Fairfax restructures TIG; implications for Commonwealth

Financial giant Fairfax Financial Holdings has restructured its Dallas-based TIG Insurance Group, a move which will impact B.C.’s Commonwealth Insurance Company and reinsurer Odyssey Re.Among the restructuring moves, TIG’s outstanding shares of Odyssey Re, Commonwealth and Ranger Insurance Company will be transferred to the parent company, Fairfax. This totals about $1.25 billion in assets.TIG will be withdrawing from much of its business, including discontinuing its Dallas program business, accounting for about 56% of TIG’s net written premiums for the first nine months of this year. The result of these moves will see TIG merge with Fairfax’s International Insurance Company (IIC) subsidiary, a run-off company held by TRG. Fairfax plans to purchase additional shares of TRG over the next 15 years, totaling US$425 million, making it the sole shareholder in TRG.Fairfax will take a charge of $28 million after tax related to strengthening TIG’s reserves, to a total of US$200 million. As well, it take a restructuring charge and other related charges for a total of US$65 million, offsetting the US$204 million in negative goodwill from the IIC transactions.TIG’s special risk operation, based in California, will act as a managing general agent for excess p&c coverage in the future. This operation had accounted for 20% of TIG’s net written premiums for the first nine months of this year. Odyssey Re Holdings will buy the healthcare division of the special risk operation, as well as an excess and surplus lines subsidiary of TIG. TIG’s remaining interests, including its accident & health, Hawaii and Rangers units, are undergoing a review and will become a separate insurance subsidiary independent of TIG. These operations had achieved Fairfax’s target of less than 100% combined ratio and represent about 24% of TIG’s net written premiums for the first nine months of this year.Following the announcement, rating agency A.M. Best said it was placing the ratings of TIG, Ranger and Commonwealth under review with developing implications. A.M. Best says it “expects the balance sheet and liquidity position of TIG together with the financial flexibility of the above referenced insurance subsidiaries will ultimately benefit from the actions taken and the contemplated future realignment of the existing ownership structure”. However, the risk inherent in the transfer of business and restructure has led the rating agency to take this action. It adds that the removal of Commonwealth from under TIG is positive.