Annual Meeting

April 16, 2015

Note: All financial disclosure in this presentation

is, unless otherwise noted, in US$

Forward-Looking Statements
Certain statements contained herein may constitute forward-looking statements and are made pursuant to the
"safe harbour" provisions of the United States Private Securities Litigation Reform Act of 1995. Such forwardlooking statements are subject to known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of Fairfax to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking statements. Such factors include, but
are not limited to: a reduction in net earnings if our loss reserves are insufficient; underwriting losses on the risks
we insure that are higher or lower than expected; the occurrence of catastrophic events with a frequency or
severity exceeding our estimates; changes in market variables, including interest rates, foreign exchange rates,
equity prices and credit spreads, which could negatively affect our investment portfolio; the cycles of the insurance
market and general economic conditions, which can substantially influence our and our competitors' premium rates
and capacity to write new business; insufficient reserves for asbestos, environmental and other latent claims;
exposure to credit risk in the event our reinsurers fail to make payments to us under our reinsurance arrangements;
exposure to credit risk in the event our insureds, insurance producers or reinsurance intermediaries fail to remit
premiums that are owed to us or failure by our insureds to reimburse us for deductibles that are paid by us on their
behalf; risks associated with implementing our business strategies; the timing of claims payments being sooner or
the receipt of reinsurance recoverables being later than anticipated by us; the inability of our subsidiaries to
maintain financial or claims paying ability ratings; risks associated with our use of derivative instruments; the failure
of our hedging methods to achieve their desired risk management objective; a decrease in the level of demand for
insurance or reinsurance products, or increased competition in the insurance industry; the failure of any of the loss
limitation methods we employ; the impact of emerging claim and coverage issues; our inability to access cash of
our subsidiaries; our inability to obtain required levels of capital on favourable terms, if at all; loss of key
employees; our inability to obtain reinsurance coverage in sufficient amounts, at reasonable prices or on terms that
adequately protect us; the passage of legislation subjecting our businesses to additional supervision or regulation,
including additional tax regulation, in the United States, Canada or other jurisdictions in which we operate; risks
associated with government investigations of, and litigation and negative publicity related to, insurance industry
practice or any other conduct; risks associated with political and other developments in foreign jurisdictions in
which we operate; risks associated with legal or regulatory proceedings; failures or security breaches of our
computer and data processing systems; the influence exercisable by our significant shareholder; adverse
fluctuations in foreign currency exchange rates; our dependence on independent brokers over whom we exercise
little control; an impairment in the carrying value of our goodwill and indefinite-lived intangible assets; our failure to
realize deferred income tax assets; and assessments and shared market mechanisms which may adversely affect
our U.S. insurance subsidiaries. Additional risks and uncertainties are described in our most recently issued
Annual Report which is available at www.fairfax.ca and in our Supplemental and Base Shelf Prospectus (under
"Risk Factors") filed with the securities regulatory authorities in Canada, which is available on SEDAR
at www.sedar.com. Fairfax disclaims any intention or obligation to update or revise any forward-looking statements.

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 is long term growth in book value per share and
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
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
Complete and open communication between Fairfax and its
subsidiaries is an essential requirement at Fairfax
Share ownership and large incentives are encouraged
across the Group

Fairfax head office will always be a very small holding

company and not an operating 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 political
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 and look for ways to minimize loss of capital
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!

Fairfax 29 Years
Book Value per Share plus Dividends ($)
Net Premiums Written $6.1 billion*
Investment Portfolio $26.2 billion
Common Shareholders Equity $8.4 billion

1985

1988

* Ongoing Operations

1991

1994

468
402

431

395

157

167

143

127

118

148

39

31

26

19

18

15

11

1.52

63

86

112

156

Net Premiums Written $12 million

Investment Portfolio $24 million
Common Shareholders Equity $8 million

167

240

293

Book Value

407

393

Cumulative Dividend

409

29 Year Compound Annual Growth Rate

22%

1997

2000

2003

2006

2009

2012

2014

Financial Results

2007
2008
2009
2010
2011
2012
2013
2014

Book Value
per Share (1)

