Canadian Underwriter

Fairfax ‘not oriented’ towards more acquisitions: Watsa

August 10, 2017   by Canadian Underwriter

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Officials with Fairfax Financial Holdings Ltd., which recently bought a majority interest in Allied World Assurance Company Holdings AG, “want to look at how” they can “organically expand” the firm’s existing business, chairman Prem Watsa told financial analysts recently.

Toronto-based Fairfax is the corporate owner of Northbridge Insurance and Stamford, Conn.-based OdysseyRe. Fairfax’s other holdings include U.S.-based Zenith National and Crum & Forster, which write workers compensation and commercial primary specialty respectively.

In 2015, Fairfax acquired 97% of ordinary shares of Brit PLC, which operates in the Lloyd’s market. The same year, Fairfax sold 29.9% of Brit to the Ontario Municipal Employees Retirement System (OMERS).

On July 6, 2017, Fairfax closed the acquisition of the majority of Allied World. The agreement was valued at nearly US$5 billion when it was announced in December, 2016.

Based in Zug, Switzerland, Allied World was founded in 2001 in Bermuda and has a Toronto office. Allied World’s coverages include special liability risks, including professional, environmental and directors and officers, among others.

“Fairfax will ultimately own approximately 67% of Allied World,” Watsa said Aug. 3 on a conference call with financial analysts. Watsa – who is also Fairfax’s chief executive officer – added that partners who contributed to the deal will own the other 33%. Those partners – including OMERS and Alberta Investment Management Corporation (AIMCo) – invested US$1.6 billion.

Fairfax is “not oriented towards … buying more companies,” said Watsa, who founded Fairfax in 1985. “We want to digest the companies we have acquired and we want to look at how we can organically expand our business because there are a lot of revenue possibilities for us.”

Together with its co-investors, Fairfax now owns 94.6% of outstanding shares of Allied World. The other 5.4% of Allied World shares are “expected to be acquired in the third quarter of 2017,” Watsa added.

Related: Fairfax completes acquisition of Allied World

We are in a transition phase right now because we just acquired Allied World and have sold, in early July, 12% of ICICI Lombard,” Watsa said, referring to ICICI Lombard General Insurance Company Ltd., a Mumbai-based joint venture between ICICI Bank and Fairfax.

Fairfax used to own about a third of ICICI Lombard. A deal announced in May reduced its holdings to 22% and then it announced last month the sale of an additional 12%, leaving Fairfax owning about 10% of ICICI Lombard, Watsa noted.

In 2016, Fairfax announced it agreed to acquire American International Group Inc.’s local commercial and consumer insurance operations in Argentina, Chile, Colombia, Uruguay, Venezuela and Turkey.

The acquisition of the former AIG operations in Colombia and Chile “just closed,” Watsa said Aug. 3, adding that the acquisition of the operations in Argentina and Uruguay “are expected to be completed in the second half of 2017” and the operations in Venezuela “is expected to be completed in the first quarter of 2018.”

Watsa made his remarks in reply to questions over Fairfax’s financial results for the three months and six months ending June 30.

Company-wide, Fairfax reported a combined ratio in insurance and reinsurance operations of 94.9% in Q2 2017, down from from 95.7% in Q2 2016.

Net premiums written, company-wide, were $2.21 billion in Q2 2017, up from $2.14 billion in Q2 2016.

The improvement in the combined ratio was “primarily due to lower cat losses” in Q2 2017 versus Q2 2016, Fairfax chief financial officer Dave Barnham said on the conference call Aug. 3.

Some Fairfax insurance companies had significant losses in Q2 2016 due to the wildfire that resulted in the evacuation of Fort McMurray, Alta. That event cost the industry roughly $4 billion.

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