Fairfax reports underwriting profit down 15.1% for OdysseyRe, combined ratio improves 8.8 points at Northbridge Insurance

Explosions Aug. 12 in the Chinese port of Tianjin contributed 9.5 points to OdysseyRe’s combined ratio in the quarter ending Sept., 30, the insurer’s parent company reported Thursday, while Toronto-based Northbridge Insurance had a 9.1% drop in Q3 net premiums earned and an 8.8-point improvement in its combined ratio.

Toronto-based Fairfax Financial Holdings Ltd. released Thursday its financial results for the third quarter. Fairfax’s holdings include Northbridge and OdysseyRe, plus a plethora of non-insurance companies, such as William Ashley China, Sporting Life and the Harvey’s fast food outlets.

Fairfax attributed Northbridge’s drop in Q3 premiums, from 2014 to 2015, in part to the rise in U.S. currency relative to the Canadian dollar, while OdysseyRe experienced last June the non-renewal of a “significant” reinsurance contract covering risks in Florida. Fairfax reports its financials in United States currency.

Underwriting profit for Stamford, Conn.-based OdysseyRe dropped 15.1%, from $73.3 million in the third quarter of 2014 to $62.2 million in the most recent quarter.

OdysseyRe – led by chief executive officer Brian D. Young – was ranked 24th, on a list in a report published Sept. 2, of the top global reinsurance groups. That list was published by Oldwick, N.J.-based A.M. Best Company Inc., which ranked the reinsurance groups by reinsurance premiums written, in life and non-life, in 2014. In addition to Odyssey Reinsurance Company, OdysseyRe operates commercial specialty insurer Hudson Insurance Company and Newline, which is Lloyd’s Syndicate 1218.

OdysseyRe’s underwriting profit in the latest quarter was “impacted by lower non-catastrophe underwriting margins,” Fairfax said in its management discussion and analysis. Those margins “principally related to the impact of the Tianjin port explosion in China,” which added 9.5 points to OdysseyRe’s combined ratio in Q3, and 3.1 points to the reinsurer’s combined ratio in the first nine months of the year.

The explosions in Tianjin Aug. 12 originated from a warehouse storing 700 tons of sodium cyanide, which can form a flammable gas on contact with water, The Associated Press reported earlier. AP said that as of Sept. 11, 173 were reported dead and eight persons were still unaccounted for.

The blast damaged shipping containers and vehicles and blew out windows several kilometres from the site, Guy Carpenter & Company LLC reported in September. A.M. Best suggested in an earlier report that claims would include business interruption and marine cargo, arising from damaged shipping containers.

For the first nine months of this year, OdysseyRe had gross premiums written of $1.874 billion, down 11.2% from $2.11 billion in Q3 of 2014.

“On June 1, 2015 the non-renewal of a significant property quota share reinsurance contract covering risks in Florida resulted in the return of unearned premium to the cedent …. reducing both gross premiums written and net premiums written by $100.7 million in the first nine months of 2015,” Fairfax stated.

Fairfax Financial is led by chairman and CEO Prem Watsa, who essentially controls more than 40% of voting rights. Fairfax’s Canadian insurance operations include Federated Insurance and Northbridge, whose net premiums earned dropped 9.1%, from $246.4 million in Q3 2014 to $224.1 million in the most recent quarter.

Northbridge Insurance ranked 13th, by net premiums written in 2014, of Canadian insurance carriers (excluding life and purely A&S insurers), in the Canadian Underwriter Statistical Issue.

When adjusted for non-generally accepted accounting principles measures, Northbridge Insurance’s drop in Q3 net premiums earned was 9.7%, due in part to the strengthening U.S. dollar.

Northbridge Insurance – led by president Silvy Wright – had an 8.8-point improvement in its combined ratio, from 94.3% in Q3 2014 to 83.1% in the latest quarter. The carrier’s underwriting income more than doubled, from $14 million in Q3 2014 to $37.9 million in the most recent quarter, due mainly to net favourable prior-year reserve development.

There were “no material current period catastrophes” in either Q3 2015 or during the same period in 2014, Fairfax reported.

In addition to its insurance companies, Fairfax also owns retailers William Ashley China, Kitchen Stuff and Sporting Life, among others. Fairfax’s non-insurance holdings also include The Keg restaurant chain, and last April Fairfax acquired Cara Operations, whose restaurants include Swiss Chalet, Harvey’s, Milestones, Montana’s, Kelsey’s, East Side Mario’s and the Bier Markt, among others.

In the United States, Fairfax’s insurance holdings include Crum and Forster and Zenith National, whose net premiums earned – in the most recent quarter – were $386.8 million (up from $327 million in Q3 2014) and $200.2 million (up from $186.8 million in Q3 2014) respectively.

Crum & Forster’s combined ratio improved 1.3 points, from 99.7% in Q3 2014 to 98.4% in the most recent quarter. Zenith National’s combined ratio improved 1.5 points, from 83.8% in Q3 2014 to 82.3% in the same period this year.

Company-wide, Fairfax reported net premiums earned of $2.081 billion in Q3 2015, up 27% from $1.641 billion in Q3 2014.

Last year’s results do not include those of Brit PLC, a London-based Lloyd’s insurer, of which Fairfax owns 70.1%. Fairfax announced last February its intent to acquire Brit and then in June, it completed the sale of 29.9% of Brit to the Ontario Municipal Employees Retirement System (OMERS).

Fairfax Financial’s net earnings dropped 5%, from $475 million in Q3 2014 to $451.4 million in the latest quarter. For the first nine months of this year, the company reported net earnings of $508.9 million, down 69% from $1.626 billion in the same period in 2014.