V. Prem Watsa - Chairman and CEO David Bonham - VP and CFO Eric Salsberg - VP, Corporate Affairs and Corporate Secretary

Paul Holden - CIBC World Markets Tom MacKinnon - BMO Capital Markets Mark Dwelle - RBC Capital Markets Howard Flinker - Flinker & Company

Good morning, and welcome to our call to discuss Fairfax's 2014 year end results. This call may include forward-looking statements.

Actual results may differ perhaps materially from those contained in such forward-looking statements as a result of a variety of uncertainties and Risk Factors, the most foreseeable of which are set out under Risk Factors in our base shelf prospectus, which has been filed with Canadian securities regulators and is available on SEDAR. I’ll now turn the call over to our Chairman and CEO, Prem Watsa.

Thank you, Eric. Good morning, ladies and gentlemen.

Welcome to Fairfax's fourth quarter conference call. I plan to give you some of the highlights and then pass it as always to Dave Bonham, our CFO for additional financial details.

Our results in 2014 were the best in our 29-year history with record underwriting profits of 552 million and record net earnings of $1.63 billion. We had a record combined ratio of 90.8%, with OdysseyRe at 84.7% and all our major insurance companies having combined ratios less than 100%.

We also had net investment gains of 1.74 billion in 2014, including realized gains of 791 million. We are maintaining our defensive equity hedges and deflation protection as we remain concerned about the financial markets and the economic outlook in this global deflationary environment.

Our insurance and reinsurance businesses premium volume remained flat in 2014. The combined ratio for our insurance and reinsurance operations in 2014 was 86.3% for the fourth quarter and as I said earlier, record 90.8% for the whole year.

We made a record underwriting profit of 542 million in 2014. At the subsidiary level, the increase in net premiums written in 2014 compared to 2013 and combined ratios were as follows; OdysseyRe, up 0.7% in 2014 in terms of premium, the combined ratio of 84.7%; Crum & Foster, premiums up 9.2%, combined ratio 99.8%; Northbridge in Canadian dollars up 0.6% with 95.5% combined ratio; Zenith, up 2.9% with an 87.5% combined ratio; Fairfax Asia, 8.8% up in net premiums written 86.7% combined ratio.

The insurance and reinsurance operations produced operating income, excluding net gains or losses on investments, of 915.4 million compared to 770.2 million in 2013, primarily as a result of improved underwriting profit and higher interest and dividend income. As shown on Page 2 of our press release, we have realized gains on our investment portfolio of 790.6 million during 2014.

Now excluding all hedging losses and before mark-to-market fluctuations in our investment portfolio, we earned 1.4 billion in pre-tax income. If you include all hedging losses and mark-to-market fluctuations in our investment portfolio, we reported a pre-tax income of 2.3 billion and after-tax income of 1.7 billion in 2014.

In 2014, you will note the investment portfolios went up to 26.2 billion from 24.9 billion at the end of last year in spite of being hedged 25% in cash and short-term investments throughout the year and having little exposure to corporate bonds. So how did this happen?

Long U.S. government bond rates continued to drop and our common stocks did much better than the Russell Index, which increased 3.5% in the year.

We have yet to significantly benefit from our hedges and our approximately 112 billion notional amount of deflation swaps, and of course our cash position gives us great optionality. At our last annual meeting, we made the point that while we were protecting our capital on the downside, our investment portfolios could also do very well.

2014 was a case in point. Our common stock portfolios continued to be hedged at approximately 90%.

We selectively bought most stocks during the year, but we did not add to our index hedges. Our common stocks outperformed that index, as I mentioned to you.

On the investment side, net investment gains of 1.7 billion in 2014 consisted of the following. Please refer to Page 2 of our press release.

Net gains on equity and equity related investments after equity hedges of 347.4 million resulting from net gains of 541.9 million in our equity and equity related investments, partially offset by a 194.5 million net loss in our equity hedges reflecting the 3.5% increase in the Russell Index. We realized gains of 596.9 million in our equity and equity related holdings in 2014.

Also, at the end of 2014, we had unrealized gains of 1.1 billion in our municipal and treasury bond portfolio, which basically robust the unrealized losses of 2013. As we have mentioned in our annual meetings, annual report and quarterly report 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 widely and investment results will only make sense over the long term.

