Three reasons Fairfax predicts a continuing hard market

As carriers continue taking a good hard look at their risk appetites, price increases could continue well into 2022.

“We expect market conditions to remain strong throughout 2021 and well into 2022,” said Peter Clarke, chief operating officer of Toronto-based Fairfax Financial Holdings Ltd., during an earnings call Friday morning.

“The main drivers of the hard market continue to be low interest rates, social inflation and industry participants re-evaluating their risk appetites and capacity deployment.”

Fairfax reported Thursday its gross written premiums were $5.97 billion in the three months ending Sept. 30, up 26% from $4.73 billion in Q2 2020. All figures are in United States dollars. Fairfax owns a variety of subsidiaries (one being Canada’s Northbridge Financial) in insurance as well as other industries. Net premiums written in property and casualty insurance and reinsurance (other than in run-off operations) rose 25%, from $3.74 billion in the three months ending Sept. 30, 2020 to $4.7 billion in the latest quarter.

“This growth has been made possible by the favourable market conditions that prevail in many of our markets, particularly in North America,” said Clarke.

In addition to Toronto-based Northbridge, Fairfax also owns Stamford, Conn.-based Odyssey Group, London-based Brit and Switzerland-based Allied World.

At Allied World, gross written premiums rose 34%, from $791 million in Q3 2020 to $970 million in the latest quarter. Growth was “especially strong in the directors and officers and excess casualty segments,” Clarke said Friday during the earnings call.

Bottom line growth was also high, though Fairfax lost money overall – in underwriting – during the latest quarter because of high catastrophe losses outside of Canada.

Fairfax recorded net earnings attributable to shareholders of $462.4 million in Q3 2021, up from $133.7 million in Q3 2020.

But Fairfax’s overall combined ratio deteriorated 2.6 points from 98.5% in Q3 2020 to 101.1% in the most recent quarter.

The main drivers of its Q3 2021 underwriting loss were Hurricane Ida and floods this past July in Germany (pictured above) and neighbouring European nations. Fairfax’s insurers paid out a grand total – both in primary and reinsurance – of $340 million on Ida-related claims. The European floods cost Fairfax’s insurers an additional $174 million.

Hurricane Ida made landfall in Louisiana as a Category 4 storm and went on to cause flooding in the northeastern United States, Clarke noted Friday.

“Ida was a big event and typically when we get bigger events, our reinsurance books get hit and that is what happened in the case of Odyssey,” Clarke said.

For the third quarter, Odyssey Group’s combined ratio increased 10.1 points, from 99.4% in 2020 to 109.5% in 2021.

“For the better part of 10 years, this is only the second quarter that (Odyssey Group has) had a combined ratio of above 100% and the other quarter was the third quarter of 2017 with (Hurricanes) Harvey, Irma and Maria,” said Clarke.

Feature image THE ASSOCIATED PRESS/BRAM JANSSEN