. We've had a lot of questions about the potential exposure that Fairfax has with some lines being impacted by this COVID-19 crisis. Specifically, could you speak to Fairfax's exposure to areas such as business interruption risk or workers' compensation or other lines that could be potentially impacted here?

That's a good question, Jeff Fenwick. I'll pass that on to Andy Barnard.

Thanks, Prem. So this is, of course, is a very -- it's the headline issue, I would say. With the insurance industry today, how is business interruption going to impact our losses, our experience. In general, it's our view and certainly the view of the industry that business interruption requires there to be physical damage to property in order to be triggered. That is the standard coverage in the industry for business interruption, and that is the coverage that our companies, in general, provide. And it would, therefore, require an overturning of the contracts in order to open them up to provide broad-based business interruption coverage for losses arising from COVID-19. There are isolated exceptions to that general approach. In Fairfax, those are very isolated and limited and are not a source of a major concern for us. So we will monitor. We are monitoring. We're involved in some of the industry groups that are engaged in this debate going on in the United States. But our view -- our feeling is that we are on very strong ground with the position that this is not covered under the general business interruption coverages that are sold in the marketplace.

And Andy, just to add to that, of course, in the United States with lawyers and governors are trying to overturn this and say, you have to pay irrespective. As Andy says, we feel very comfortable in saying to you that it's highly unlikely that we'd have to pay any significant amounts of money. But this -- if the governors try to change this, some of them are retroactively, this will go to, we think, eventually to the Supreme Court and contract law is very specific, contracts in the United States are sacred. And we think just like it is in the U.K. that it's highly unlikely they'd be broken. But it is an item that is being discussed in the property and casualty industry, Jeff. Jeff Stacey, next question.

Prem, this question just came in a few minutes ago. As a shareholder since 1990, I've been proud to support a company that I believe has the highest levels of integrity. My question is about Fairfax's latest partnership through Dexterra with Horizon North. Could you comment on what the plan is for that partnership?

Yes. So this is part of the monetization that we told you in our annual report. Dexterra is a very good company. It went through some problems in the previous intra-nation as Carillion. And we changed the name, we've acquired it, where John MacCuish owns it. And basically, Horizon North and Dexterra is a -- Horizon North is in a very similar business. They also do modular housing, particularly in the west. Their service businesses are in the west. And so it's a great combination. And with a little bit of good fortune we think by May, it will get approved, it goes to shareholder approval. And you've got a company -- they have come out with a press release saying that between Horizon North and Dexterra, you've got a company that in the next few years going to have $1 billion. At the moment, they might have $700 million to $800 million premium -- of $700 million to $800 million of revenue. But in a few years, they expect to be -- that to be $1 billion. They have said publicly. And their EBITDA free cash flow would be in the -- close to $100 million. So it establishes very significant Canadian companies, all in Canada, across the country. And we have Bill McFarland, who's also -- he's Chairman of that company. John MacCuish, CEO -- will be the CEO going forward. And they're very excited about this merger, and they have confirmed that they're going to pay $0.08 in dividend. And so the stock is selling at a very reasonable price right now. We think it's only a question of time before it goes up. But that's an indication of monetization. I mentioned the name before. This Horizon North-Dexterra is going to be a very successful company, we believe, over the long term. It's going to be a Canadian company. And Fairfax will be 49% shareholders in that company. So Jeff Fenwick, next question?

Okay. Thank you, Prem. The next one is going to touch on investments. And the question is, you mentioned in your letter to shareholders that value investing has been out of favor the past few years. Would you say that this has not changed considering the current market? And are you confident to say that rather than having a negative impact on Fairfax, this might allow the company to take advantage of opportunities and that Fairfax is well positioned to do so?

Yes. So the value investing surprisingly has not been in favor for the better part of 10 years, like unbelievable. If you had told me 10 years ago, that value investing would be out of favor and growth-oriented companies, and I listed the big technology companies that they've done exceptionally well. They also sell at very high prices -- high price-earnings ratios. And value investing over the long term, 50, 60, 70 years has done exceptionally well. It's gone through periods like this. This is perhaps one of the longer time periods when it hasn't performed. And some of the companies that we've selected have not done well, as I mentioned in our annual report. But I do remember '99 to 2002, the last time you had the dot-com boom and companies with -- unlike companies today those days there were no earnings, no sales and they had gone up very significantly, and it ended in 2000 and by '99-2002, which encompassed September 11, of course, as I said earlier, the markets dropped 50%. Our stock portfolios went up about 100%. So value investing, in our mind, always works. There are periods when it doesn't, like right now. There are periods when we from -- and we -- I'm talking about Fairfax now, Hamblin Watsa, have not made good selections, first to admit that. But the stock positions that we have today, we think over the next few years will do very well. They're good companies. And in the main selling at very exceptionally low prices. So when you have panic, people sell. They sell stocks that they hold. And then there are no buyers, buyers pull away, and so stocks go down significantly. And what we've seen in the month of March is quite amazing. I told you about the Exxon. We bought the most financially sound oil company, they've got a 100-year track record, with a 10% yield. And the CEO came on television, CNBC, and said that he has no intention of cutting the dividend. That doesn't mean that if these conditions continue for a couple of years that he still not cut the dividend. But he came out and said he is going to do a lot of things like cut capital expenditures and cut costs, but not cut the dividend. And so I'm just amazed at the values that were available, and we were able to pick away at a few. But over time, we will disclose it to you. But I used Exxon just as an example of a company that basically dropped 50%, 60%. That's 50%, 60% in a few months of this year. And so you have these opportunities. And I think value investing over time will work and will work to our favor. Is that a question that goes to Jeff Stacey?

