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Is the end in sight for commercial rate increases?


February 25, 2020   by Greg Meckbach


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Commercial rate increases gradually became steeper in 2019 and should continue like this for some time, says Prem Watsa, chairman and CEO of Fairfax Financial Holdings Ltd.

Toronto-based Fairfax, the parent company of Northbridge Financial, recently reported a 21.6% increase in net premiums written from insurance and reinsurance operations, from $2.64 billion in the fourth quarter of 2018 to $3.21 billion in the same period in 2019. All figures are in United States currency.

Year-over-year premium increases from 2018 to 2019 were 12% in the third quarter, 6% in the second quarter, and 4% in the first quarter, Watsa said Feb. 14 during an earnings call. Those premium increases are mainly due to rate increases.

“Rate increases have been accelerating during the year and we expect this trend to continue in 2020,” said Watsa. In 2019, five major Fairfax-owned insurers – Odyssey Group, Brit PLC, Northbridge, Allied World and Crum and Forster – all reported premium increases compared to the year before.

“We have been very careful not increasing our premiums over the years in a soft market, in fact decreasing it,” said Watsa. “Now we are expanding. We grew in 2019 and we think that trend will continue in 2020.”

Expressed in Canadian dollars, Northbridge’s net premiums written were 18% higher in 2019 than in 2018, Fairfax chief financial officer Jennifer Allen told investment banking analysts during the conference call. Allen said this reflected price increases, strong retention of renewal business, and growth in new business.

Company-wide, Fairfax Financial reported a US$2-billion profit in 2019, up from $376 million in 2018. Gross written premiums were US$17.5 billion in 2019, up from $15.52 billion in 2018.

Fairfax had a combined ratio of 96.9% in 2019, a slight improvement from 97.3% in 2018. Fairfax reported a net gain on investments of $1.7 billion in 2019 compared to $253 million in 2018. The company-wide underwriting profit was $394 million in 2019, up from $318 million in 2018.

The “Insurance and Reinsurance–Other” segment had a combined ratio of 101.7% in 2019, but all other segments had combined ratios below 100%. Catastrophe losses were $498 million in 2019, down from $752 million in 2018. Cat losses in 2019 included $146 million from Typhoon Hagibis, $76 million from Typhoon Faxai and $66 million from Hurricane Dorian. Cat losses in 2018 included $233 million from California wildfires, $138 million from Hurricane Michael, $102 million from Typhoon Jebi, and $69 million from Hurricane Florence.

Watsa founded Fairfax more than 30 years ago, when he acquired trucking insurer Markel Financial Holdings (then controlled by the Markel family and later renamed Fairfax), the Globe and Mail reported earlier.

Since 2012, Lombard Insurance, Commonwealth Insurance, and Markel Insurance have been operating under the Northbridge brand. Northbridge was Canada’s 12th-largest P&C insurer in 2018, according to Canadian Underwriter’s 2019 statistical guide.

Of the $13.261 billion in net premiums written that Fairfax reported in 2019:

  • $3.39 billion came from Stamford, Conn.-based Odyssey Group
  • $2.429 billion came from Zug Switzerland-based Allied World
  • $2.33 billion came from Morristown, N.J.-based commercial insurer Crum & Forster
  • $1.656 billion came from London-based Brit PLC
  • $1.35 billion came from Northbridge
  • $1.14 billion came from “other” insurance and reinsurance operations, which includes a run-off division
  • $721 million came from California-based workers compensation writer Zenith National; and
  • $231 million came from Fairfax Asia.