% Change

$ 230
$ 278
$ 370
$ 376
$ 365
$ 378
$ 339
$ 395

21%
33%
2%
(3%)
4%
(10%)
16%
7

(1) Excludes dividends paid

Historic Performance vs. Peer Group

Compound Growth in Book Value per Share (5 Years ending 2014) (1)
19.1%

14.0%
13.0%
11.6%
9.8%

9.5%

9.3%

9.0%

8.4%

8.3%

8.0%
6.6%
5.4%
4.5%
1.3%

8
(1) Except for S&P 500 and TSX which are compound index return excluding dividends

(65%)
(100%)

(1%)
(3%)
(3%)
(3%)
(4%)
(5%)
(5%)
(6%)
(7%)
(7%)
(8%)
(8%)
(9%)
(9%)
(12%)
(13%)
(14%)
(14%)
(14%)
(15%)
(16%)
(17%)
(18%)
(18%)
(19%)
(19%)
(19%)
(22%)
(24%)
(31%)
(32%)
(37%)
(37%)
(43%)
(48%)

11%
10%
8%
7%
6%
5%
5%
3%
3%
3%
3%
2%

23%

2008 Change in Book Value per Share

SOURCE: Dowling & Partners, IBNR #12

Fairfax and AIG calculated using the same methodology as Dowling & Partners, based on company data (AIG excludes government financing)

Historic Performance vs. Peer Group

Compound Growth in Book Value per Share (29 Years: since Fairfaxs inception) (1)

21.1%

16.7%

16.2%

14.4%
12.8%

12.8%
10.0%

9.0%

8.2%
5.7%

10
(1) Except for S&P 500 and TSX which are compound index return excluding dividends

Sources of Net Earnings in 2014

($ millions)
Underwriting profit (combined ratio of 90.8%)
Investment income and other
Operating income
Other (1)
Realized investment gains
Pre-tax income including realized investment gains
Unrealized investment gains (mostly from bonds)
Hedging losses
Pre-tax income
Net earnings

552
441
993
(391)
778
1,379
1,153
(195)
2,338
1,665

11
(1) Includes: Runoff underwriting income, Interest expense and corporate overhead & other

Underwriting Results in 2014

Combined
Ratio

Underwriting
Profit
($ millions)

Northbridge
Crum & Forster
Zenith
OdysseyRe
Fairfax Asia
Other Insurance and Reinsurance

95.5%
99.8%
87.5%
84.7%
86.7%
94.7%

43
2
90
360
36
21

Consolidated

90.8%

552

12

Net Gains on Investments in 2014

Equity and equity related investments

Equity hedges
Net equity
Bonds
CPI-linked derivatives
Other

Realized Unrealized
Gains
Gains
(Losses)
(Losses)

Net
Gains
(Losses)

($ millions)

($ millions)

($ millions)

(55)
(208)
(263)
1,134
18
56
945

542
(195)
347
1,237
18
134
1,736

597
13
610
103

78
791

13

Net Gains on Investments 2010 2014

Equity and equity related investments

Equity hedges
Net equity
Bonds
CPI-linked derivatives
Other

Realized Unrealized
Gains
Gains
(Losses) (Losses)

Net
Gains
(Losses)

($ millions)

($ millions)

($ millions)

(146)
(2,374)
(2,520)
667
(444)
174
(2,123)

3,218
(3,705)
(487)
2,391
(444)
43
1,503

3,364
(1,331)
2,033
1,724

(131)
3,626

14

Accident Year Combined Ratios

2005-2014

Northbridge
Crum & Forster
OdysseyRe
Fairfax Asia

Cumulative Net
Premiums
Written
($ billions)

Average
Combined Ratio

Cdn 10.8
10.4
21.6
1.5
44.3

100.3%
102.2%
93.2%
87.3%
96.8%
15

Accident Year Reserve Redundancies

Average Annual
Reserve
Redundancies
2004-2013
Northbridge
Crum & Forster

11.7%
3.9%

OdysseyRe

11.1%

Fairfax Asia

6.7%
16

Importance of Float
Year-End
Operating
Companies

Total
(including Runoff)

