UPDATE 1-Fairfax Financial profit dives due to stock hedges

Thu Oct 25, 2012 5:30pm EDT
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* Equity market hedges hurt profit

* Underwriting results strong

* Year-before results included $1.6 bln gain

TORONTO, Oct 25 (Reuters) - Fairfax Financial, the Canadian property and casualty insurer run by contrarian investor Prem Watsa, said on Thursday its third-quarter profit fell sharply from the year before, due to losses on the company's equity' hedges.

The Toronto-based company earned $34.6 million, or 90 cents a share, in the third-quarter, down from $973.9 million, or $46.73 a share, a year earlier.

The year-before result included a $1.6 billion gain on investments, as Fairfax's hedges on its equity portfolio allowed it to benefit from a weak quarter for markets.

Strong stock market gains in the most recent quarter - the S&P/TSX composite index rose 6 percent during the quarter, versus a 12.6 decline a year earlier - produced a $23.6 million net investment loss.

Fairfax CEO Watsa hedged the company's stock portfolio in 2010, convinced that global equity markets had further to fall.   Continued...