Reinsurance News

Fairfax reports Q3 underwriting loss but net earnings rise to $462.4mn

5th November 2021 - Author: Luke Gallin

Fairfax Financial Holdings Limited has reported an underwriting loss of $46.5 million for the third quarter of 2021, driven by the impacts of Hurricane Ida in the U.S. and the European floods in July, partially offset by lower pandemic-related losses.

fairfax-financial-logoThe consolidated combined ratio of the insurance and reinsurance businesses totalled 101.1% for the quarter, representing a deterioration from the 98.5% recorded for the prior year quarter.

Overall, catastrophe losses amounted to $604.6 million, mostly attributable to Ida and the floods in Europe, and principally impacted the firm’s Odyssey Group and Brit subsidiaries.

While cat losses rose year-on-year, losses related to the COVID-19 pandemic came in much lower at $12.2 million, compared with $143.2 million a year earlier.

Within the re/insurance operations, gross written premiums increased by almost 25% to $5.9 billion, while net written premiums increased by almost 26% to $4.7 billion. At the same time, net earned premiums grew by 22.9% and net favourable prior year reserve development hit $69.6 million.

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Re/insurance operating income fell slightly, year-on-year, from $254.7 million to $244.7 million, as higher current period cat losses were substantially offset by increased business volumes.

On the asset side of the balance sheet, Fairfax has reported net gains on investments of $509.5 million, against a net loss on investments of more than $27 million in the prior year quarter.

All in all, the company’s net earnings attributable to shareholders increased from $133.7 million in Q3 2020 to $462.4 million in Q3 2021.

Prem Watsa, Chairman and Chief Executive Officer (CEO) of Fairfax, commented: “Core underwriting performance in the third quarter of 2021 continued to be very strong, with growth in gross premiums written of 24.8%. Despite significant catastrophe losses, principally from Hurricane Ida and the European floods, of $604.6 million or 13.9 combined ratio points, our consolidated combined ratio was only marginally above 100% at 101.1% in the quarter (97.3% year to date), reflecting continued strong performance at Northbridge (89.6%), Zenith National (92.1%) and Allied World (94.4%), with the catastrophe losses principally impacting Odyssey Group (109.5%) and Brit (118.0%).

“Operating income was stable at $244.7 million, reflecting increased share of profit of associates and reduced COVID-19 losses, partially offset by the catastrophe losses which increased by $386.0 million in the third quarter of 2021 compared to 2020.

“Net gains on investments of $374.6 million primarily reflected net gains of $397.0 million on Digit compulsorily convertible preference shares. Not reflected in our financial statements are mark-to-market movements on our non-insurance investments in associates and consolidated investments, which at the end of the third quarter had an excess of fair value over adjusted carrying value of approximately $483.0 million or a pre-tax gain of $19 per basic share. Upon the closing of Digit Insurance’s placement of common shares, now expected to occur in the fourth quarter, and when the company obtains regulatory approvals to increase its equity interest in Digit above 49%, we anticipate recording additional gains of approximately $1.1 billion or $37 in book value per basic share.

“We continue to focus on being soundly financed and ended the quarter with approximately $1.5 billion in cash and investments in the holding company, our credit facility fully undrawn, and our debt to total capital ratio reduced to 25.7%.”

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