May 1, 2008 / 9:40 PM / 9 years ago

UPDATE 1-Fairfax Financial profit surges on investments

(Adds details. Figures in U.S. dollars)

TORONTO, May 1 (Reuters) - Fairfax Financial Holdings (FFH.TO) said its first-quarter profit jumped nearly six-fold, as the insurance holding company continued to benefit from gains on credit default swaps in its investment portfolio.

Its insurance and reinsurance operations posted an underwriting loss in the quarter, and net premiums written edged down slightly.

Fairfax said net income in the three months ended March 31 was $631.8 million, or $33.78 a diluted share. That was up from $110.9 million, or $5.88 a share, a year earlier.

Fairfax, which has recorded big investment gains in the past several quarters on the rising value of its credit default swaps, said that net gains on investments in the first quarter were $1.09 billion, about 10 times higher than in the first quarter of 2007.

Net gains on sales of credit default swaps were $230.7 million in the quarter, and mark-to-market gains were $467.4 million, the company said.

But in April, the net loss related to credit default swaps was $304.6 million, highlighting the volatility of the CDS portfolio.

Credit default swaps are contracts that shift bond-default risk between two investors, or allow investors to bet on the direction of credit markets.

Fairfax said quarterly revenue was $2.4 billion, up from $1.5 billion a year earlier.

The company owns a majority of Canada’s Northbridge Financial Corp (NB.TO) and other property and casualty insurers in the U.S. and Asia.

A $25.5 million pre-tax charge at new Jersey-based Crum & Forster for an asbestos lawsuit led to a $7.7 million underwriting loss in the first quarter, Fairfax said. That compared with underwriting profit of $49.5 million in the same 2007 quarter. (Reporting by Lynne Olver; editing by Rob Wilson)

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