Prem, a follow-up question that dovetails on to Jeff Fenwick's last question. A shareholder asks, there'll be -- there's been huge volatility in asset prices, and this will create opportunities. But they're asking practically, what is the organizational process for practically reviewing new opportunities given the current crisis? And if so, how is this work organized with all employees working from home? And so I thought this was maybe a dovetail on to Jeff's question that you can give us some insight into how the investment team is working remotely?

This is a very good question. And let me first begin with our insurance companies. We have the insurance operations worldwide and pretty well 100%, almost 100% of our employees are working from home. So safety is very important for us and for our employees. We want to make sure that they're safe. And I can tell you that they've been working from home and, here we are 16th of April, and we were able to get you our results for our insurance companies combined ratios. We know all the combined ratios. We just didn't want to provide all the details yet because it goes to checking and stuff, but we know it will be below 100%. We know the growth will be 12%. And all our companies -- Jen Allen said to me, they all came -- we have a reporting day the -- of the 12th day following the end of the quarter, all our companies report that. She said, pretty well, every one of them met that deadline. And particularly because we wanted to report on the press release on Tuesday. So insurance companies are doing really well. We've got tremendous group of presidents, as I mentioned to you. And it's decentralized and it's run by our presidents. So it's not like we set rules for them. They're empowered. And I'm just -- we have a call, Andy and I and Peter every Friday, and we get an update, and I must say I'm very impressed with our presidents. In our insurance companies, we have a call every -- our investments, we have a call every day because, first of all, the spreads, we've been -- we haven't reached for yield. For years, we said we haven't reached for yield, the spreads were too narrow. And so -- then in -- after this coronavirus and the effect on the economy became obvious, spreads ballooned. So Disney, for example, just to pick a name, a 50 basis point spread before on say 5-year treasuries, 50 basis points before the coronavirus came in. After they had to pay 250 basis points and -- for 5-year bonds, and so we've been very careful. We don't want to buy bonds with the maturity more than 5 years. And we got 3.25%, I think, something like that for 5 years. The spread went from 50 to 250. So Brian Bradstreet, who leads our charge here with our traders, who are [ Klabin ], Enza with Wade Burton, Lawrence Chin, Roger Lace, we all get on a call at about 9:15 every day. And so if there's a new issue that comes in or a new secondary that comes in, Wade and Lawrence jump on it, so that we can analyze it and get back to Brian and [ Klabin ] with their view. So that they can react right at that time. That's how we were able to buy almost $3 billion worth of bonds at 4.25% yield for 4 years. So we are not taking term risk because we take interest rates in the total perspective of life is still very low, but the spreads widened significantly. And so high-quality bonds, we extended the term. But we all work together as a team. It's just amazing for me to see how the team came together. And so Wade Burton, who's our Chief Investment Officer, he has a regular call with our international operations. This is in Singapore. This is in -- for the people in London, who run our investments for Brit and for Europe and for Latin America. So he's looking at all of them on a regular basis. And then he lets us know if something's -- if there's something we should do. So I mentioned in our annual report the way we've delegated the authorities for investments, and I must say it's working really well. So Lawrence and Wade have at least $1.5 billion and perhaps more now that they manage. And then the Latin American portfolios, the Asian portfolios, all have portfolio managers, they work with Wade. And so they're always -- so it's very decentralized also, and they're looking for opportunity and taking advantages of it. And Wade is the -- Wade monitors it and makes sure it's fine, and then we all look at it, Roger, Brian, and myself, we all look at it perhaps once every quarter. And if it's like these times where they're very turbulent, then we would look at it more often, but Wade is the day-to-day guy with Lawrence, who looks after it. So that's how we get these opportunities all over the place. And we have Wendy Teramoto and I've introduced Wendy in the past. She is in New York. And she was Wilbur Ross's right-hand person for 20 years, and we benefit greatly from having her. And so we have a very, very good group that I've identified for you in the annual report, which helps us to take advantage of these opportunities. So can we go on to Jeff Fenwick to the next question?

Okay. This one pertains to buybacks. And the question is, given the recent share price performance, would it make sense for the company to aggressively buy back stock when Fairfax appears to be trading at such a large discount to its book value? And does that -- does the current environment and market price tilt the balancing act that you discussed in the shareholder letter in favor of significant share repurchases?

Yes. So our shares are selling at -- like other companies' stock prices in the marketplace. Our shares are selling at ridiculous prices. When we talk about Fairfax India this afternoon, I'll talk about how Fairfax India is running at ridiculous prices, and that will change. There's fear still at the marketplace and it will change. In our taking advantage of it, I said to you, the financial position is very important. We've got the opportunity to expand in our insurance business doesn't come often, comes in once in 10 years, once in 8 years. So our capital is very much oriented towards supporting our insurance companies. And then taking advantage of stock prices as and when we see fit. So that's the order of what we want to do. And we won't telegraph when we're going to buy and how much we're going to buy. But suffice to say that our stock prices are selling at very low prices today. I just wanted to -- on Dexterra and Horizon North, I just wanted to add a correction there that once the merger takes place, John MacCuish will be -- from Dexterra, will be Co-CEO with Rod Graham, who is the CEO of Horizon North. So there will be 2 Co-CEOs reporting to Bill McFarland. And I apologize Rod, I didn't mention that properly. But yes, so Rod and John will be Co-CEOs of the company, when it closes in May, and it's supposed to close in May. So thank you, Jeff Fenwick. We'll take it to Jeff Stacey again.

Prem, an investment question for you. Are you finished the process of monetizing some of the legacy investments? Or is there more to come?

Yes. There is a lot more to come, Jeff. So we have done the ICICI Lombard, as you know. And we have done APR, which Seaspan took, now called Atlas, acquired it. So we've done 2. And then Dexterra, we just talked about. But when I look at the portfolios with Peter, we have remaining at least $1 billion and perhaps more that over time, once we come out of this coronavirus situation, we'd be looking at monetizing. At least $1 billion that we'd be looking at. I think something that we've talked about in the past. But yes, so we've got a lot more that we can monetize Over time, we don't expect to be monetizing at any particular time, but we've got many opportunities. These are good companies, and there's all sorts of possibilities, and we know how to work that. Next question, Jeff Fenwick.

