Fairfax Financial Holdings Limited (OTC:FRFHF) Q2 2025 Earnings Call Transcript

Fairfax Financial Holdings Limited (OTC:FRFHF) Q2 2025 Earnings Call Transcript August 1, 2025

Operator: Good morning, and welcome to Fairfax’s 2025 Second Quarter Results Conference Call. [Operator Instructions] Today’s conference is being recorded. If you have any objections, you may disconnect at this time. Now your host for today’s call is Peter Clarke with opening remarks from Mr. Derek Bulas. Derek, please begin.

Derek Bulas: Good morning, and welcome to our call to discuss Fairfax’s 2025 second quarter results. This call may include forward-looking statements. Actual results may differ perhaps materially from those contained in such forward-looking statements as a result of a variety of uncertainties and risk factors, the most foreseeable of which are set out under Risk Factors in our base shelf prospectus, which has been filed with Canadian securities regulators and is available on SEDAR+. Fairfax disclaims any intention or obligation to update or revise any forward-looking statements, except as required by applicable securities law. I’ll now turn the call over to our President and COO, Peter Clarke.

Peter S. Clarke: Thank you, Derek. Good morning, everyone, and welcome to Fairfax’s 2025 Second Quarter Conference Call. I plan to give you some highlights and then pass the call to Wade Burton, our President and Chief Investment Officer of Hamblin Watsa, to comment on investments; and then Amy Sherk, our Chief Financial Officer, to provide some additional financial details. We had an excellent second quarter with net earnings of $1.4 billion, up from $915 million in the second quarter of 2024. This gives us net earnings of $2.4 billion for the first half of 2025. Operating income from our insurance and reinsurance companies adjusted to an undiscounted basis and before risk margin was $1.1 billion in the second quarter of 2025.

This is relatively flat from the second quarter of 2024. Underwriting income was strong in the quarter at $427 million. Our interest and dividend income was $666 million, up from $614 million in the second quarter of 2024. While our share of profits of associates was $131 million, down $221 million the previous year. Net gains on investments in the quarter were again very healthy at $952 million. All in, our book value per share increased to $1,158 in the second quarter, up 10.8% in the first half of the year, adjusted for our $15 dividend. Our insurance and reinsurance companies are in great shape, writing over $33 billion of annualized premium worldwide. We benefit greatly from our scale and diversification and the exceptional talent and experience of our long-serving presidents and the teams that run our insurance and reinsurance operations.

I will now give you some additional detail on the components of our net earnings for the quarter. Our consolidated investment return was solid with a return of 2.6%, driven by increased interest and dividend income, strong net gains on investments, partially offset by the lower profits of associates. Consolidated interest and dividend income of $666 million was up 8.5% year-over-year, benefiting from a growing investment portfolio and increased dividend income in the quarter. Profits of associates was $131 million, down by $90 million compared to the second quarter of 2024. Profits of associates continues to be driven by Eurobank and Poseidon Corp, offset this quarter by losses on the Waterous fund from mark-to-market unrealized losses in its portfolio.

The reduction from last year also reflects peak achievements for Bauer now being accounted for as a consolidated investment and no longer an associate. In the quarter, we had net gains on investments of $952 million, driven by gains on our equity exposures of $800 million, gains on our bond portfolio of $75 million, primarily from government bonds due to the decrease in interest rates in the second quarter and gains on investments of $77 million, primarily reflecting unrealized gains on our preferred shares in Digit of $358 million, offset by losses of $251 million, primarily on foreign exchange contracts used as an economic hedge against our investments in foreign currencies. I should note that the losses on these contracts went through our net earnings, while many of our foreign exchange gains on investments, those investments consolidated or treated as associates are reflected in other comprehensive income and make up a significant amount of the $334 million OCI gain in the quarter.

At the end of the day, both are captured in our book value. The net gains of $800 million in our equity and equity-related holdings were driven principally by unrealized gains on our Fairfax TRS, Metlin Energy and Metals and Fairfax India’s investment in IIFL Finance. We have always said, and please remember, our net gains or losses on investments only make sense over the long term and will fluctuate from quarter-to-quarter or for that matter, year- to-year. More on investments from Wade. As mentioned in previous quarters, our book value per share of $1,158 does not include unrealized gains or losses in our equity accounted investments and our consolidated investments, which are not mark-to-market. At the end of the second quarter, the fair value of these securities is in excess of carrying value by $2.4 billion, an unrealized gain position or $110 per share on a pretax basis, an increase of approximately $900 million for the year.