1985

$ 12.5 million

$ 12.5 million

$ 3

2014

$ 11.6 billion

$ 15.1 billion

$ 711

Per Share

10 year average cost of float: 0.3%

(2005 2014)
17

Importance of Float
Year-End 2014
Year-End
2014
($ millions)
millions)
Per Share
Share
($
Per
Total Float

15,065

$ 711

Common Shareholders' Equity

8,361

$ 395

Net Liabilities

2,767

$ 131

Total Investment Portfolio

26,193

$ 1,237

Investment Portfolio including Brit

30,229

$ 1,354

24

$5

Investment Portfolio in 1985

18

Pre-Tax Income Runoff Operations

($ millions)

2007

188

2008

393

2009

31

2010

165

2011

351

2012

184

2013

(229)

2014

273

Cumulative (2007-2014)

1,356
19

Pre-Tax Realized and Unrealized Gains

Gains (Losses)

Per Share

($ millions)
1985

0.5

10

2008

2,144

$ 118

2009

1,981

$ 108

2010

(3)

2011

691

$ 34

2012

643

$ 31

2013

(1,564)

$ (77)

2014

1,736

$ 80

Cumulative Gains

$11.7 billion

20

Acquisitions in 2014 / 2015

Brit PLC
Pethealth 100% ownership
Fairfax Indonesia 80% ownership
MCIS Insurance Berhad (Malaysia)
Union Assurance (Sri Lanka) 78% ownership
Fairfax Eastern Europe (Slovakia/Hungary/Czech
Republic/Ukraine)

Insurance bolt-on acquisitions

Runoff acquisitions
Fairfax India

21

Investment Performance
Hamblin Watsa Investment Performance
As at December 31, 2014
5 Years
10 Years
15 Years
Common stocks (with equity hedging)
S&P 500

(2.7)%
15.5%

6.5%
7.7%

11.6%
4.2%

Taxable bonds
Merrill Lynch U.S.corporate
(1-10 year) bond index

10.2%
5.5%

11.1%
5.0%

11.5%
6.1%

Note:

Bonds do not include returns from credit default swaps.

22

Investment Performance
Hamblin Watsa Investment Performance
Compound Annual Returns
5 Years
10 Years
15 Years

December 31, 2014

Common stocks (with equity hedging)
S&P 500

(2.7%)
15.5%

6.5%
7.7%

11.6%
4.2%

3.2%
17.9%

7.6%
7.4%

13.5%
4.7%

5.5%
1.7%

14.5%
7.1%

13.5%
4.5%

December 31, 2013

Common stocks (with equity hedging)
S&P 500

December 31, 2012

Common stocks (with equity hedging)
S&P 500

23

Fairfaxs Investment Portfolio

Remains Defensive
Fairfax Investment Portfolio
$26.2 billion at December 31, 2014(1)

Municipal
Bonds
27%
Corporate
Bonds
6%
Other
Investments
4%

Gov't Bonds
15%

Investment Portfolio Well Positioned

No focus on short term earnings
Capital preservation a priority

Common
Stocks
(~90%hedged)
25%

Cash/ShortTerm
23%

Positioned to take advantage of

opportunities
Fairfax capital base has benefitted
significantly from investment gains
locked in common equity gains
We have not deviated from our long
term value-oriented investment
philosophy

24
(1) Net of short sale and derivative obligations; investments in associates at carrying value

Investments not Carried at Market Value

Carrying
Value

Fair
Value

Unrealized
Gain

($ millions)

($ millions)

($ millions)

440

673

234

1,178

1,397

219

Thomas Cook India

270

473

203

Ridley

71

246

174

Insurance and reinsurance associates

Non-insurance associates

Total

831

25

Emerging Markets and Asian Footprint

First Capital (Singapore)

Fairfax Brasil
Polish Re
Pacific Insurance (Malaysia)
Falcon Insurance (Hong Kong)
Fairfax Indonesia*
Union Assurance (Sri Lanka)*

ICICI Lombard (India)

