Brit dents Fairfax results as combined ratio soars to 112.6% on cat and COVID-19 losses in 2020

Prem Watsa's Fairfax Financial Holdings, the property and casualty re/insurance conglomerate which includes OdysseyRe, Allied World and Brit, posted a fall in net profit for fiscal year 2020, driven by $1.3 billion combined catastrophe and COVID-19 losses and 112.6 percent combined ratio of its subsidiary Brit. Brit's chief executive Matthew Wilson, however, pointed to rate increases and withdrawal of capacity in the market from certain classes as cause for optimism going into 2021.

The Toronto-based company booked $668.7 million of pandemic-related losses and $644.3 million of catastrophe losses in its insurance and reinsurance operations. COVID-19 losses were primarily from coverages related to business interruption (35 percent, mainly from the international business) and event cancellation (34 percent). Incurred but not reported losses comprised approximately 51 percent of total COVID-19 losses.

Fairfax reported a net profit of $218.4 million for 2020, down 89 percent from $2.004 billion it generated in 2019. In Q4 2020, the net profit came in at $909 million, compared with $672 million in the same period of 2019.

Its gross premiums written grew to $19.125 billion in 2020, up from $17.51 billion in 2019. For Q4 2020, the GWP was $4.9 billion, compared with $4.24 billion in Q4 2019.

Overall, the consolidated combined ratio was 97.8 percent in 2020, including 4.8 points from COVID-19 losses and 4.7 points from catastrophe losses.

Fairfax's chairman and chief executive officer Watsa highlighted that "in 2020 all of our insurance and reinsurance companies except Brit achieved a combined ratio below 100 percent", while noting that the company saw "very strong" core underwriting performance, premium growth and favourable reserve development in 2020.

"We continue to focus on being soundly financed and ended the year with approximately $1.3 billion in cash and investments in the holding company," he said.

Meanwhile, its re/insurance subsidiary Brit, which has a major presence at Lloyd's, suffered a loss after-tax of $232 million, compared with a profit of $179.9 million in 2019.

Brit's combined ratio deteriorated to 112.6 percent in 2020, compared with 95.8 percent in 2019. It included 15.9 pps of COVID-19 relates losses and 7.8pps of other major losses.

However, its gross written premiums increased 5.7 percent to $2.42 billion in 2020, compared with $2.29 billion in 2019.

Wilson, group chief executive officer of Brit, commented: "We achieved risk adjusted rate increases of 10.6 percent, with almost all classes contributing to the increase. This gives a total overall increase since 1 January 2018 of 20.2 percent. In this positive rate environment, we continued to grow our written premium to $2.42 billion."

He added: "Looking ahead to 2021, against the challenging backdrop there are a number of indicators to give us cause for optimism, including rate increases, the withdrawal of capacity in the market from certain classes and our improving attritional claims ratio.

"In this environment, our clear strategy of embracing data-driven underwriting discipline, rigorous risk selection and planned targeted growth for 2021, coupled with innovative capital management solutions and continued investment in distribution, positions us well to respond to the opportunities and challenges ahead."

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