Core inflation continues to be at or below 1% in the United States and Europe, levels that we have not seen since the 1950s. In fact, it may be a surprise to many of you to know that in the second half of 2014, the U.S.

had deflation of 1.5% on an annualized rate of 3% and Europe had deflation of 0.5% on an annualized rate of 1%. What this is saying is that prices went down in the second half of 2014 at an annualized rate of 3% in the United States and 1% in Europe.

This is in spite of QE1, QE2, QE3 and now quantitative easing in Europe. Long-term government bond rates in Europe are making record lows quite often the lowest in 200 years.

In Germany, almost half of the German government bond market is yielding negative interest rates. Also, six or seven countries in Europe are already experiencing deflation.

30-year German government bond rates are below 1%. The spread between 30-year U.S.

long-term rates and 30-year German government bond rates is at a record as German rates have fallen much faster than the United States. Now our CPI-linked derivatives, deflation swaps as we call it, with a notional value of approximately 112 billion doubled in market value in the fourth quarter.

This was the first significant increase in market value since we purchased the CPI-linked derivatives. With deflation in air, these contracts have come to life but they continue to be very volatile.

The majority of these contracts are based on the underlying U.S. CPI Index.

About 52.5% of those contracts are in the United States; all the European Union CPI Index approximately 40% of the contracts. Further information is available on Page 3 of our press release where we have included our table on our deflation swaps.

On average, they have approximately 7.5 years to run. As I’ve said to you before, our CDS experience comes to mind.

Just to give a perspective, I’ll remind you that it took five years in Japan before deflation set in for the next 18 years. When you review our statements, also please note that we own more than – when we own more than 20% of a company, we equity account and about 50% we consolidate, so that mark-to-market gains in these companies are not reflected in our results.

As you see on Page 11 of our quarterly report, the fair value of our investment in associates, it’s approximately $2.1 billion with a carrying value of approximately 1.6 billion and unrealized gain of 453 million, which is not on our balance sheet. Also, Ridley and Thomas Cook, which are consolidated in our financial statements, are doing very well compared to our original purchase price.

We purchased Ridley in 2008 at approximately $8.05 Canadian per share and the stock is at $30.75 per share after significant dividend payments of approximately $2 a share in the last three years. We purchased Thomas Cook at 52 rupees per share in 2012 and it is now trading at about 200 rupees.

We continue to be concerned about the prospects for the financial markets in the economies of North America and Western Europe as extenuated as we have said many times before by the potential significant weakness in China. We have said for some time that we believe there continues to be a disconnect between the financial markets and the underlying economic fundamentals.

As of December 31, 2014, we have 6.1 billion in cash and short-term investments in our portfolio, which is 23% of our total investment portfolio to take advantage of opportunities that may come our way. As a result, in the short term, our investment income will likely be reduced.

On November 14, 2014, Fairfax completed its acquisition of Pethealth for cash of approximately of $89 million or 100 million Canadian. Pethealth operates in the United States, Canada and the United Kingdom under the leadership of Sean Smith and is North America's second largest provider of medical insurance for dogs and cats.

On December 2014, Fairfax announced that it had agreed to acquire the Malaysian general insurance business of MCIS Zurich Insurance through its wholly-owned subsidiary, Pacific Insurance. The transaction is expected to close in the first quarter of 2015.

The business generated approximately 55 million gross premiums and Gobi Athappan will lead the combined business. On December 2014, Fairfax entered into an agreement with QBE to acquire the insurance operations in the Czech Republic, Hungary and Slovakia.

The transaction is expected to close by the third quarter of 2015. In its most recent fiscal year, QBE’s operations in these three countries generated over 40 million in gross premiums written in a range of general insurance classes.

Peter Csakvari with 17 years at AIG in Eastern Europe is leading the business. We continue to be soundly financed with year-end cash and marketable securities in the holding company of 1.2 billion.

The company’s total debt to total capital ratio improved to 24.6% at the end of the year compared to 26% at the end of the previous year. Subsequent to year end, Fairfax India Holdings Company completed a 1 billion offering of common shares of which the company, Fairfax Financial, purchased all of the multiple voting shares for $300 million, constituting a controlling interest.

We are very excited about the opportunities in India under the Prime Minister Modi and we believe Fairfax India will earn attractive returns for its shareholders, including Fairfax. Now I would like to turn it over to Dave Bonham, our CFO, so he can give you some more information on the underlying financials.

