Canadian Underwriter

This Canada-based insurance giant is taking a break on mega-mergers

August 14, 2019   by Greg Meckbach

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If a blockbuster insurer merger gets announced tomorrow, it probably won’t involve Toronto-based Fairfax Financial Holdings Ltd., which has grown steadily through insurer acquisitions over the past 34 years.

“We are not looking to add in a significant way from an acquisition perspective at this time,” Fairfax president Paul Rivett said during a recent earnings call.

He suggested the company could make “tuck-in” acquisitions, meaning it could buy specialty shops that are much smaller in size.

Rivett was asked Aug. 2 by a securities analyst about the “dislocation” taking place in the industry and whether that is increasing opportunities for Fairfax in mergers and acquisitions.

With net written premiums of US$12.4 billion in 2018, Fairfax would be roughly the same size as Canada’s top three P&C insurers (Intact, Aviva Canada and Desjardins) put together if Fairfax was a standalone Canadian insurer. But most of Fairfax’s premiums come from standalone non-Canadian insurers Odyssey Group, Crum & Forster, and Brit (which Fairfax acquired in 1996, 1998 and 2015 respectively).

These are just a few of Fairfax’s insurance subsidiaries. Others include Northbridge, Canada’s 12th-largest property and casualty insurer in 2018. (In the Canadian P&C market, Odyssey Reinsurance Company and Allied World Specialty Insurance Company ranked 63rd and 77th respectively, according to Canadian Underwriter’s recently-released 2019 Statistical Guide.)

“There is tremendous opportunity for us to grow organically,” Rivett said Aug. 2 during the call discussing the firm’s financial results for the three months ending Aug. 30.

In July 2017, Fairfax closed its US$5-billion acquisition of the majority of Allied World Assurance Company Holdings GmbH of Zug, Switzerland.

Last month, Fairfax announced Scott Carmilani – until then the CEO of Allied World – is now working for Fairfax Financial’s head office. Allied World’s new CEO is Lou Iglesias.

Carmilani will be working both with Rivett and with Fairfax Insurance Group president Andrew Barnard on organic growth initiatives worldwide for the Fairfax Insurance Group.

“Scott built Allied World,” said Rivett. “He knows how to build businesses from scratch and we are looking to him to accelerate our global multinational business, Fairfax Worldwide, as well as to expand our broker and client relationships around the world to bring us to the forefront as a global insurance and reinsurance operation.”

Fairfax also has holdings outside the insurance space, notably a majority interest in Recipe Unlimited Corp., whose restaurant chains include Harvey’s and Swiss Chalet.

Fairfax released its latest financials Aug. 1, when it reported net premiums earned of US$3.37 billion in the three months ending June 30.

Of that, $856 million came from the Stamford, Conn.-based reinsurer Odyssey Group, $600 million came from Morristown, N.J.-based commercial specialty insurer Crum & Forster, and $392 million came from London-based Lloyd’s insurer Brit, of which Fairfax bought the majority in 2015.

Fairfax acquired California-based Zenith National, which writes workers compensation in the U.S., in 2010.

Fairfax is publicly-traded but more than 40% is effectively controlled by chairman and CEO Prem Watsa, who founded the firm in 1985. That was when Watsa acquired trucking insurer Markel Financial Holdings, then controlled by the Markel family and later renamed Fairfax, as reported in the Globe and Mail.

Since 2012, Lombard Insurance, Commonwealth Insurance, and Markel Insurance have been operating under the Northbridge brand. Northbridge reported net premiums earned of $383 million in the latest quarter.

In addition to Brit and Allied World, other Fairfax acquisitions in recent years include:

  • American International Group Inc.’s local commercial and consumer insurance operations in Argentina, Chile, Colombia, Uruguay, Venezuela and Turkey;
  • Zurich Insurance Company Ltd.’s South African and Botswana operations;
  • Tower Limited, which writes P&C insurance in New Zealand, the Cook Islands, Fiji, Papua New Guinea, Samoa and Vanuatu;
  • QBE’s operations in Ukraine, the Czech Republic, Hungary and Slovakia;
  • the general insurance business of Malaysia-based MCIS Insurance Berhad; and
  • the majority of PT Asuransi Multi Artha Guna Tbk (AMAG) of Indonesia.

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