Prem, in your opening comments, you mentioned the retirement of Paul Rivett. We've had questions around what are the plans for replacing Paul given his recent retirement and have they been acted upon already?

So, that's a very good question, Jeff. I mentioned this in my opening remarks. We were very saddened by Paul Rivett retiring after 17 years, did a fantastic job for us. And Paul will continue, as I mentioned, Chairman of Recipe and Vice Chairman of our Fairfax Africa, which we just said yesterday. He was on the call. And he helps us, of course, with Toys "R" Us another of our retail investments. So he is very much involved with us and -- but his responsibilities other than that have basically taken over. And then in terms of the monetization and those things, working with Paul and working with other Fairfax officers. So we've spread a lot of the responsibilities across our group. And the big one, as I said, and I thanked him a lot is Peter Clarke, done a fantastic job. Peter looks at the insurance side and the investment side. And he's very calm. He doesn't get overly excited and he's a terrific guy to have at the helm. So with Peter, Jen Allen has risen to the occasion. She's just been a CFO for not even a year, and instead, the coronavirus situation has come on. And she's reacted beautifully, taken it over fully. And so we've got a very small group of officers, who worked together for years and years and years. And it's terrific to behold how it all works together. And it's our culture. It's the fair, friendly culture, no egos, working together and solving problems together, not caring who gets the credit, we're all about that, not caring about who gets the credit, make sure the right decisions made for the company so that it can go forward. Jeff Stacey?

Prem, a question that just came in, while the meeting was going on, going forward, does the change in the way we work more remotely using technology more far-reaching and being embraced by those who are now forced to use it, will that change your view of the bank stocks and growth in innovation stocks going forward? And then the questioner makes the comment that even Warren Buffett has changed his views and now is the largest shareholder of Apple.

Yes. No, that's right. I'll tell you this that -- I mean I've never used Team, Microsoft Teams, and I'm using that with our investment guys every day, working day, and our calls are on Zoom for the [ committee ] and for our calls with our presidents. And so I can say -- I mean I was looking at Zoom and they said their calls went from 10 million last year to 200 million calls. Just like unbelievable. What I'm surprised, though, Jeff, is that the monetization of all of that, if you look at Uber, and you look at Netflix, terrific companies, terrific products that they produce. But if you look at when they make money or not, you don't see a lot of profits there. And it might be that in a few years, that will happen. But on the other hand, Apple, Microsoft, as I've shown you, Amazon, I was quite surprised at how profitable Amazon was. And in this downturn, by the way, Jeff, I must say, we took advantage of buying some Google and Alphabet, as they call themselves and it's had a terrific track record. We followed that for a long time and with a really good work with -- from Wade and Lawrence, we took some -- took advantage of that. But yes, we look for profitability and look for fair prices. And we haven't seen that yet, but we keep looking. Jeff Fenwick?

Okay. I guess, perhaps continuing on the technology theme here. BlackBerry, the significant portfolio investment for Fairfax. And we've had some investors just asking if you could provide an update on the operations there and what's your outlook for that investment is?

Yes. So BlackBerry, as we've been a shareholder for some time, they have now -- as you know, their year ended was just at the end of February. They had a conference call and John Chen made the point that their revenue base is a little above $1 billion, sort of growing at about 20% each year. They've got Cylance now and cybersecurity, and they are profitable. John has done a tremendous job in terms of making it profitable, free cash flow, $1 billion in cash, but he's still working on growing that $1 billion in revenue over time. And you've got $1 billion in cash. And now there's the debentures that we have, they're convertible at $10. There's -- we have about 500 of them -- $500 million and there's another $100 million, so $600 million. They're due in November, and we just think very highly of John and support him. The stock unfortunately hasn't done well like many starts in this time period, but now it's gone down a little longer, but it's gone down to some very low levels recently. But we are very supportive of John, Jeff. Jeff Stacey?

So another investment question. You alluded to the -- to Atlas Corp. earlier and the former Seaspan, if you will. Just a question from a shareholder asking if you could explain the potential strengths and resiliency of Atlas Corp. based on its current situation and business and assets?

Yes. The thing about Seaspan, Atlas Corp. is David Sokol. We've got a CEO, a Chairman -- non-executive Chairman, maybe Executive Chairman really and Bing Chen, who is the CEO. But you've got David Sokol, who's had a 20-year record at MidAmerican, Berkshire Hathaway Energy now I think it's call, who grew earnings, revenues, any number you want to look at, at 20%. We've studied it carefully. David's got a tremendous track record, and now he's taken over Seaspan. Seaspan's got these container ships that it leases and finances and make a spread. It's got like 5 years of revenue that's already leased for at least 5 years of revenue that they can see. Most companies can see that far ahead. And then they bought APR Energy, which is like a temporary power, when you have a hurricane or an earthquake or whatever, you need temporary power or you have some utilities that are expanding, and it takes some time for them to get permanent power then APR can do that. It's right in his zone. He knows about that business very well. And so it's -- we're just excited about participating with Dave, very sound company, financially very sound. Revenues that you can see ahead. And we think it's going to do extremely well. The track record with David Sokol and with the management team now, Bing Chen, has been terrific. With that management team, we just think over time, Seaspan/Atlas would be a very good company, will be a very good company and very good stock returns over time. So can I move to Jeff Fenwick?

Your next question has to do with Fairfax's target of achieving 15% annualized growth in book value over time. The investor feels that the insurance companies are well positioned right now to do their part contributing, perhaps more concerned about getting the investment returns higher. And does that require you to significantly change your approach or change the mix of investments that you have in order to reach that target?