Dave?

Thank you, Prem. First, I’ll focus on Fairfax’s consolidated results for the fourth quarter of 2014, then move on to the operating company results and finish with our consolidated financial position.

For the fourth quarter of 2014, Fairfax’s reported net earnings of $24 million or $0.49 per share on a fully diluted basis and that compares with the fourth quarter of 2013, when we reported a net loss of $6 million or $0.98 per fully diluted share. Year-to-date, Fairfax’s reported net earnings of just over 1.6 billion or $0.73 per share on a fully diluted basis reflects a significant improvement relative to 2013 when we incurred a year-to-date net loss of 572 million and that was $31 per fully diluted share.

Underwriting profit at our insurance and reinsurance operations in the fourth quarter and full year of 2014 increased to 207 million and 552 million with combined ratios of 86% and 91% and that’s compared to underwriting profit of 165 million and 440 million last year when we had combined ratios of 89% and 93% in the fourth quarter and full year, respectively. On a year-to-date and a quarter-to-date basis, underwriting profit is up by 112 million and 42 million, respectively.

Our combined ratios benefited from net favorable prior year reserve development in the fourth quarter and full year of 2014 of $218 million and $446 million, translating into 14 and 7 combined ratio points and that was similar to net favorable development of $212 million and $440 million in the fourth quarter and full year of 2013 and that also represented 14 combined ratio points on the quarter, 7 on the year. Current period catastrophe losses were lower in the fourth quarter of 2014 and totaled $38 million or 2.5 combined ratio points and were $189 million or 3.2 combined ratio points for the full year.

By way of comparison, cat losses in the fourth quarter and full year of 2013 were higher at $71 million and $289 million representing 4.7 and 4.8 combined ratio points, respectively. Please note that during the fourth quarter of 2014, OdysseyRe changed the manner in which it recognizes premiums from its U.S.

multi-peril crop insurance business similar to the adjustment that it made in Q2 earlier in this year. OdysseyRe recognized the majority of the premium from the winter planting season in the fourth quarter of 2014, whereas in 2013 these premiums were recognized in the first quarter of the following year.

After making the adjustments in 2013 and 2014 that we set out on Page 48 of our fourth quarter report, net premiums written by our insurance and reinsurance operations were relatively unchanged in the fourth quarter of 2014 and increased by 1.1% in the full year. Now turning to our operating company results, we’ll start with OdysseyRe.

In the fourth quarter and full year of 2014, OdysseyRe reported underwriting profits of 142 million and 360 million and combined ratios of 76% and 85%, and that was compared to underwriting profits last year of 122 million in the quarter, 380 million year-to-date where the combined ratios were 79% and 84%. Catastrophe losses in the fourth quarter and full year of 2014 totaled 33 million and 145 million and that translated into 5.6 and 6.2 combined ratio points.

The fourth quarter of 2014 included only attritional catastrophe losses while Windstorm Ela was the largest individual catastrophe loss at $38 million in the full year of 2014. That compares to catastrophe losses of 65 million and 203 million last year, which translated into 11 and 9 combined ratio points on the combined ratio points in the fourth quarter and full year of 2013.

OdysseyRe’s combined ratios in 2014 in the quarter included the benefit of 108 million and year-to-date 189 million of net favorable prior year reserve development principally related to casualty and non-catastrophe property loss reserves in the quarter and year-to-date and the full year-to-date net favorable development also included development related to property cat loss reserves. After adjusting for timing differences in the recognition of crop insurance premiums that we mentioned earlier, OdysseyRe wrote $562 million and a little under $2.4 billion of net premiums in the fourth quarter and full year of 2014, respectively.

That reflects decreases of 2.4% and 1.4% in those periods and those decreases principally recognized declines in the writings of reinsurance business primarily in property lines due to the competitive market conditions now prevailing and that was partially offset by growth across most lines of business in the U.S. insurance division.

Turning to Crum & Forster. Crum & Forster reported an underwriting loss of $3 million and a combined ratio of 100.9% in the fourth quarter of 2014 and an underwriting profit of $3 million and a combined ratio of 99.8% for the full year of 2014.

