October 30, 2008 / 9:35 PM / in 10 years

UPDATE 1-Fairfax Financial profit jumps on investment gains

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

TORONTO, Oct 30 (Reuters) - Insurance holding company Fairfax Financial Holdings Ltd (FFH.TO) said on Thursday quarterly net income jumped 85 percent as investment gains outweighed catastrophe losses in its underwriting business.

The company said net income was $467.6 million, or $25.27 a diluted share, in the quarter ended Sept. 30, compared with $253.2 million, or $13.47 a share in the same 2007 period.

It owns a majority stake in Toronto-based insurer Northbridge Financial Corp (NB.TO), as well as other property and casualty insurers in the United States and Asia.

The consolidated combined ratio of its various insurance and reinsurance operations was 115.5 percent, indicating that underwriting was unprofitable.

Underwriting results included $256.9 million of net catastrophe losses related to Hurricanes Ike and Gustav, the company said.

But its net gains on investments surged.

Investment gains in the latest quarter were $856.8 million, versus gains of $363.6 million in the 2007 third quarter.

Specifically, the company booked gains of $651.8 million related to short positions in stocks and equity indexes and $531.6 million related to credit default swaps. These were partly offset by $176.7 million of “other than temporary” impairments on stock and bond investments, and net losses on bonds of $158.0 million.

Fairfax shares closed at C$321.00, down C$1.00, on the Toronto Stock Exchange on Thursday.

It is bucking the performance trend in the financial services sector. Its stock has gained 12 percent so far this year, helped by fat profits from its investment bets on credit default swaps. (Reporting by Lynne Olver; editing by Rob Wilson)

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