As I said before, our insurance and reinsurance businesses had an outstanding quarter, writing $9.1 billion of gross premium in the second quarter of 2025, up 2.6% versus the second quarter of 2024. Our global insurer and reinsurer segment was up 3.7% with gross premiums of $4.9 billion in the second quarter of 2025. Brit’s gross premium was $902 million in the quarter, up 9.3% year-over-year, capitalizing on new business opportunities in its FinPro, cyber and property and specialty lines of business as well on the reinsurance side through its Bermuda reinsurer, Brit Re. In the second quarter of 2025, Ki wrote $230 million of premium, up 6.4% from the second quarter of 2024, driven by its casualty and cyber business. Odyssey’s premiums were up 2.4% in the quarter with gross written premium of $1.7 billion.

Its insurance business was the driver of the growth at both Newline and Hudson, while its reinsurance business was relatively flat. Allied World premium increased 2.3% in the quarter with gross premiums of almost $2.1 billion. Their North American Insurance segment was up 2.4% from new business and rate increases, primarily on its casualty business. The Global Markets segment was up 4.1%, driven by property business and the reinsurance segment was flat year-over-year. Our North American Insurance segment wrote gross premiums of $2.3 billion in the second quarter of 2025, down 1% over the second quarter of 2024. Zenith’s premium was up 7.3% in the quarter, reflecting new workers’ comp business and price increases in its agribusiness book. Crum & Forster’s premium remained flat and Northbridge’s gross premium was down 2.9% in Canadian dollar terms.

The decrease at Northbridge reflects moderating rates for commercial lines in Canada. The international insurance and reinsurance operations gross premiums were $1.8 billion, up 4.2% in the second quarter of 2025 versus the second quarter of 2024. Our Central and Eastern European business, led by Colonnade and Polish Re continues to grow profitably, writing $220 million of premium in the quarter, up 38%. Bright in South Africa grew premium 20% and Fairfax Asia grew 9.4%, with strong growth across all its companies with the exception of Falcon Hong Kong. Offsetting the growth was Fairfax Latin America, down 7.2%, driven by foreign exchange movements in Argentina and at Fairfax Brazil and Gulf Insurance’s premium decreased 1.3%, principally due to the loss of a significant insurance contract that was nonrenewed in the third quarter of 2024.

Our international operations now make up approximately 20% of our total gross premiums and the long-term prospects of our international operations are excellent and will be a significant source of growth over time, driven by excellent management teams that are more and more collaborating among themselves and leveraging the strengths of the group within our decentralized structure. Underwriting results in the quarter were very strong with a combined ratio of 93.3%, producing underwriting profit of $427 million. All but one of our insurance and reinsurance operations posted an underwriting profit in the quarter. Our global insurers and reinsurers had a combined ratio of 91.7% and underwriting profit of $293 million. Allied World had a combined ratio of 91.1%, Odyssey 91.9%; Brit’s combined ratio was 92.2% and Ki was 93.4%, an outstanding result, especially after a difficult first quarter due to the significant catastrophe losses from the California wildfires.

Our North American insurers had a combined ratio of 95.2% for the second quarter, led by Northbridge with a combined ratio of 92%. Crum & Forster had underwriting income of $52 million or a combined ratio of 95.4%, while Zenith, our workers’ compensation specialist, had an elevated combined ratio of 103.3 representing an underwriting loss of $6 million. Zenith has been dealing with multiple years of rate decreases in the workers’ compensation space, but we are happy to say rates have now begun to stabilize and Zenith are pleased to see some premium increases coming its way. Our international operations delivered a solid quarter with a combined ratio of 95.5%. Fairfax Asia had a very strong quarter with a combined ratio of 89.5%, driven by an outstanding performance at Singapore Re, posting a combined ratio in the low 80s.