That compared to underwriting losses of 21 million and 24 million and combined ratios of 107% and 102% in the fourth quarter and full year of 2013. While there is no net prior year reserve development in 2014, Crum & Forster’s combined ratios in the fourth quarter and full year of 2013 included $8 million of net unfavorable prior year reserve development representing 2.6 and 0.7 of a combined ratio point.

Current period catastrophe losses were modest at 1.5 million and 14 million in the fourth quarter and full year of 2014 and added 0.4 and 1.1 points to the combined ratios during those periods. 2013 catastrophe losses were not significant.

Crum & Forster’s net premiums written increased by 6% and 9% in the fourth quarter and full year of 2014, primarily reflecting growth in the Fairmont Accident & Health business and organic growth in the environmental casualty business partially offset by planned reductions in the legacy CoverX business. The full year of 2014 also reflected the contribution to the environment casualty business of American Safety and growth at Seneca.

Turning to Zenith. Zenith reported underwriting profits in the fourth quarter and full year of 2014 of 26 million and 90 million with corresponding combined ratios of 86% and 88% and that compared to underwriting profits of 22 million and 19 million and combined ratios of 88% and 97% in the fourth quarter and full year of 2013.

The improvement in 2014 reflected the following. A year-over-year decrease in the fourth quarter and full year of 2014 estimated current accident year loss ratios of 2.9 and 4.6 percentage points and that was due to the favorable loss development trends that are emerging on the 2013 accident year.

There were also price increases that were equal to estimated loss trends for accident year 2014. And finally, net to favorable development in prior year’s reserves in the full year of 2014 representing 10 combined ratio points was an increase over 2013 and that reflected net favorable emergence on the 2011, '12 and '13 accident years.

Net premiums written by Zenith of 128 million and 721 million in the fourth quarter and full year of 2014 increased by 1.3% and 2.9% year-over-year and that principally reflected premium rate increases. Northbridge reported underwriting profits of 17 million and 43 million and combined ratios of 93% and 96% in the fourth quarter and full year of 2014, and that compared to underwriting profits of 24 million and 18 million and combined ratios of 90% and 98% reported in those same periods in 2013.

The decrease in Northbridge’s underwriting profit quarter-over-quarter principally reflected increased large losses in the fourth quarter of 2014 in transportation and logistics and personal auto lines. Northbridge’s underwriting results in the fourth quarter and full year of 2014 included the benefit of net favorable prior year reserve development across most accident years in lines of business of 54 million and 110 million representing 23 combined ratio points and 12 combined ratio points in those periods.

That compared to net favorable development of 46 million and 154 million and represented 19 and 16 combined ratio points in the fourth quarter and full year of 2013. Current period catastrophe losses were lower in the fourth quarter and full year of 2014 accounting for 0.2 and 0.9 of a combined ratio point during those respective periods, whereas the Alberta and Toronto floods in 2013 were principally responsible for adding 2.1 and 6.2 points to the combined ratios in the fourth quarter and full year of 2013.

In Canadian dollar terms, net premiums written by Northbridge in the fourth quarter and full year of 2014 increased by 6.5% and 4.4% after excluding the one-time impact of the intercompany unearned premium portfolio transfer on January 1, 2013 between Northbridge and Group Re that we described on Page 41 of our fourth quarter report. Increased writings principally reflected rate increases across most segments and increased volume at Federated Insurance and in the Western region of Northbridge Insurance and that was partially offset by the strategic nonrenewal of an unprofitable portfolio business in 2014.

Fairfax Asia reported improved underwriting profits of $10 million and $36 million and combined ratios of 84% and 87% in the fourth quarter and full year of 2014 compared to underwriting profits of 9 million and 32 million and combined ratios of 88% in each of the comparable 2013 periods. The combined ratios in the fourth quarter and full year of 2014 included 20 combined ratio points and 8 combined ratio points of net favorable prior year reserve development primarily related to engineering, workers’ compensation, property and commercial automobile loss reserves.

The insurance and reinsurance other segment produced underwriting profits of 15 million and 21 million and combined ratios of 85% and 95% in the fourth quarter and full year of 2014 compared to underwriting profits of 10 million and 15 million in combined ratios of 92% and 97% in those same periods in 2013. The improvement in underwriting profit in the fourth quarter and full year of 2014 principally reflected increased net favorable prior year reserve development, partially offset by lower non-catastrophe related underwriting margins in the current accident year.