Yes, so let me answer that and I'll tell Andy to give you a little sense for the companies that we have. This is a company, in 1985, had $10 million of insurance premiums. We write the better part of $19 billion. Our float, when we began, the insurance company float, it was about $13 million. Now it's about $22.5 billion. $22.5 billion -- that's like $834 a share. It used to be like $2.50 a share. That money, that float, we get -- last 10 years, we didn't have to pay $0.01 for that money that we have that as an underwriting profit, so we got that at -- so we had $22.5 billion, and people paid us 1%. It's like negative interest rates in Europe. In 2019, it was 2%. So they paid us 2% for the $22.5 billion. So this insurance company, when you think of how we make 15% -- and I'll talk about the investment side, but I want you to understand when I say that we've got some fantastic insurance companies that have taken a long time to develop. Andy has been crucial in that because he built Odyssey, had passed it on to Brian Young. And Brian's done a fabulous job. And Andy -- all of the insurance companies work with Andy Barnard now. And I just want, Andy, to give you a flavor for the businesses that we have, the insurance business. I mean, you're tracking size, you're tracking like $19 billion, almost $20 billion of insurance premium diversified all over the world and run with the presidents who've been with us, as I've said, for the longest time and we just have wonderful ability to retain them. But Andy, just a sense for Northbridge and Odyssey. Just a little sense for what we have?

Sure, Prem. As we mentioned earlier, all of our companies, or I should say, out of our top 6 companies, 5 of them are experiencing very favorable sort of forward momentum. That is due to their market position and the hardening conditions that we have in the marketplace. So just to quickly run through the top 6 companies at Fairfax, which collectively represent close to 90% of the premium that we report. So they're the ones who move the needle. But starting with Odyssey. Odyssey in the first quarter will grow approximately 8%. You'll see Odyssey between its reinsurance division, and its Hudson and Newline Insurance units. All of which are overseen and led by Brian Young and his management team. It has a very diversified book of business around the world. On the reinsurance side, they're seeing significant new deals that are attractive in today's environment that are helping to drive the growth. And in the specialty areas that Hudson and Newline focus on, conditions are favorable and we are seeing some impressive growth taking place there as well. If we move to Allied World, led by Lou Iglesias, John Bender and then Wes Dupont. Allied World, out of all our companies, is experiencing the most powerful rate increases. And their growth in the first quarter, you'll see will be not quite 15% in terms of gross written premium. Allied is primarily casualty writer, and areas such as their D&O business, their Excess Casualty lines are recording impressive growth in today's marketplace. We've always felt Allied would be the leading edge of our companies in terms of benefiting from a hard market and we see that coming to fruition now. Moving on to Brit, where Matthew Wilson has been leading the efforts for some time. Matthew, of course, has been with Brit for decades. Brit has a very strong underwriting culture, very diverse portfolio of business written at Lloyd's. In fact, Brit has outperformed the Lloyd's market over the last 5 years by an average of 4 combine ratio points, which we take great comfort in. Brit is on very solid footing as we move forward. And we think there's good reason for optimism for Brit to continue producing strong results. Crum & Forster under Marc Adee's leadership for the last 5 years has continued its strategy of building out its specialty lines, expanding its footprint. Crum has very impressive market presence in the accident and health field. It has a very strong vision in the excess and surplus lines world. It's been growing its surety business. Crum is going to grow over 20%. You will see in the first quarter when we report. So once again, very strong forward momentum at Crum. In Canada, Northbridge, under Silvy Wright and her team, their growth in the first quarter was over 20%. Northbridge is one of the companies where, again, we continue to see accelerating rate improvement quarter -- year-over-year. Rate increases in the first quarter of 2020 are in excess of what we are experiencing in the first quarter of 2019. Results are trending favorably. We will see a very solid combined ratio, mid-90s for Northbridge when we release our formal results in a few weeks. And so once again, we're very, very happy with what we see coming out the Northbridge group. Our sixth company, Zenith, which is, as you know, a specialist in the workers' compensation field is -- ironically, perhaps they will have the best-combined ratio in the first quarter of 2020. But Zenith, as a workers' compensation specialist, which has been experiencing declining rates over the last 18, 24 months in the workers' compensation field is also going to be faced with more direct pressures from the COVID-19 because their premiums are generated off of payroll. And obviously, in the United States, the payroll numbers will decline significantly, at least in the short term due to the massive unemployment. And so Zenith will have its challenges as it navigates through the current conditions. However, Zenith has been in business over over 4 decades. It has been honing its craft in the workers' compensation space for years and years and years. We don't think there's anyone else in that field in the United States that is at the level of Zenith's expertise. Under Kari Van Gundy and her management team, we're going be more comfortable and confident that they will be able to navigate through the challenges that we are now faced with. And Zenith, again, remains one of our very prized possessions in the portfolio of insurance companies that we have. So Prem, maybe I'll stop it there. Unless there's anything more than you would like...

