February 21, 2018 by Greg Meckbach
Seven months after buying the majority of Allied World Assurance Company Holdings AG, Toronto-based Fairfax Financial Holdings Ltd. does not have any immediate plans to buy more insurance companies for the time being.
“We really don’t need to buy another company,” Prem Watsa, Fairfax’s founder, chairman and CEO, said Friday during a conference call with analysts.
This is because buying back Fairfax shares is “the best thing” Fairfax can do to get its shareholders a good return, he said.
Allied World, which has a Toronto office, provides reinsurance as well as commercial primary insurance, including professional liability, environmental and directors and officers, among others. Fairfax owns about two-thirds of Swizterland-based Allied World, with other investors, including the Ontario Municipal Employees Retirement System, owning the remainder. The acquisition closed July 6, 2017.
Another major recent Fairfax acquisition was Lloyd’s insurer Brit PLC, which Fairfax acquired three years ago.
Fairfax’s other insurance subsidiaries include Toronto-based Northbridge Insurance and Stamford, Conn.-based OdysseyRe.
The combined ratio for Fairfax’s property and casualty insurers and reinsurers was 106.6% in 2017, a 14.1-point deterioration from 92.5% in 2016.
Allied World’s combined ratio, from the day the acquisition closed through to Dec. 31, 2017, was 157%, Fairfax CFO David Bonham said Friday. Allied World had US$542 million in catastrophe losses during that time, “principally” from three North Atlantic hurricanes (Harvey, Irma and Maria), plus wildfires in California.
Allied World’s catastrophe losses “were a little bit higher than we would have expected,” Bonham said Friday.
Company-wide, Fairfax reported underwriting losses of US$24 million during the three months ending Dec. 31 and US$642 million for year ending Dec. 31. In 2016, Fairfax had underwriting profit of US$197 million in the fourth quarter and US$576 million for the full year.
The deterioration of Fairfax’s results was also due mainly to the three hurricanes and the California wildfires.
In 2017, the property and casualty insurance industry “experienced some of largest catastrophe losses in history” as a result of the wildfires and hurricanes, Watsa said.
Asked about the Jan. 1 renewal season, he said reinsurance rates “have gone up” but the increase was not “huge.”
Property rates in areas affected by the 2017 catastrophes were up about 25%, while rates in areas not affected by catastrophes were up about 10%, Watsa said. He added that this year’s rate increases were not nearly as high as increases after the Sept. 11, 2001 terrorist attacks or after the 2005 hurricane season.