May 3, 2021 by Greg Meckbach
The parent company of Northbridge Insurance took a stand against cutting staff due to the pandemic.
“One of the things we did last year is we said [to the president of each Fairfax-owned insurer], ‘You cannot use COVID-19 as a reason to reduce staff, to fire people.’ These are our loyal employees. They have been with us for a long time. So we had no reduction in staff,” said Prem Watsa, founder and CEO of Fairfax Financial Holdings Ltd., during an earnings call Apr. 30.
Watsa’s comment was in response to a question from an investment banking analyst, who asked about the sustainability of Fairfax’s expense ratio.
Fairfax reported Apr. 29 that its underwriting expense ratio dropped from 16.4% in 2020 Q1 to 15.7% during the same period this year. The commission expense ratio dropped to 16.6% in the latest quarter compared to 17.4% during 2020 Q1.
An investment banking analyst asked whether the lower expense ratio was driven by changes in operations or whether it is more a benefit of higher premiums.
“Now we are increasing our premiums but we are not adding staff,” Watsa reported during the Apr. 30 conference call about Fairfax’s 2021 Q1 financial results.
“A lot of the expense ratio benefits are coming from the premium side, especially when it’s coming through pricing,” Fairfax chief operating officer Peter Clarke added during the call. “When premium is going up because of increased rate, you don’t need additional expenses to support that.”
Fairfax’s insurers have also benefitted from lower expenses related to travel and entertainment, said Clarke.
In addition to Northbridge, Fairfax owns a number of global P&C insurers, including Odyssey Group, Allied World, Brit and Crum & Forster.
Company-wide, among its insurance and reinsurance operations, Fairfax’s Q4 operating expenses were up 4.4% in 2021 Q1, but net premiums written were up 12.1% — from US$3.7 billion in 2020 Q1 to US$4.17 billion in the latest quarter.
Northbridge’s net premiums written increased by 21.2%, from US$309 million in 2020 Q1 to US$374.4 million in 2021 Q1. In Canadian dollar terms, Northbridge’s net premiums written increased by 14.1%, reflecting new business, strong retention of renewal business, and rate increases, Fairfax said in its management discussion and analysis.
Northbridge’s combined ratio improved from 96.5% in 2020 Q1 to 87% in the latest quarter. Fairfax’s consolidated combined ratio across its insurance and reinsurance operations improved slightly from 96.8% in 2020 Q1 to 96% in the three months ending Mar. 31, 2021.
Fairfax reported Apr. 29 it had net earnings in the latest quarter of US$823 million, compared to a net loss of US$1.389 billion in 2020 Q1. The turnaround was due mainly to the fact that, although Fairfax suffered a US$1.5-billion investment loss in 2020 Q1, it more than made up for those losses since then, reporting an investment gain of US$842 million in the latest quarter.
Feature image by iStock.com/matejmo