Bright, who has been taking underwriting actions the last number of years, are seeing it come through in their results. They had a combined ratio of 92.8%. Latin America posted a combined ratio of 95.1% and Central and Eastern Europe was at 95.3%. Gulf Insurance, the largest company in our international operations, had a combined ratio of 97.9% in the second quarter, negatively affected by elevated loss ratios on its health business and the expense drag from the loss of the large contract in its Kuwaiti operation. Gulf’s combined ratio continues to improve, and we are confident they will return to their historical sub-95 underwriting results. In the second quarter, our insurance and reinsurance companies recorded favorable reserve development of $163 million or a benefit of 2.5 points on our combined ratio.

Each of our major segments recorded favorable reserve development with releases coming primarily on short-tail property business. Through our decentralized operations, our insurance and reinsurance companies continue to thrive, writing over $33 billion in annualized gross premiums with healthy underlying margins and led by our exceptional management teams. The strong results of our insurance operations have not gone unnoticed by the rating agencies. In the second quarter, Standard & Poor’s upgraded the financial strength ratings of our core operating companies to AA- and our debt rating to A-. Also in the quarter, AM Best upgraded Allied World’s rating to A+ and Fairfax’s debt rating to A-. Our companies are positioned very well to continue capitalizing on their opportunities in their respective markets in the second half of 2025.

I will now pass the call to Wade Burton, our President and Chief Investment Officer of Hamblin Watsa, to comment on our investments.

Wade Sebastian R. E. Burton: Thank you, Peter, and good morning. It was a quiet quarter on the investment front for Fairfax. We have weathered the tariff situation well so far and monitor it closely. We continue to look for ways to benefit and protect our float as events evolve. We ended the quarter with $49 billion in fixed income investments. The yield is 5.1%, and our dividend and interest income run rate is a healthy $2.6 billion per annum. Our duration is 2.4 years, including $11 billion in cash and short-term treasuries. We continue to stay on the shorter side of duration as we watch inflation and the Fed actions. Within the fixed income portfolio, our mortgages continue to perform well. We have been repaid on $1.8 billion of mortgages from the Pacific Western Bank transaction, where we purchased approximately $4 billion in commitments at 95% of par in the spring of 2023.

The IRR on the loans repaid thus far is 14.7%. Thanks to the outstanding work of Bill McMorrow, Matt Windisch and their team at Kennedy-Wilson, these mortgages are proving to be a fantastic investment for Fairfax. Our equity and associate investments ended the quarter at almost $25 billion. The largest investments, including Eurobank, Poseidon, Recipe, Sleep Country, Peak Achievement, Fairfax India are all performing well. All are run by capable managers in the Fairfax mold and adding nicely to our associate and noninsurance income. It’s early days in the timeshare investment, Berkeley, run by Caroline Shin, but so far, it has exceeded expectations. Berkeley has approximately 125,000 available room nights per month. They started the year at virtually no occupancy for overnight stays.

In month 1, Caroline brought that number to 10%; the next month, 20%; and the third month, 35%. I’m happy to report year-to-date operating income has already reached our full year expectations. Again, outstanding and capable partners doing an excellent job for Fairfax shareholders. Our biggest challenge on the investment front is the U.S. stock market. It is up a lot from lows and expensive against earnings. This makes it a challenge to find new investment ideas. Our experienced investment team continues to work hard to monitor and search, and the benefit of permanent capital, as always, means we can be patient and let opportunities come to us. Overall, Fairfax continues to be in outstanding shape on the investment side. That’s it for me. I’ll now turn the call over to Amy Sherk, our CFO.

Amy Sherk: Thank you, Wade. I’ll begin my comments by discussing the impact changes in interest rates had on our consolidated statement of earnings in the second quarter and first 6 months of 2025 and specifically, the effects it had on discounting on prior year net losses on claims in our fixed income portfolio. Net earnings of $1.4 billion in the second quarter of 2025 included a net benefit of $120 million, reflecting the effects of changes in interest rates during the quarter, comprised of a net benefit on insurance contracts and reinsurance contracts held of $46 million and net gains on bonds of $75 million, primarily unrealized. We generally expect that a decrease in interest rates will result in an increase to the carrying values of the company’s fixed income portfolio and liability for incurred claims, net of reinsurance, resulting in the partial mitigation of interest rate risk.

