Source: The Canadian Press

Fairfax Financial Holdings Ltd. (TSX:FFH), a big insurance company based in Toronto, says it is seeking regulatory approval to buy back up to 1.6 million of its subordinate voting shares on the Toronto Stock Exchange.

The shares represent about 10% of the publicly traded float of 16.3 million shares, Fairfax said Wednesday.

The bid will begin Friday and last up to a year, but there is no assurance the company will repurchase all 1.6 million shares.

At current stock prices, buying back all 1.6 million subordinate voting shares would cost Fairfax nearly $660 million since the company is one of the most expensive stocks on the Canadian market.

“Fairfax is making this normal course issuer bid (buyback) because it believes that in appropriate circumstances its subordinate voting shares represent an attractive investment opportunity and that consequently purchases under the bid will enhance the value of the shares held by the remaining shareholders,” the insurer said in a release.

By buying back its shares, Fairfax reduces its equity base, spreading profits over fewer shares. That increases its return on equity and earnings per share, two key ratios used to determine a company’s financial health and investment rating.

In addition, most share buybacks lead to stock price increases as there are fewer shares on the market for investors.

Fairfax is a financial services holding company whose operating companies provide property and casualty insurance and reinsurance and investment management services.

In Wednesday trading on the TSX, Fairfax shares gained $2.99 to $412.49.