Net premiums written by the insurance and reinsurance other segment increased by 9% in the fourth quarter of 2014 primarily reflecting increases at Advent related to writings of new business in marine, property and accident and health insurance lines of business. Net premiums written decreased by 7% in the full year of 2014 primarily reflecting decreases at Polish Re and Advent principally due to the non-renewal of certain classes of business where terms and conditions were considered inadequate and after the adjustment to exclude the one-time impact of the intercompany unearned premium portfolio transfer that we mentioned earlier and that suppressed the gross premiums written and net premiums written in Group Re in 2013 by $39 million.

Runoff reported operating losses of 22 million and 89 million in the fourth quarter and full year of 2014 and that compared to operating income of 91 million and 77 million in the same periods in 2013. The decrease in the fourth quarter and full year operating profitability at run-off principally reflected net adverse prior year reserve development at U.S.

Runoff and incremental operating expenses associated with American Safety, which we had acquired in 2013. In the fourth quarter of 2014, Runoff agreed to reinsure an Italian medical malpractice runoff portfolio and that added $67 million to net premiums earned and a corresponding increase of 66 million to losses on claims.

Looking at our consolidated results, consolidated interest and dividend income increased from 104 million in the fourth quarter of 2013 to 119 million in the fourth quarter of 2014, reflecting a modest increase in interest income earned partially offset by higher total return swap expense. Consolidated interest and dividend income increased from 377 million in the full year of 2013 to 404 million in the full year of 2014, reflecting an increase in interest income earned and lower total return swap expense partially offset by lower dividends earned on common stocks as a result of sales of dividend paying equities during 2013.

In 2014, the company recorded income tax provisions of $41 million at an effective tax rate of 52% in the fourth quarter and $673 million at an effective tax rate of 29% in the full year. Notable in the fourth quarter and full year of 2014 was a $38 million provision that followed from an internal reorganization of the U.S.

shareholders of OdysseyRe that added 48 points to the quarter-to-date effective tax rate and 1.6 points to the year-to-date effective tax rate. The year-to-date effective tax rate was also increased by the impact of significant investment gains and improved underwriting results in the U.S.

where the statutory income tax rate of 35% is significantly higher than the Canadian statutory income tax rate. Those reconciling items just mentioned were offset quarter-to-date and year-to-date by the impact of our regularly recurring adjustments for non-taxable investment income in the U.S.

and Canada, which lowered our effective tax rate. We ended the year with an investment portfolio, which included holding company cash and investments of 26.2 billion compared to 24.9 billion at the end of 2013.

The majority of the increase related to net appreciation of investments, principally bond and common stock investments. Moving to our financial position.

Our total debt to total capital ratio decreased to 24.6% at December 31, 2014 from 26.1% last year in December. Primarily as a result of the increase in our common shareholders’ equity reflecting the net earnings for the year, partially offset by the issuance on August 13, 2014 of 300 million principal amount of our senior notes due 2024 for net proceeds of $294 million.

We used a portion of those proceeds from that offering in the fourth quarter to redeem 50 million principal amount of OdysseyRe unsecured senior notes and to redeem 25 million principal amount of American Safety trust preferred securities, and we intend to use the remainder of that funding to repay upon maturity the Fairfax and OdysseyRe unsecured notes coming due in 2015. With that, I’ll pass it back to you, Prem.

Thank you, Dave. Now, we’re happy to answer your questions.

Please give us your name, your company name and try to limit your questions to only one, so that’s fair to all on the call. So, Rebecca, we’re ready for the questions.

Hi, Paul.

Hi. Good morning.

I’ll ask a couple of questions on the CPI-linked derivatives to start. So the first one would be since we’re so close, at least in the U.S., to the weighted average strike, is there any way you can give us the dispersion of strike prices so we get a sense of how close you might be to the first sort of really relevant contract price?

And then the second question would be just to verify that indeed these are American style options and not European, i.e. you can exercise them at any time?

Yes, so we can exercise them at any time. And the way to think of – these things are very volatile, as I said, so if you have – if you look at the TIP bonds, the inflation adjusted bonds and you’ll see they fluctuate.

Maybe a few years ago, the underlying inflation rate in a TIP bond for five-year TIP bonds may have been 2% inflation, might have come right down to 1.1% early in the year, now bounced back to about 1.3%. So it moves up and down and that inflation rate – underlying inflation rate, still inflation not deflation, has an impact on the bonds – on the deflation swaps rather.

