Canadian Underwriter

Fairfax reports 2016 combined ratio for insurance and reinsurance operations of 92.5%

February 17, 2017   by Canadian Underwriter

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Toronto-based Fairfax Financial Holdings has released its most recent financial results for the fourth quarter and full-year 2016 ending Dec. 31, reporting a combined ratio for its insurance and reinsurance operations of 92.5% on a consolidated basis.

This result produced an underwriting profit of US$575.9 million, compared to a combined ratio of 89.9% and underwriting profit of US$704.5 million respectively in 2015, primarily reflecting greater catastrophe losses in 2016, Fairfax said in a press release on Thursday.

By company, among others, combined ratios of the insurance and reinsurance operations (excluding runoff) in Q4 2016 and the full year were: 91.8% in Q4 2016 (Q4 2015: 93%) and 94.9% for 2016 compared to 91.8% in 2015 for Northbridge Insurance; 80.4% in Q4 2016 versus 71.6% in Q4 2015 compared to 88.7% in 2016 and 84.7% in 2015 for OdysseyRe; and 97.9% in Q4 2016 compared to 96.6% in Q4 2015 versus 98.2% in 2016 and 97.7% in 2015 for Crum & Forster.

“Our insurance companies continued to have excellent underwriting performance in the fourth quarter and full year of 2016 with consolidated combined ratios of 90.1% and 92.5% respectively,” Fairfax chairman and chief executive officer Prem Watsa said in the release. “In 2016, all of our insurance companies again had combined ratios less than 100%.”

Despite the positive combined ratios, Fairfax reported a fiscal year 2016 net loss of US$512.5 million compared to fiscal year 2015 net earnings of US$567.7 million, reflecting net losses on investments, particularly in the fourth quarter, more than offsetting strong operating income, the release said. Gross premiums written (GPW) for Q4 2016 were US$2.24 billion, essentially flat from the prior-year quarter. For the full year of 2016, GPW were US$9.5 billion, up from US$8.7 billion in 2015.

Net premiums written (NPW) were US$1.95 billion in the final quarter of 2016, compared to US$1.91 billion in Q4 2015. Full-year NPW were US$8.1 billion last year and US$7.5 billion in 2015, the release noted. NPW by the insurance and reinsurance operations increased by 10.7% to US$7.9 billion, primarily reflecting that global specialty insurer and reinsurer Brit was consolidated only in June 2015 (NPW increased by 3.8% excluding Brit, the statement added).

Fairfax also reported an underwriting profit in Q4 2016 of US$197.4 million, down from US$264.2 million in the fourth quarter of 2015. For 2016, the underwriting profit was US$575.9 million compared to US$704.5 million in 2015.

The holding company also completed or announced a number of acquisitions throughout the year, including:

  • Entering into an agreement on Dec. 18 to acquire all of the issued and outstanding shares of Allied World Assurance Company Holdings, AG. Under the terms of the agreement, Allied World shareholders would receive a combination of Fairfax subordinate voting shares and cash equal to $54 per Allied World share, for a total equity value of approximately US$4.9 billion. On Jan. 27, 2017, the company entered into an agreement pursuant to which Ontario Municipal Employees Retirement System will invest US$1 billion to indirectly acquire approximately 21% of the issued and outstanding shares of Allied World simultaneously with the acquisition of Allied World by Fairfax. Closing of the transaction is subject to regulatory approvals and certain Allied World shareholder approvals, and is expected to occur in the second quarter of 2017;
  • Completing an 80% interest in PT Asuransi Multi Artha Guna Tbk (AMAG) from PT Bank Pan Indonesia Tbk (Panin Bank) for US$178.9 million. Fairfax Indonesia will be integrated with AMAG and AMAG will distribute its insurance products through a long-term bancassurance partnership with Panin Bank. AMAG is an established general insurer in Indonesia;
  • On Oct. 18, 2016, agreeing to acquire from American International Group (AIG) insurance operations in Argentina, Chile, Colombia, Uruguay, Venezuela and Turkey, and certain assets and renewal rights with respect to the portfolio of local business written by AIG Europe in Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia. Through an ongoing partnership, Fairfax will support and service AIG’s multinational business in the countries where business operations are acquired. Total consideration will be approximately US$240 million. Each transaction is subject to customary closing conditions, including relevant regulatory approvals, and expected to close during the year; and
  • Completing the acquisition of a 100% interest in Bryte Insurance Company Limited, an established P&C insurer in South Africa and Botswana, from Zurich Insurance Company Ltd. for US$128 million.

Subsequent to year-end, the company also agreed on Feb. 8, 2017 to acquire a 100% interest in Tower Limited for approximately US$144 million. Closing of the transaction is subject to regulatory approvals and certain Tower shareholder approvals, and is expected to occur in the second quarter of 2017. Tower is a general insurer in New Zealand and the Pacific Islands.

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