In the current quarter, however, we recorded a benefit on both as short-term interest rates decreased modestly and longer-term interest rates increased. Net gains on bonds reflected a modest decrease in shorter-term interest rates, while the net benefit on insurance contracts and reinsurance contract assets held reflected the increase in longer-term interest rates. Comparatively, net earnings of $915 million in the second quarter of 2024 included a net loss of $29 million, reflecting the effects of changes in interest rates comprised of net losses on bonds of $191 million, partially offset by the net benefit on insurance contracts and reinsurance contract assets held of $161 million. When you compare the year-over-year change on a pretax basis, the changes in interest rates resulted in an approximate $150 million movement in our pretax earnings.

Please refer to Page 37 of the MD&A within the company’s interim consolidated financial statements for the second quarter of 2025 for a table that presents the company’s total effects of discounting and risk adjustment on our net insurance liabilities and the effects of changes in interest rates on the company’s fixed income portfolio set out in a format the company believes assists in understanding its net exposure to interest rate risk. Now a few comments on our noninsurance company results for the second quarter of 2025. Noninsurance companies reported an operating income of $126 million in the second quarter of 2025 compared to $25 million in the second quarter of 2024, primarily reflecting the acquisition of Sleep Country on October 1, 2024, and the consolidation of Peak Achievement on December 20, 2024.

Sleep Country and Peak Achievement reported operating income of $20 million and $38 million, respectively, in the second quarter of 2025. In addition, Fairfax India reported increased operating income, driven by share of profits of associates in the second quarter of 2025 compared to share of losses on associates in the second quarter of 2024. Looking at our share of profit from investments and associates in the second quarter, as Peter has said, our consolidated share of profit of associates of $131 million in the second quarter of 2025 principally reflected our share of profit of $105 million from Eurobank and $69 million from Poseidon, partially offset by our share of loss of $60 million from the Waterous Energy Fund, a limited partnership investment that recorded unrealized mark-to-market losses on a publicly traded common stock holding during the second quarter and first 6 months of 2025.

A few comments on transactions within the quarter. On April 21, 2025, Quess spun off Digitide Solutions Limited and Bluspring’s Enterprise Limited and both Digitide and Bluspring commenced trading publicly in India on June 11. At listing, the aggregate fair value of the three companies, Digitide, Bluspring and Quess post spin-off was substantially the same as Quess’s fair value immediately prior to the spin-off. The company applies the equity method of accounting to its 34.8% equity interest in each entity. On May 13, 2025, the company acquired a 33% equity interest in Alpinjia for cash consideration of $237 million or EUR 210 million and commenced applying the equity method of accounting to its investment. Alpinjia is a French insurance company that has been operating in the French market since 1962, and it writes specialty property and casualty insurance.

Subsequent to June 30, 2025 — sorry, on June 16, 2025, the company entered into an agreement with Keg Royalties Income Fund to acquire all issued and outstanding units of the Keg Fund that it does not already own for CAD 18.60 per unit or approximately $151 million or CAD 207 million payable in cash. The transaction is subject to the approval of the Keg Fund unitholders and other closing conditions and is expected to close in the third quarter of 2025. Lastly, as an update to the Boat Rocker transaction disclosed in our Q1 2025 interim report, Boat Rocker received shareholder approval to proceed with the transaction on June 17, 2025, and the transaction is expected to close imminently. I will close with a few comments on our financial condition.

Maintaining an emphasis on financial soundness at June 30, 2025, the company held $3 billion of cash and investments at the holding company with access to our fully drawn $2 billion unsecured revolving credit facility, and we also have an additional $1.9 billion at fair value of investments in associates and consolidated noninsurance companies owned by the holding company. Holding company cash and investments support the company’s decentralized structure and enable the company to deploy capital efficiently to its insurance and reinsurance companies. On May 20, 2025, the company completed offerings of $500 million, 5.75% 10-year unsecured senior notes due in 2035 and $400 million principal amount of 6.5% 30-year unsecured senior notes due in 2055 for total net proceeds of $890 million after discount, commissions and expenses.

On June 17, 2025, pursuant to an agreement and in exchange for cash and cash equivalents received from the holding company of $522 million or CAD 708 million, including accrued interest, Brit became the primary co-obligor of Fairfax’s CAD 450 million principal amount of 4.73% unsecured senior notes due 2034 and CAD 250 million principal amount of 5.23% unsecured senior notes due in 2054. These notes are now the joint and several obligations of the holding company and Brit, with Brit being the primary co- obligor and at first instance, responsible for payment of principal premium, if any, and interest on these notes. At June 30, 2025, the excess of fair value over carrying value of investments in noninsurance associates and market traded consolidated noninsurance subsidiaries was $2.4 billion compared to $1.5 billion at December 31, 2024.