And it’s tradable but American style in the sense that these are tradable deflation swaps that we can sell at any time in the marketplace. But I guess it’s exercisable at the end.

So just a correction there, Paul. European style in the sense that exercisable in the end but can trade in the marketplace at any time reflecting the fact that it’s exercisable at the end.

Okay. Just a suggestion, any kind of additional disclosure you could provide us to give us a sense of significant trigger points on the CPI Index levels would be helpful; averages are always helpful but only helpful as an average is?

First of all, the average is a not bad way to look at it. And think of it like this, it’s an option contract, which is not in the money, so if you think of those contracts as say 1% off out of the money and you have 5% deflation, then the intrinsic value is 4% and then you’d build a premium because it’s got a life, six, seven, seven and a half years on average to go.

Okay, I understand.

On top of that, you just have the emotional element that comes in when people worry about deflation.

Okay. And then just final question from me on a different topic.

Your newest investment in vehicle Fairfax India, a big part of the investment theses there was a favorable change in government, i.e. how much more business friendly government and that makes a lot of sense to me.

On the flipside I would argue that in Greece we’ve seen a change in government to a less business friendly government. I’m wondering if you agree with that opinion and if it changes your theses on any of the investments you’ve made in Greece?

That’s a very good point you make. There has been a change in the Greek government.

We’ve actually met them and for what it’s worth, they’ve reassured us that they want private investment. They’ve emphasized that Eurobank is the only private bank in the sense that the other three banks – there’s four banks now, the other three banks are 65% owned by the government.

Eurobank is less than 35%. And so they have said to us that they like – we asked them very specifically of what their views on private investment were?

And they said, they want to encourage it. And so the bottom line, Paul, you never know what will happen in these negotiations.

Our view is that eventually a deal will be done.

Okay. Thank you very much.

Thank you, Paul. Next question?

Good morning, Tom.

Good morning, everyone. Thanks for taking my question, Prem.

Just a comment about the cash position, still pretty heavy and it’s been – you’ve had this heavy cash position over the last several years when equity markets have moved up significantly. I’m trying to figure out what is really the underlying reason for holding so much cash?

Does it have – as the insurance business tends to slow a little bit, it’s not like you really need to pump a lot of money into growing that. We’re getting a certainly increased capacity here in global reinsurance markets and prices are starting to fall a little bit in commercial lines in North America.

So, it’s not as if there’s a need to throw it into those operations to fund growth. And to what extend does the cash settlement on the equity hedges have anything to do with your thinking to keep a significant cash holding at this level?

Tom, we’ve had significant amounts of cash over the year long before we had hedges. But the way we get the cash, it’s a resultant.

When we don’t see opportunity, we’re not trying to meet some quarterly earnings estimate that you or others might have and we’re looking at building our company over the long term. So when we don’t see opportunity with significant downside protection, then we’ve got to keep it in cash.

And when we buy something, as we bought things in Greece, it doesn’t mean we are right. Sometimes we think there’s downside protection and it changes.

But every time we buy a stock or a bond, we’re looking at protection on the downside. And right now, our view is there’s very little protection on the downside.

Now if you were meeting quarterly estimates or yearly estimates, then you’d be reaching for yield, you’d be buying corporate bonds or you’d be buying other things that would give you income so that you can meet these goals that you have. Our goal is increase book value 15% a year over the long term.

So we don’t respond to quarterly numbers. So that cash gives us tremendous optionality.

So, for example, in '08, '09, most people didn’t buy stock. They’re all buying stocks today and in the last – and you know exactly, Tom, if we were smart, we’d be fully invested in 2012 particularly because 2013 was a terrific year, up 35% and I hate to say it, but we basically didn’t benefit from that.

But it’s investing – I’ve been in the business for 40 years. It’s a long-term game and if you measure yourself every three months and six months or a year or two, you might do the wrong thing.

For example, in 2007 and '06, you might have thought we were totally wrong and of course things changed in '08 and '09 and some companies didn’t make it in '08, '09. One of the biggest company in our industry was bankrupt and the U.S.

government had to come to back it. So we don’t want to be ever in a position for that to happen and we think as we’ve said for some time that there’s a lot of unattended consequences here, Tom.

