Reserve Concerns Impact Fairfax Shares It was a wild January for Toronto-based Fairfax Financial Holdings, whose shares on the Toronto Stock Exchange took a roller-coaster ride last month when U.S. brokerage firm Morgan Keegan Inc. predicted that the insurance giant could lack $5 billion in reserves to cover future claims.
"In recent years, the company's operating results, excluding capital gains and losses, have suffered as a result of persistent reserving issues at many of its operating subsidiaries," stated the report, which was released on January 16. It also gave Fairfax an "underperform" rating and forecasted that the continued reserve strengthening–combined with the high degree of financial leverage used by Fairfax–would stress the company's financial flexibility and liquidity in the next couple of years.
To be sure, John D. Gwynn, the lead analyst of the report by Memphis, Tenn.-based Morgan Keegan, acknowledged the difficulty in analyzing Fairfax, which has traditionally been known for its media-shy ways and offering limited information about its operations.
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