The pretax excess of $2.4 billion is not reflected in the company’s book value per share, but is regularly reviewed by management as an indicator of investment performance. The company’s total debt to total capital ratio, excluding noninsurance companies, increased to 25.9% at June 30, 2025, compared to 24.8% at December 31, 2024. This primarily reflected increased total debt and redemption of the company’s Series E, F and M preferred shares, partially offset by increased common shareholders’ equity. Subsequent to June 30, 2025, on July 16, 2025, the company extended the expiry date of its $2 billion unsecured revolving credit facility from July 17, 2029, to July 16, 2030, on substantially the same terms with the syndicate of lenders. Book value per basic share was $1,158 at June 30, 2025, compared to $1,060 at December 31, 2024, representing an increase per basic share in the first 6 months of 2025 of 10.8% adjusted to include the $15 per share common dividend paid in the first quarter of 2025.

In closing, common shareholders’ equity increased by approximately $2 billion to $25 billion at June 30, 2025, up from $23 billion at December 31, 2024, primarily reflecting net earnings attributable to shareholders of Fairfax of $2.4 billion, other comprehensive income of $450 million, primarily related to unrealized foreign currency translation gains net of hedges as a result of the strengthening of foreign currencies against the U.S. dollar, partially offset by payments of common and preferred share dividends of $358 million and purchases of 256,650 subordinate voting shares for cancellation for cash consideration of $361 million or $1,406.22 per share. That concludes my remarks, and I will now pass the call back to Peter. Thank you.

Peter S. Clarke: Thank you, Amy. We are now happy to take any questions you might have.

Operator: [Operator Instructions] Our first question now is from Jaeme Gloyn with National Bank Financial. .

Q&A Session

Jaeme Gloyn: Just wanted to first touch on the commercial lines themes that we’re seeing in the U.S. market, but I guess it’s also in Northbridge as well, where it seemed to have the most bite this quarter. What are the — what are your updated views and perspectives on commercial lines? How is that impacting your U.S. businesses and in particular, property? And maybe a follow-up after that.

Peter S. Clarke: Sure, Jaeme. Just on the pricing front, I think it depends on each company and by geography. But generally, the theme is that on the property business, rates are coming down in some countries, low to single rate increases. But in many, it can be down low single digits to up to 10%. While on the liability side in casualty, we’re still seeing strong rate and anywhere high single digits to up to 20%. In Canada, Northbridge, their commercial lines are about mid-single digit in total with property down, casualty up. Same at Crum & Forster, their liability business is up about 7.5%, property low single digits. Odyssey on the reinsurance side, property is down single digits, casualty up single digits, and probably where we’re seeing most of the rate — negative rate pressure, that’s in Lloyd’s at Brit and Ki, where we’re seeing small single-digit decreases.

So at a high level, that’s where it is, but we write $33 billion of premium, and we benefit greatly from that diversification. So there may be some lines that are going down, some lines going up, and we have the flexibility to be able to grow. And of course, number one is discipline. Underwriting focus is #1 for all our companies, and we take a long-term approach. So there’s no top line focus at any one of our companies.

Operator: Our next is from Tom MacKinnon with BMO Capital Markets.

Tom MacKinnon: A question just with respect to Zenith here. Can see high loss trends here. What is really driving this? Is it — is the legal environment getting worse here? And you are seeing — you mentioned you’re starting to see rates stabilizing here. Would that lead us to believe that these loss trends won’t be higher? Or you’re going to just be able to price for them? Are you going to be able to get a combined ratio here below 100% because you’ve been running above for a couple of quarters now?