The price of oil dropping from $100 to $50 totally unexpected for most people. We said in our annual report last year that commodity prices could collapse and we monitor the prices and hadn’t changed for two or three years.

You can see $100 price of oil in our annual report year-after-year and then bang, it dropped to $50. Now if you didn’t hedge and you expanded significantly in the oil industry like we see in many of the oil companies, you may not survive.

So we’re very sensitive to that. That price of oil coming down by the way we think is not only supply in the United States but it’s reflecting decreasing demand from China.

And China’s a big – and we’ve talked about it for some time that China is a big potential negative and you never know when it will strike but you have to be careful about it. So when we look at all of these things, Tom, we’d rather be safe than sorry.

And we just stay on the sidelines. We let other people reach for yield.

But you can see in spite of all that, last year, all-in, all-out, we had a very good return, significant realized gains. Our underwriting profitability was exceptional.

And so in spite of being very defensive and watching the downside, we’re making good returns.

I appreciate the color. Thanks, Prem.

Thank you, Tom. Next question, please.

Good morning, Mark.

Good morning. Just a couple of questions.

First, I was trying to follow along. You had a note in the interim report on the OdysseyRe organization and I was trying to follow along.

Was there any net cash distributed from the holding company at the end, by the time all the ins and outs were all settled, was there any net cash distributed from that?

Dave, you want to take that.

Yes. It was very significant, in the neighborhood of about $80 million or so from the holding company cash.

What we did there, Mark, is very simply simplify our corporate structure so that Odyssey was basically owned by Fairfax holding company as opposed to being owned at Crum & Forster or in our Runoff companies.

That definitely seem like it would streamline the org chart a little bit. The second question that I had had – I mean congratulations on very significant amounts of favorable reserve development in the quarter.

What I was trying to determine is was there an impact from currency in that amount? It seems like some of the units, particularly the other reinsurers, the European group and the Northbridge had, I’d say, relatively larger amounts than I might have expected and I was curious if currency was involved there?

No. The currency was not significant at all, Mark.

Basically, we like to have that kind of reserve redundancies. We’re always keeping our accident loss ratios at a good level, so that we’ll have reserve redundancies.

But as you pointed out, in the fourth quarter we had perhaps more than we expected. But our reserves – there are two things that our company is focused on; underwriting profitability all across the spectrum and reserve redundancies every year.

And I must say as I look across all our companies, the reserve positions at year end are excellent and the prospects for our combined ratio are good but we’ve got catastrophes coming in at any time and so you have to take all of that into account. But at the moment, things look good.

Okay. Thanks for that.

One last question, if I may, on the OdysseyRe. Just wanted to clarify and make sure I understood the table in the report.

So it was $41 million of premium that was recorded in the December quarter that all else equal had it been under the old way you did it, would have been otherwise recorded in January of '15. Is that the right way to think about it?

That’s right. That’s the impact on the fourth quarter.

And then when you’re comparing year-over-year, you would make the same adjustment to the beginning of the year to adjust for the premium that needs to come out of the first quarter of 2015.

Right. So when I’m thinking about my 1Q '15 estimate, I would want to assume that I started out 40 million in the hole and then build up my estimate from there?

I think that’s the way to look at it, yes.

Okay. All right, thank you.

That’s all my questions.

Thanks, Mark. Rebecca, next question.

Hi, Prem.

Good morning, Howard.

Nice results or better than nice results. I have a few comments.

One, as an insight into the oil business, which was really helpful to me on the short side is that PetroChina and Sinopec in their quarterly or semiannual statements breakout marketing volumes, not dollars – dollars too but units. And you can see in the last year and a half that their growth in marketing volumes of oil and diesel and all that stuff were growing anywhere between 1% and minus 4%.

Two years ago, they were growing 10%, 11%. And the imports were supposedly growing 7% or 8%.

So the conclusion had to be there were stockpiling and one day they would have too much. And the probably have cut back that extra but it doesn’t look as if they’re eating into that inventory yet.

So it’s possible they could reduce demand even more. That’s one point I’d like to make.

Good point, Howard.

Second, in 1922, oil traded at $2.40 a barrel in United States; 1972 was $2. Oil could go nowhere for a long time.

Yes. I remember looking at the history of the price of oil.