Alltrust Insurance (China)
Gulf Insurance (Middle East)
Falcon Insurance (Thailand)
Singapore Re
Thai Re
Total
* Full year 2014 premium

Gross
Premiums
Written
($ millions)
420
158
54
75
82
11
40
840
1,129
920
608
48
116
201
3,022
3,863

Ownership

98%
100%
100%
100%
100%
80%
78%

26%
15%
41%
41%
27%
30%

Fairfax's Share of
Gross Premiums
Written
($ millions)
411
158
54
75
82
9
31
820
293
138
252
19
32
60
795
1,614
26

U.S. Private and Public Debt as % of GDP

400%
380%
Current total debt = $59 trillion
Debt/GDP of 180.4% would require total debt of $32 trillion
360%
Panic Year 2008
340%
320%
300%
280%
260%
240%
220%
Panic Year 1929
200%
1870-2014 avg.=180.4%
180%
160%
140%
120% Panic Year 1873
100%
1870
1890
1910
1930
1950
1970
1990
2010
Source: Hoisington Investment Management

400%
380%
360%
340%
320%
300%
280%
260%
240%
220%
200%
180%
160%
140%
120%
100%
27

Total Public and Private Debt

as a % of GDP Major Countries
700%

700%

annual

Japan

600%

600%
U.K.

500%

500%
Eurozone

400%

400%
U.S.

300%

Australia

300%

Canada

200%

200%

100%
1979

100%

1984

1989

1994

1999

2004

2009

2014*

*Through Q2 2014, except U.S. which is through Q4 2014

Source: Hoisington Investment Management

28

Velocity of Money 1900-2014

Equation of Exchange: GDP (nominal) = M*V
annual

2.25

2.25
1997 = 2.2

1918 = 2.0

2.00

1.75

2.00
Avg. 1900 to
present = 1.73

1.75
Avg. 1953 to 1983 = 1.75
1.53

1.50

1.25

1.50

1.25
1946 = 1.2

1.00
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Source: Hoisington Investment Management

1.00
29

Long Term Government Bond Yields

Historic Panic Years
7%

7%
Japan 1989

Debt Induced Panic Years and

Long-Term Government Bond Yields

6%
U.S. 2008

5%
4%

6%

1.

Average low level of interest rates after panic

2.0%

2.

Average number of years after panic to lowest level

of interest rates

13.7 years

3.

Average level of interest rates 20 years after panic

2.4%

4.

Change from low level of interest rates to 20th year

0.5%

5%

U.S. 1929

3%

4%
3%

2%

2%

1%

1%

0%

0%
1

Source: Hoisington Investment Management

10 11 12 13 14 15 16 17 18 19 20 21
30

Long Term Treasury Rate

1871- Q1 2015
14%

14%
Fall of Berlin Wall

12%

12%

Onset of Iron and

Bamboo Curtains

10%

10%
Interest rate avg. = 6%
Inflation rate avg. = 3.9%

8%

8%
Interest rate avg. = 2.9%
Inflation rate avg. = 1.0%

6%

6%
avg. = 4.2%

4%

4%

2%

2%
Global market

0%
1871

Global market

Restricted Market

0%
1891

1911

Sources: Hoisington Investment Management, Bloomberg

1931

1951

1971

1991

2011
31

U.S. and German

30 Year Sovereign Yields
Quarterly, through Q1 2015

9%

9%

8%

8%

7%

7%

6%

U.S.
2.5%

5%

6%
5%

4%

4%

3%

3%

2%

2%
German
0.6%

1%
0%
1994

Source: Bloomberg
Source: Bloomberg

1997

2000

2003
GER 30 YR

2006

2009

2012

1%
0%
2015

UST 30 YR
32

U.S. and German

30 Year Sovereign Yield Spread
Quarterly, through Q1 2015

250

250

200

200

150

150

100

100

50

50

-50

-50

-100

-100

-150
1994
Bloomberg
Source: Source:
Bloomberg

1997

2000

2003

2006

2009

2012

-150
2015
33

Netherlands 10 Year Sovereign Yield

Source: Bank of America Merrill Lynch

34

Cyclically Adjusted P/E Ratio (S&P 500)