No, that's terrific, Andy. And of course, we have an international business, which is Mr. Athappan in Asia; Peter Csakvari in Eastern Europe; and of course, in Latin America and in Brazil with Bruno and Fabricio in Latin America, and we -- they're all growing from small bases. And as Andy said, most of our business is in North America, but -- and with Brit. But as time goes by, we have planted these seeds and our experiences, over time, they'll become very significant. So that's very good, Andy. Now -- so the question, Jeff, was how are the returns? As you said, our insurance businesses are terrific. They create a big float, no cost float. And in the investment area -- your question is, how are you going to make a 15% return? So first of all, I want to say, right, I began by saying that only 1% of the 6,000 companies that existed in 1985, small companies like us, only 1% made more than 15%, right? So it's a tough objective. But we figured that's what we want to do over time, not in any year, but over time. But if I take you back to our Annual Report, Page 20, I just wanted to make this observation that our total return on our investment portfolios over that 34-year time period is 8%. But if you look at 2011 to '16, it was only 2.3%. And then if you just look across the line, you'll see the net gains losses was a loss of $85 million. So we had only investment income where we never reached for yield, as you know. But remember that was the only period, other than perhaps right in the beginning, but we never made any money on our stock and bond portfolios. No gains. In total, we had $13.8 billion, which exceeded the interest and dividends of $12.6 billion over that time period. But in that onetime period, we didn't. Now we had hedging losses, as you remember, and some investments that were not the best selection. So we had all of those problems. And going forward, though, you've got a terrific team led by Wade Burton and Lawrence Chin, so that's big. And all of the portfolio managers that I talked about underneath them and all of these people have been with us for a long time. And then you have Roger, Brian, and myself helping, and we can invest worldwide. We can invest in any country in the world. We have a big investment in our company in a bank, perhaps the best bank that we've come across, called CIB Bank in Egypt, tremendous track record, selling now at about less than 8x earnings, 25%, 30% return on equity for as long as you can see and very, very sound. And so we invest worldwide. We have Brian Bradstreet looking after our bonds. So we got a $40 billion portfolio approximately, maybe $41 billion. And you've got 75% of that in fixed income, which Brian looks after and does a fantastic job on it and protects us. And then when the opportunity comes, like it has in the last 6 weeks, we've reacted to it. We can invest in real estate, which we have very good partners and Kennedy-Wilson. We've made nothing but money with them, and Wade works with Kennedy-Wilson. So you have a very diversified set of potential in our investment portfolios. But the biggest plus, I must tell you that after years of being in this business, is that people want to deal with us. They trust us. They know that we are fair. They give us 40%. [ We are not going to turn ] and be hostile. That's a massive, massive plus. Overall, in India, in Greece, in many, many parts of the world that we do business, people trust us. And that's been our big, big plus. And so when you combine those -- so we have to make about 6.5%, 7% on our $40 billion of investment portfolio, and less than what we've done in the past perhaps in this low-interest rate environment. But now and then you get opportunities like we just did with the 4.25%, $3 billion in a very high-quality corporate bonds. You get possibilities in the stock market, and we're experienced enough to take advantage of it. And so that's how -- that combination is why I love the property, casualty business. That's why we got into the business, and we expect to make a return for you over time, and we continue to be focused on that. Thank you for that question, Jeff Fenwick. Over to you, Jeff Stacey.

Prem, if you'll permit me, I'm going to lump 2 questions into one about insurance because I suspect, Andy will not want to answer the first question because it's akin to asking which of your children do you like best. But which of the insurance units are best positioned to perform well going forward? And then the second question is related to Scott Carmilani's new role within the Fairfax insurance operations. Just can you discuss that? And particularly, how do you envision what does success look like in that new role?

So that's terrific. I'll take the second one with Scott, give Andy a little chance to think about which one he is going to name as a favorite child. But Scott has done a wonderful job at Allied, as you know. Built the company over the last 20 years, tremendous track record, was a key reason that we bought Allied. And then, last year, sometime in May, I think, so about a year ago, Scott came to me and said that he really wants to help run Allied. He really wants to help us at the Fairfax level, at the corporate level. And he's recommended since he came Lou Iglesias to take the -- to take his place, and Lou has been there for 7 or 8 years, I think, maybe even longer. And Andy was comfortable with that and I was comfortable with that, so we said, Lou, you become the CEO with John Bender and Wes DuPont working together as a team. And Scott's helping us in Fairfax, and he's helping us in different areas. He has -- he knows the distribution brokerage business really well. And he is developing -- working with our presidents and developing business with them. So the big -- we've got about $17 billion in premium, right? And we've got another $2 billion. Now the question is, how do we cooperate and work together? How do we take the pluses? They're all decentralized, the presidents run it. But how do we work together to improve the operations? And if there's -- but there's a very good interest, and in one area, can we take it long-haul trucking in one area, can we take it into another area? And Scott is helping with that whole process working closely with Andy and working with me. But that's Scott's role, and we're very excited about Scott helping us in that way. With that, let me pass it on to Andy. And I want to hear what he says about which companies he likes the most.

Well, I may disappoint you, Prem, because I think Jeff, sort of, let me off the hook there at the outset. And I wouldn't want to identify one company. I think, from my earlier comments, I did say, for example, that we've always felt Allied World, given the nature of its portfolio, was -- could be our leading-edge in terms of taking advantage of the hard market where we might see some of the most significant rate action and then that has been the case so far. But that's not to diminish the prospects of any of our other companies by comparison. Obviously, Odyssey has had an extraordinary track record for Fairfax, under Brian Young, he's been an incredible generator of underwriting profits and in markets that were perhaps not quite as exciting as the market we're heading into now. And so you would have to look at Odyssey as one of the companies that we expect very good things from in the hard market. And on down the list, I think, all of our companies are very well positioned in terms of their markets, and they have a lot of wind at their backs. And so we would -- absent extraordinary events and of course, the COVID-19, we have to consider it as an extraordinary event whose impact on the underwriting performance is very unclear at this point. But I think all of our companies with, again, seeing us having some unique challenges that may restrain its performance over the near term. All of our companies are very well positioned to produce rewarding results for Fairfax.

Very well said, Andy, and I'd echo the same. Those 6 companies are exceptional. The people running them are exceptional. They fit into our culture, and it really is a pleasure to work with all of them. But then, as I emphasized, some of the companies in Asia, they're small; huge growth opportunity there. In Latin America, huge opportunity there. Eastern Europe -- Latin America, which is above 100% for the first quarter, they have -- all those companies have come below 100% for the quarter now. So we have to watch and see how that continues, but they've done that with Fabricio and the presidents in each of those countries. Bruno has done a terrific job in Brazil with 4 years now of underwriting profit, started from scratch. And so we've got a fine group of companies with us, Jeff Stacey, and that's our big, big plus. Jeff Fenwick?