You’re exactly right. Until 1974, I think it didn’t --

'73 or '74, overnight they quadrupled. That’s to the bear market.

And finally, I’ll pass on something I heard yesterday because I went to a presentation at Columbia B-School. This Japanese professor who among various educational stints was a consultant to the Ministry of Finance or the Japanese investment funds, et cetera.

And I wanted to hear what he had to say about deflation. And in summary, they view the oil impact on the deflationary statistics as purely numerical.

They think that once the oil stabilizes, deflation won’t continue. And I didn’t want to ask any questions, I didn’t want to give him any clues, but – I’m serious.

Because I thought about this two years ago in relation to what would happen – in relation to the oil business, what would happen to deflationary statistics if you had a minus in oil, a big minus in oil. And from what I’m reading and from what he said, they think, well, it’s just an oil problem.

You and I don’t think so. You and I think it’s broader.

Exactly right, Howard.

Yes, but it will give me – then somebody asked, will there be a QQE3? They call it QQE.

They’ve done one and two. He said, no, unless something comes wrong or happens wrongly.

So that means that if our view, your view and mine about deflation is on the mark, they’re going to be surprised. And not only them but Carney and Carlos [ph] and --

A few more people, Howard, that might be surprised but --

Yes, to give you an insight into how they’re thinking and how you can capitalize further. I just wanted to pass that on.

No, thank you very much, Howard. You’re very kind and your observations are good, particularly on the price of oil, the fact that as you said 1922 to 1973, '74, that’s a long time for it --

Yes, that was a tough trade. 25% in 50 years is below my hurdle rate.

But thank you very much, Howard.

All right. Thanks, guys.

Thanks again. Rebecca, next question, please.

Hi, Prem. Thank you for the opportunity.

Hi, Benoit [ph]

Hi. I wanted to ask your thoughts on Fairfax India.

I believe when we acquired Thomas Cook India, we said that Thomas Cook India would be the investment vehicle for Fairfax Financial investments in India. And now that we’ve raised $1 billion, how should we look at Thomas Cook, likewise how should we look at Fairfax India?

Your thoughts please.

Benoit, thank you for asking that question. That’s a good question.

Thomas Cook was our investment vehicle for India prior to Mr. Modi getting elected.

We thought with the fact that Mr. Modi got elected with the majority, business friendly track record and good [indiscernible] is a game changer for India.

We think it’s going to be transformed over time, especially if he gets – we think he’s going to get elected at least one or maybe twice and as long as his health is good, he’ll continue for a long time and transform India. So in that situation, Benoit, we had to think about whether we continue with the resources we have or the opportunity could be so significant that we set up a different company.

We thought about it long and hard and we decided to set up a Fairfax India. And Fairfax India with $1 billion, 300 from us has got a ton of possibilities in India over the long term.

We’re very attracted to India. But as far as Thomas Cook is concerned, we see significant opportunity with Thomas Cook particularly in their areas of operation.

We see acquisitions, expansions. The type of acquisitions that Fairfax India will do, Benoit, is sizable ones, a couple of hundred million, which would be tough for Thomas Cook to finance and ultimately we’d have to finance it because we own 75% of it, but there’d be a lot of potential acquisitions in the fields that Thomas Cook is in going forward.

We like the leadership of Madhavan Menon. We’re very encouraged by his leadership or what he’s already done.

We like Ajit Isaac of course in Ikya and Ramesh Ramanathan in Sterling Resorts. So there’s a lot of opportunity in that company and we will continue to acquire companies in Thomas Cook.

The Modi election changed things and that’s why we created Fairfax India.

Okay, thank you. Thank you so much, Prem.

Just a follow up on this. So should we view Thomas Cook India to grow in its domain and likewise Fairfax in the other domain?

So for instance, if Thomas Cook is in travel and tourism, human resource, should we view Thomas Cook as being restricted in these particular areas?

No. I don’t think you should view it as being restricted but it’s the area of expertise.

And we’ve kept it nice and broad, Benoit, so that both companies can flourish.

Okay. Thank you, Prem.

That’s from my side.

Thank you very much, Benoit. Rebecca, next question.

Thank you, Rebecca. Since there are no more questions, thank you all for joining us on this call.

We look forward to presenting to you again after the next quarter and of course looking forward to seeing a lot of you at our annual meeting in April. Thank you, Rebecca.