Fairfax Financial Holdings Ltd. reported a sharp drop in earnings for the first quarter due to heavy losses at subsidiary Lindsey Morden Group Inc.

The Toronto-based property, casualty reinsurer said profit fell 61% in the quarter ended March 31 to $39.5 million (or $2.63 a share) from $101.5 million ($6.97) in 2003.

The company blamed lower realized gains, increased interest expense and runoff costs and Lindsey Morden losses associated with the sale of its third-party claims administration business.

Fairfax said it continued to produce “excellent” underwriting performance in the 2004 first quarter. “The combined ratio of its insurance and reinsurance operations was 95.7% for the quarter, with every operating company producing a combined ratio below 100%, compared to a combined ratio of those operations of 98.2% for the first quarter of 2003,” the company said.

Total revenue jumped 15% to $1.5 billion vs $1.3 billion a year ago.

At Toronto-based Lindsey Morden, the loss was $21.1 million ($1.53) vs a loss of just under $2 million (14¢) in 2003.

The company said last month its U.S. subsidiary, Cunningham Lindsey U.S. Inc., had completed the sale of its third party claims administration business conducted by RSKCo Services, Inc. and Cunningham Lindsey Claims Management Inc.

“The results of RSKCo and CMI have been accounted for as a discontinued operation. Net loss from discontinued operations in first quarter 2004 was $3.8 million. Net loss on disposal incurred in first quarter 2004 was $15.7 million,” the company said.