Okay. The next question has to do with concerns about global deflation taking hold on the back of this event that we're going through right now. And the question relates to the CPI-linked deflation contracts that Fairfax continues to hold. And what's your view there? And what do you think needs to happen before those contracts begin to come back into the line for you?

So -- and that's a good question, Jeff. So I mentioned to you that we think like other times of great uncertainty that we're going to come through, that's going to be testing. Just today, Amazon said they're going to test all their employees to prevent coronavirus spreading among the employees. I think that might be something that we'd all do, our companies would do and other companies will do, and that's an obvious since there's a medicine that's being looked at that can prevent this -- spread of this disease. And so we -- you have all of these possibilities. And so Jeff, this -- I lost the thread. Just repeat that question for me for a second.

Sure. I think, yes, the question is the CPI-linked contracts that you have a bit of time left on them. So could they turn into something that could be a big win for Fairfax?

Yes. So that's what I was saying. I was saying that there were things that are taking place that will -- that we can't tell right now. But there things that are taking place that would mean that we get through this with -- that we look a year from now, and we might say, it was just like all the other type of events that we've run through. Now there's a possibility because this is a big shock, it's a small possibility, but you can't underestimate that, is that we are in a spiral that you could go way down. And the economy, there are huge unemployment, and the rebound might be very slow. More unemployment. I don't think that's the case. And I don't think that's a high probability event, but it's a possibility. In that type of event, if you have the economy shrinking significantly and if deflation is in the air, these deflation contracts could be valuable. Now they've got 3 years to go. On average, they're about 9% of -- 9% out of the money. And -- but some contracts are 5% out of the money. And so we've got about $87 billion in these contracts. And I really hope that we don't make any money on that because that would be a pretty dire scenario right now with this COVID-19 virus, but it does provide some protection. And I must say what we always try to do is look at these low probability events and see if we can protect ourselves. Fairfax -- we did CDS long time ago for a very little money -- amount of money, we protected ourselves. And so we're looking at the possibility of protecting ourselves from low probability events and paying an insurance premium, small premium for that. And so we continue to look at that, Jeff. Could I pass that on to Jeff Stacey, I think?

Prem, we had a question come in while the meeting was on, and we haven't touched on this at all. So the question is about Fairfax ventures generally and specifically about a telehealth startup that Fairfax ventures back. It seems time, we may need to discuss that in light of the COVID-19 pandemic. So just anything you would choose to discuss about Fairfax ventures?

Yes. Fairfax ventures is -- I've got a lot of smaller investments there, Jeff, in technology. We haven't put a lot of money, but a few millions of dollars. And they are a good group, that's worked with Paul, particularly, and Paul, of course, get me abreast of all of those. And now we've done well in some of them already. And the telehealth, I am not 100% sure, it will be a small investment that we made. And a lot of these companies are doing well, Jeff. But they are at the -- at a very early stage and it's not a lot of money that we have invested in it. Can I -- Jeff Fenwick, next question?

Okay. I've also had another one coming through the e-mail. This has to do with the runoff portfolio. Can you comment here, within runoff, it's been a persistent and sizable source of an adverse reserve development, and I believe, specifically, related to the asbestos exposure. Can you provide some color there around how that's shaping up and your comfort level with where you're sitting there reserve wise today?

Yes. So that's been a long-term problem for us and we've got a terrific group that -- Nick Bentley that manages that. And it's not in the U.K. because they've -- it's a U.S. concern, not in the U.K. and -- but Nick Bentley and our team is really very good at it. We've got some of the best claim handlers for asbestos and we've been doing it for a long, long time. And -- but we continue to look at the play -- the lawyers are going wild on it and extending it to all sorts of different categories where there's -- even if there is a little asbestos [ they are ] defending it because 70% of these claims are legal fees, only 30% are indemnity. And the rest -- it's mainly defending it and so what happens is people tend to settle. We feel very comfortable with Nick in charge that these are well handled. And over time, these -- like our Peter Clarke feels that sometime in the next few years, it will peak and start coming down. The long-term claims, we've got great talent in RiverStone U.S. under Nick, and we're comfortable with the way it's managed, but it is something that we monitor very carefully. Jeff Stacey?

Prem, a related question on RiverStone. Why did you decide to sell a stake in RiverStone to OMERS? And then I -- have you received the cash from this transaction? And when will any gain on the sale be recognized? And I know you put out the press release, so I'm assuming and just want to clarify that, that will happen in the first quarter results?

Yes. It did happen in the first quarter results -- should happen in the first quarter results. It closed at -- in the first quarter. The 40% was sold to OMERS. I must say, OMERS is a terrific partner for us. We've had many, many deals with them, and it's really a pleasure to deal with them. We've got a very close relationship. And the reason we sold that 40% was so that the opportunity in Lloyd's, because Lloyd's had gone through a restructuring where they said they wanted certain syndicates that were not performing to close. And so there was a lot of opportunity for our U.K. RiverStone to buy books of business. And on the other hand, we have the opportunity, of course, in investing in our insurance companies. And so this was a way to do both, where once we have our partner in OMERS, the U.K. -- Riverstone U.K. can expand. They can borrow some money if they want at very low-interest rates because it's a quick payoff. Their track record is terrific and so we felt that freed us -- freed RiverStone U.K. from expanding on its own merit and allowed us to also support in a significant way our insurance companies as they expand because we had 2 areas that we're expanding, and so this was a good compromise. Jeff Fenwick?

Okay. Also related to some transactions in the insurance portfolio here. The question is, are you still planning on buying out the majority interest in Brit and Eurolife or have circumstances changed?