Peter S. Clarke: Yes. Thanks, Tom. Thanks for the question. Yes, Zenith really — their combined ratio has come under pressure from rate decreases. There’s been like probably close to 5 years of rate decreases. Now they benefited in the past from reserve redundancies that helped the current calendar year numbers. But those rate decreases are starting to compound and came through. But they have been stabilizing over the last 6 to 12 months, and so we don’t see decreases anymore. Rates are stabilizing, and in the second half of the year, they’re expecting to get price increases. So we’re very pleased with that. They’re 100% focused on getting that combined ratio below 100% and the workers’ compensation market is a cyclical market, and Zenith has done an outstanding job over the last 30 years of managing the cycle, and they continue to do that, and they’re doing their very best to get that underwriting profit back in the short term.

Operator: Our next is from Charles Frischer with LF Partners.

Charles Frischer: Congrats on another great quarter. The way I think about book value today, if I take the quarter ending number at $1,158 as a base, and what I do is I add $110 for the per share in excess value not included in book, I take another $100 for what I believe to be the true value of Poseidon and another $100 for the low mark on Bangalore and Ki and assume a 20% tax rate on those additions. I, therefore, conclude an adjusted book value of closer to $1,400 versus the $1,150 that you report, giving us about 1.3x on my adjusted book. Is there something in that approach that you think is not accurate or might not be fair?

Peter S. Clarke: No, I think that’s a fair approach. Yes, we mentioned that our consolidated investments and investments in associates, we carry them based on equity accounting, and for the listed companies, the market value is almost $2.4 billion above that. So that’s a fair adjustment to make to the book value. That’s why we think our intrinsic value is higher than our current book value.

Operator: Our next question is from Bart Dziarski with RBC Capital Markets.

Bart Dziarski: Just one on capital allocation in terms of, we’ve got a healthy cash position at $3 billion, leverage mid-20s. So just wondering how you’re thinking about buying back more stock at the current level, especially with the disconnect in the intrinsic value.

Peter S. Clarke: No. Thanks for the question, Bart. Yes, we ended the quarter with about $3 billion in cash and marketable securities at the holding company. That does include — we did a bond issue in May for approximately $900 million, and we haven’t deployed that capital as of now. We’re going to look in the second half of the year, see what our excess capital is, where our cash is, and the dividends that we’ll be getting out of our subs, and then we’ll take a harder look at where do we deploy that excess capital, but as we said in the past, our capital priorities have not changed. Number one is we want to be strongly financed, and we say that is significant cash in the holding company, no bond maturities for 3 years we look at and then our credit facility of $2 billion, unused bank lines of $2 billion, which Amy said, we extended to 5 years again in the second quarter.

Next is we want to make sure our insurance companies are adequately capitalized, and we’ve been taking less dividends out the last number of years as their premium volume has gone significantly. As that slows down, there could be more capital there. We also — as we said in the past, we have minority interest in some of our insurance operations. We’re always interested in purchasing that and share repurchases as well, slowed down a little bit in the second quarter, but we think we will — we always would like to buy back our own shares.

Operator: Our next question now is from David Pierse with Raymond James.

David Pierse: Just on that last point about buyback, can you provide a bit of context about why it slowed this quarter? And then on a related note, I’m just looking at the TRS sizing another large gain this quarter given how the shares performed. Are you at the stage now where you’re considering reducing that position at any time in the near future?

Peter S. Clarke: Thanks, David. In regards to the share buyback, for the first 6 months of the year, we bought back about 250,000 shares, and so we’re happy with that. As I said, that slowed down in the second quarter with about 51,000, but our stock was up almost 18% in the quarter. So that — so we’ll wait and see and see what we do in the second half. On the TRS, the Fairfax TRS, that’s been a great investment for us. We continue to think it will be going forward, and as we do with all our investments, we continually monitor and we look at our exposures, and we’re quite happy where we are today on that.

Operator: Our next question from Jaeme Gloyn with National Bank Financial.

Jaeme Gloyn: Yes. I just wanted to clarify something on the Waterous mark-to-market. Is it all investments within the Waterous that would be mark- to-market? So I’m thinking of another publicly traded investment there that had a nice rebound this quarter and of larger scale. So is it just — is it isolated? Or is it — do they all mark-to-market and flow through that share of profit?

Peter S. Clarke: Yes. In this fund, it’s a little odd because we equity account the fund because we’re a major shareholder in it, but this is a separate fund from the previous — the Waterous I fund, and because it’s — this is the only holding in the fund, it’s mark-to-market. So it goes to our associate income. So a little different than our normal associates. I hope that answers your question, Jaeme. Next question please.

