UPDATE 1-Fairfax Financial rebounds to profit on investments

Thu Feb 14, 2013 6:07pm EST
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* Profit tops estimates on investment gains

* Fairfax CEO Watsa maintains equity hedges

* Underwriting losses shrink despite Hurricane Sandy hit

TORONTO, Feb 14 (Reuters) - Fairfax Financial, the Canadian property and casualty insurer run by investment guru Prem Watsa, posted a stronger-than-expected fourth-quarter profit on Thursday, which included a large investment gain, after a year-earlier loss.

The Toronto-based company earned $404.1 million, or $18.90 a share, in the fourth quarter. That compared with a year-before loss of $771.5 million, or $38.47, when the company took a hedging-related charge.

Analysts had expected Fairfax Financial Holdings Ltd to post a profit of $8.90 a share, according to Thomson Reuters I/B/E/S.

The company's profit was driven by a net gain on investments of $635.6 million, which compared with investment losses of $914.9 million in the fourth quarter of 2011, when the company's equity hedges fared poorly amid strong markets.

Fairfax Chief Executive Officer Watsa hedged the company's stock portfolio in 2010, convinced that global equity markets had further to fall, and he said in a statement on Thursday the company is not altering its position.

"We are maintaining our defensive equity hedges as we remain concerned about the economic outlook," he said.   Continued...