No, we plan to buy our -- it's still -- in the case of Brit, I think it's about 10% remaining. And somewhere in August, we're thinking of buying that. And with Eurolife, we own about 50% now. And I think we can buy another 30% for approximately $100 million. And sometime during 2020, we expect to do that also. Jeff Stacey?

The next question is about the Fairfax's investment in Stelco. The stock is down dramatically from $22 to $5 since the investment, and there have been some management changes. It still has a strong balance sheet, excess land and low-cost operations. Can you comment on the company longer-term and your thoughts on the holding?

Well, yes, I mean our cost is around $20 and the stock went down to $4, and it's, I think, $5 and change. I mean this is a -- Stelco has come out of bankruptcy. It's debt-free. The pensions are well funded. And there's a fellow -- and it's a low-cost producer in North America. And the guy that's running it is Alan Kestenbaum and he is supported by a private equity firm. And Alan Kestenbaum's track record is outstanding. And again, we had the ability to buy, I think, about 12 million to 13 million shares, looking pretty dopey right now because we've paid over $20 and it's like $5. But I'll tell you, if any of you meet Alan Kestenbaum, you'll be as impressed as us, and it's only a question of time before we'll do well with it. There's no management change at the top. The fellow running it has always been Alan Kestenbaum. I think, they -- he might have appointed a CEO that has been changed, but Alan is very much involved and we're big fans of Alan Kestenbaum. Can I pass it on to Jeff Fenwick?

Okay. Our next question is with respect to your investment in Eurobank. And the question is, can you discuss that exposure to Eurobank? It's one of Fairfax's largest investments. And how concerned are you for the outlook here given the current environment?

So that's a good question. Eurobank is one of the largest banks in Greece, has EUR 65 billion in total assets and it came out with its 2019 financial results, just highlight for them -- for you. It's -- if you look at pre-provision income, that means income before provisions for nonperforming loans, that's about EUR 830 million, almost USD 1 billion. So a very solid core pre-provision income of EUR 830 million. And the nonperforming loans because of our transaction that is about to close, that $7.5 billion, I think it's approximately $7.5 billion, I think, transferred. The nonperforming loans, which were at the end of 2019 was 29%, drops to 16%; at the end of 2020, 13%; and in a couple of years, down to 5%. So it's that legacy problem, which is a pretty big problem, is now coming down significantly. Deposits in Greece with this conservative government, the Prime Minister, Kyriakos, a very business-friendly government, terrific background that he has, very successful business guy, well-educated and doing -- he has just been there now for about 6 months, maybe 6 to 8 months and doing a terrific job. So deposits are coming back into Greece. The deposit -- loans to deposits is a good number to look at, was 93%. In 2018, it's 83% loans to deposits. So the loans are being funded by deposits now, and it used to be above 100%. So the return they have said publicly, the return in 2020, this year, before the coronavirus outbreak was 9% and going up to 10% in 2022. That means the earnings for 2020 was supposed to be $0.12 and going up to $0.16. Now the coronavirus, of course, has put a halt to a lot of things. And -- but that's potential of this company. And it's capital adequacy ratio is something like 19.2%. So very well capitalized, terrific management team, and Fokion; George Chryssikos, the guy who ran Grivalia. So we continue to be very excited about the possibility of this bank, with the government that just got elected with a 4-year term, business-friendly government. And if they do as well for Greece, then perhaps the Prime Minister is about 48 years old. He'll get a few terms, a few more terms in Greece. And this bank is going to benefit from the economic development that Greece will have. But right now, like the rest of the world, there's a lockdown. And the tourism, of course, will be down. And so we have to wait and see how long it will take for all of that to change. But we like the economy -- economic prospects under the Prime Minister -- the new Prime Minister who got elected. And we met the management team of Eurobank, and we think it's selling at -- like many other stock prices selling at prices that don't make too much long-term sense. So that's our view on Eurobank. And -- but having said all that, it has not performed and -- but we expect it to, over time. Is that you, Jeff Fenwick, or Jeff Stacey?

It's over to me, Prem.

[ Paragraphed ] by Jeff. Yes, you guys both have the same Jeff names, so that are confusing. Go ahead.

You talked earlier about shifting a good part of the bond portfolio from short-term treasuries to corporates -- investment-grade corporate bonds at attractive yields. And you've commented that you invested $2.9 billion in investment-grade corporate bonds. If spreads rate remain wide, how much of the total bond portfolio would Fairfax be comfortable investing in corporate bonds?

Yes. We would -- these are very high-quality corporate bonds, a lot of them are A and above, some BBB+ big companies. And we like the spreads -- as long as the spreads -- now the Federal Reserve has come in. As you know, we had an unprecedented situation in the coronavirus, price of oil. Well, the response from the U.S. government has been unprecedented also. They had sort of a stimulus package or a care package of $2 trillion just to stabilize the economy, then you had a $4 trillion of the Federal reserve coming in. And more recently, $2 trillion where the Fed said they were going to buy corporate bonds, some non-investment grade bonds and ETFs. And -- so the spreads have come down some and so it will be a little more difficult right now to invest the money at the spreads that we were able to get some time back. But if the spreads come up again, we would certainly look at it. Because the other side of all of this, Jeff, is that if you look at the other side of the coronavirus, the economy picks up again. All of this money sloshing around, it's the same here, in the U.K., in Germany, and many parts of the world. Eventually, if we come out of this in the way that I think might happen, might be -- might cause a problem in inflation. Too much money chasing too few goods. And -- but we'll have a lot of time to figure that out I think because it's still too early, but that's what we were thinking. So if the opportunity comes, the spreads are good, then we'd continue to buy high-quality corporate. Jeff Fenwick?