50
45

The CAPE Ratio is currently 28x

Since 1881, it has been higher only twice.
Both episodes ended badly:

40

June - Oct '29 when it peaked at 33x

Jan '97 - May '02 when it peaked at 44x

50
Dec. 1999
44

CAPE Ratio

45

Above February 2015

40

Sept. 1929
33

35
30

35
Feb. 2015
28

June 1901
25

Jan. 1966
24

25

30
25

20

20
Average

15

15

Avg. = 16.6

10

10
Average at end of
recessions = 13.1
Range = 5.3 to 19.3

5
0
1881

5
0

1894

Source: Robert J. Shiller

Source: Robert J. Shiller

1907

1921

1934

1947

1961

1974

1987

2001

2014
35

S&P 500 Index and Profit Margins

2,200

10

2,000

1,800

1,600

1,400

1,200

1,000

800

600
400

200

0
Jan 1994
Source:
Bloomberg
Source:
Bloomberg

0
Jan 1999

Jan 2004
Profit Margin

Jan 2009
Index

Jan 2014
36

Commodity Price Declines

S&P GSCI Commodity Index, monthly
1000

1000

900

900

800

800

700

700

600

600

500

500

400

400

300

300

200

200

100

100

0
'85

'89

'93

Source: Hoisington Investment Management

Source: Hoisington Investment Management

'97

'01

'05

'09

'13
37

Upward Pressure on the Dollar

US Dollar Index, monthly

170

170

160

160

150

150

140

140

130

130

120

120

110

110

100

100
QE ends

90

90

80

80

70
1971

70
1975

1979

1983

Source: Hoisington Investment Management

Source: Hoisington Investment Management

1987

1991

1995

1999

2003

2007

2011

2015
38

Deflation in Japan
3%

10%

2%

5%

0%
0%
-5%

Cumulative

Annual

1%

-1%
-10%

-2%

Annual Inflation

-15%

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

-3%

Annual Deflation

* In April 2014 Japan raised its consumption tax from 5% to 8%

* Estimate - Japan Cabinet Office

Source: The World Bank

39

U.S. and Euro Area Consumer Prices

7%

7%

y-o-y percent change, monthly

6%

6%

5%

5%

4%

4%
U.S. (-.03%)

3%

3%

2%

2%

1%

1%

0%

0%

-1%

-1%
Euro Area (-.1%)

-2%

-2%

-3%
1990

-3%
1994

1998

2002

2006

2010

2015

Through February 2015

Source: Hoisington Investment Management

Source: Hoisington Investment Management

40

Public High Tech Speculation

Market Cap.

P/E Ratio

Price to Sales

31
29
223
33
3
9
164

(loss)
111x
73x
89x
358x
19x
46x

21x
5x
17x
15x
9x
6x
14x

6
12
40
8

(loss)
(loss)
(loss)
(loss)

2x
17x
8x
14x

($ billions)

Social Media
Twitter
Netflix
Facebook
LinkedIn
Yelp
Yandex
Tencent Holdings

Other Tech/Web
Groupon
Service Now
Salesforce.com
Netsuite
Source: Bloomberg

41

CPI-Linked Derivative Contracts

December 31, 2014

Notional

Market

Unrealized

Amount

Cost

Value

Gain (Loss)

($ billions)

($ millions)

($ millions)

($ millions)

United States

59

327

151

(175)

European Union

45

286

70

(215)

United Kingdom

24

(20)

France

18

12

(7)

112

655

238

(417)

Underlying CPI Index

42

Fairfax Historic Total Return on

Investment Portfolio

20%

10%

0%
1986

1990

1994

1998

2002

2006

2010

2014

-10%

Total Return on
Portfolio

Average Return on
Portfolio 8.9%
43

Ready for the Next Decade Building on Fairfaxs Strengths

Our guiding principles have remained intact
Excellent long term performance

Demonstrated strengths
Strong operating subsidiaries focused on underwriting profitability
and prudent reserving
Conservative investment management providing excellent long
term returns

Well positioned for the future

Fair and friendly Fairfax culture

44

Annual Meeting
April 16, 2015