Operator: Now from Tom MacKinnon with BMO Capital Markets.

Tom MacKinnon: Yes. Just a question overall on the expense ratio. It’s up 1 point quarter-over-quarter, not due to commissions here. You note increasing technology spend as you kind of separate Ki from the pack. How should we be thinking about the trend in the expense ratio? Is it more like it was in the first quarter? Or is it more like it was in the second quarter? Thoughts there?

Peter S. Clarke: Sure. I think a few things in the second quarter that affected the expense ratio. One is the separation costs at Ki, you’re right, that should reduce over the second half of the year. Also at Gulf Insurance, they had a significant insurance contract that nonrenewed at the end of last year, and so the top line, the premium has come down, and that’s affected the expenses there. A number of our companies are doing systems — new systems in place, Allied, Odyssey, and you’ll see the effects of that coming through. So it’s hard to say quarter-to-quarter where that might be, but all our companies are focused on the expense ratio, especially as premiums moderate. So I hope that gives you some clarity on that.

Operator: Our next is from Bart Dziarski with BMO Capital Markets (sic) [ RBC Capital Markets ].

Bart Dziarski: It’s RBC Capital Markets, but all good. Just wanted to follow up. Can we get a bit of a deeper dive on Poseidon? It seems to be doing well, notwithstanding kind of what’s going on in the macro environment. So I’d love to get updated views on that investment.

Peter S. Clarke: Sure. Yes, Poseidon, one of the big strengths of Poseidon is that they’re a shipping company, and a number of years ago, they’ve locked in the rates for the next 10 years, 5 to 10 years, and so they’re benefiting from that significantly. They’re not feeling the effects of the tariffs, and we have about a 43% ownership in Poseidon. It’s led — has an outstanding management team led by David Sokol and Bing Chen, and we’re really just one thing supporting the management, riding with the management, and we’ve been extremely happy with that investment.

Operator: Our next is from David Pierse with Raymond James.

David Pierse: Just going back to the minority interest positions in Allied and Odyssey. My understanding is the Allied call option expires next year, I believe Odyssey is a couple of years further out. Are you in a position yet to provide timing on when you might take those minority partners out or just any guidance on what that might look like over the next year would be helpful.

Peter S. Clarke: Yes. No, another 12 months on the option. So we’re looking at that, and it will be part of our capital decision-making in the second half of the year. There’s really — there’s no significant lead time that we need to give direction on that. But both — over time, we do hope — we’d like to own 100% of both Allied and Odyssey.

Operator: Our next question is again from Jaeme Gloyn with National Bank Financial.

Jaeme Gloyn: Just a couple of questions if I can sneak in here. First, just on the interest and dividend income stepped up this quarter nicely run rate like $2.7 billion, was there anything onetime in that number where we shouldn’t sort of run that through in the future quarters? And then secondly, on the noninsurance businesses, with Sleep Country and Peak Achievement in there, does this sort of reflect a fairly normal quarter? Or are there still some other moving parts we should consider in that business? So two parts there.

Peter S. Clarke: Yes, sure. Just on the interest and dividend income. We had, I think, in total, $666 million in the quarter. It was up. A big part of that is our investment portfolio is growing. Our fixed income portfolio, I think, was around $49 billion, it ended the quarter at. So that redeploying that cash that we’re earning, we get additional interest income from that, and our mortgage book still continues to develop very strong results, and we benefit greatly from that. So I’d say those would be probably the two things that are driving the increase, and so as our portfolio grows, our interest and dividend income will go up as well. Second, on the nonconsolidated companies, yes, we’re very pleased with — we added Sleep Country at the end of the last year, and we began to consolidate Peak at the end of the year.

We think two both very good businesses will produce strong cash flows, and I think you’re right, Jaeme, when you say it’s sort of more reflective in our — in the results we can expect in that consolidated noninsurance income going forward. So thank you again for the question. Next question, please.

Operator: As I have no further questions in queue, I would like to turn it back to management for closing results.

Peter S. Clarke: Well, if there are no further questions, thank you for joining us on our second quarter 2025 conference call. Thank you again, Fran.

Operator: Most welcome. As we are concluded, again, thank you, everyone, for your participation. You may please disconnect at this time.