Okay. This question circles back to a question about the balance sheet and your liquidity position. So you had $2.5 billion of cash and securities at the end of Q1. Do you feel like that's the right level that you need? Is that enough protection given the volatility we're seeing in the market today?

Yes. No, I think that's why we drew the line because that's a lot, right, $2.5 billion. And we have -- as I mentioned, we've got $500 million in stock positions like Fairfax India and Fairfax Africa and things that we can always -- so that plus-minus $3 billion to support our insurance companies. So one of the questions was, can you take advantage of the opportunity that you see in the insurance business? And we have every intention of taking full advantage of the opportunities that we see. Yes. No, we think we're well capitalized [Technical Difficulty] long history that we guide and so we expect to be -- take full advantage of the opportunity. Jeff Stacey?

Prem, just a question sort of tying back to the financial crisis in 2008-2009. At that time, Fairfax got a number of opportunities to deploy capital to private placements, whether debentures or preferred shares often with warrants attached. Do you think that this crisis will play out similarly? And do you think there's opportunities to get capital deployed that way this time?

So that's what we're looking at. And as you'd expect and people who want to -- if you're a big utility or you're a big telecom company and you have bonds that you have that are 5 years, 10 years, 15, 20 years, so Brian Bradstreet likes the idea of put bond. So you buy a 30-year bond, but we have the ability to put it in 5 years. And so he pays for that by taking a little lower yield. He's done that in the past, he's looking at doing that as we speak. And debt and warrants is another thing that's worked for us in the past, '08, '09, particularly. I think it worked out really well. And it does because people feel comfortable giving us 25% of a company, 20% of a company, 30% of a company. I mean, those are big positions. And so we've done well on that because we wouldn't do it unless we want to back the management. So if we like the management of the company, then we would do it. And like we did with Seaspan and with David Sokol. We've exercised those debt and warrants. We exercised the warrants in that case. And we're big shareholders, happy shareholders of Atlas, Seaspan. But yes, we think -- you never can predict these things, Jeff, but the fact that we have a very good history of treating people well is a big plus. Jeff Fenwick?

Okay. There's a bit of a follow-up, I guess, to these opportunities that you're seeing. There's a question here about how high could you take that percentage of the portfolio for equity exposure? And what would be your comfort level there?

We have never selected upon that. And what we have today, and we can always trade something that we may not -- we like a lot, but we like something even better, higher quality. So we've done that. And selectively, we bought at situation that we like. But yes, so that's where we are now on our equity portfolio, Jeff. I think, Jeff Stacey?

Prem, just we're coming up to 11:30. So I think we probably have time for two more questions. So the question I want to ask before we turn it over to Jeff Fenwick for the last question, have you considered making the investment portfolio more liquid rather than investing in large control positions?

Yes, we have. And you know what, with those portfolio being broken up now and split into Lawrence and -- Wade and Lawrence investing amounts of money and all of that across the $40 billion, you'll naturally see, I think, more names and less concentrated portfolios and perhaps better names than what I have had in the past. I can vouch for that. And so that's going to happen. But once in a while, we'll see situation that we really like and then we'll take a big position, but we've got a terrific investment team. And our portfolio has grown so significantly that having that investment team bring its expertise to bear on any large investment is a major, major plus. So we basically now -- if you're making an investment, it has to go through Wade and Lawrence and, of course, Roger and Brian, and so it's a big plus for us that, that process is ingrained at Fairfax. You have, Jeff Fenwick, the last question.

Yes, this will be the last question. This one is with respect to Fairfax's exposure to the hospitality and restaurant space. Fairfax, obviously, has a large investment in Recipe. And the investor is just asking, could you speak to the size of Fairfax's exposure to this segment? And whether if you see any particular risks here that we should be concerned about?

Yes. So we have 45% or something like that of Recipe. And we would have -- the amount of the investment is about $500 million to $600 million. I think we disclosed that in our annual report in U.S. dollars. And Recipe, of course, with the lockdown, all the restaurants are closed, but we've got a terrific -- I think, it's about 1,400 restaurants, great brands, and they are in-home delivery and pickup. They're making up quite a bit from that and waiting for the economy to get restarted. And so -- but they'll be fine. They -- it's no fun going through this, of course. And it's a difficult time to close all restaurants and -- but the Canadian government has been very good in terms of helping people who are working at these restaurants. And we think it's only a matter of time before we get back to full operations. And they got terrific management there at Recipe, and we think it's -- it will be fine over time. So Jeff Fenwick, thank you very much. Jeff Stacey, thank you. That basically concludes the Fairfax Financial Annual Meeting, this website meeting that we've had. I did want to take the opportunity to thank our directors who've been so supportive of us over the years. I wanted to take the time to thank the management that we have, our presidents, which is our big strength, all over in the United States, Canada, but all over the world, led by Andy Barnard, our officers in Fairfax, our investment talent that we have at Hamblin Watsa. I wanted to thank all of you. I wanted to thank you, our shareholders, for joining us today and our employees, and thank you for those very -- as always, we've had some excellent questions. And I appreciate the questions, the shareholder questions, which is what we like to do. I want to thank our moderators, who did -- I think it'd be fair to say, and I give you a nice applause and when we meet next year, Jeff Stacey and Jeff Fenwick, but I think everyone would say they've done a terrific job, and we really want to thank them for that. And then, thank you for being on the webcast and the telephone during this unprecedented time that we face. And we look forward to seeing you all in person a year from now, and I'll turn it over back to our operator, Marge, to formally conclude the call.

Thank you, Mr. Watsa. Ladies and gentlemen, that concludes the Fairfax Financial Holdings Limited Annual General Meeting conference call. Please note that replay of this call will be available for the next 2 weeks by phoning 1 (866) 454-2124 or 1 (203) 369-1243. These numbers will also be posted on the Fairfax's website. You may now disconnect. Thank you for joining us.