Where Fairfax is going with future acquisitions

While Fairfax Financial Holdings Ltd. is not ruling out the possibility of buying small specialty insurance players, don’t expect the firm to buy any big insurers any time soon.

Toronto-based Fairfax, whose holdings include Northbridge Insurance, bought the majority of Allied World Assurance Company Holdings AG in 2017.

“After we completed the acquisition of Allied World, we really do feel like we have done the big acquisitions that we need to do,” Fairfax president Paul Rivett said Friday during a conference call with stock and bond analysts.

Rivett was asked whether Fairfax still has an appetite for acquisitions in insurance and reinsurance.

Rivett suggested Fairfax is considering the possibility of acquiring smaller firms in the specialty markets. “We have a reputation of treating entrepreneur-owners very well and they want to bring their businesses to us. We will look at them but they are more tuck-in type acquistions.”

Deloitte describes a “tuck-in” acquisition as one in which the acquirer is much larger than the target company, which is in a similar business to the acquirer.

In 2015, Fairfax bought the majority of London’s-based Lloyd’s insurer Brit PLC for US$1.88 billion.

During last Friday’s earning call, Rivett confirmed that Fairfax is not interested in acquiring Protective Insurance Corporation, an insurer based near Indianapolis that writes coverage for truck fleets. He acknowledged there are rumours about Fairfax possibly being interested in acquiring Protective. “Just to be clear, we are not looking at Protective in any way,” he said.

Fairfax reported Feb. 14 its net premiums written were $12.43 billion in 2018, up from $9.98 billion in 2017. This was due in part to the fact that Allied World was not part of Fairfax for most of 2017. All figures are in U.S. currency.

Company-wide, Fairfax reported its combined ratio improved from 106.6% in 2017 to 97.3% in 2018, due mainly to lower catastrophe losses in 2018. Fairfax was affected in 2017 by Hurricanes Harvey, Irma and Maria.

At Toronto-based Northbridge, net premiums earned grew from $1.02 billion in 2017 to $1.12 billion in 2018.

In Canadian dollars, Northbridge saw a 10% increase in net premiums written, “reflecting strong retention of renewal business and price increases,” chief financial officer David Bonham said Friday during the earnings call.

Other subsidiaries of Fairfax include OdysseyRe of Stamford, Conn.

Outside of insurance, Fairfax owns the majority of Recipe Unlimited, whose brands include Harvey’s, Swiss Chalet, East Side Mario’s and New York Fries restaurant chains. Fairfax also owns several retailers, including  Sporting Life, Kitchen Stuff Plus, William Ashley China. During Friday’s conference call, one analyst asked Rivett about Fairfax’s plans to continue operating Toys R Us, whose Canadian stores Fairfax bought in 2018.

“Basically we able to buy it for the real estate value,” Rivett said of Toys R Us Canada, whose U.S. parent went bankrupt.

“That’s the type of deal we will do every time we see it.”