Fairfax profits shrink due to $308m COVID-19 hit and Brit, but GPW soars

Fairfax Financial Holdings, the property and casualty re/insurance conglomerate which includes OdysseyRe, Allied World and Brit, posted a fall in profits for the second quarter and first half of 2020 driven by $308 million COVID-19 losses and 114.9 percent combined ratio of its subsidiary Brit.

The Toronto-based company posted a net profit of $434.9 million in the second quarter of 2020, compared with net profit of $494.3 million in Q2 2019. In the first half of 2020, the company generated a net profit of $824.4 million, down from $1.26 billion profit in the same period a year ago.

Gross premiums written (GPW) was $4.7 billion for Q2 2020, compared with $4.33 billion for Q2 2019. For H1 2020, GPW stood at $9.5 billion, compared with $9.06 billion in H1 2019.

The consolidated combined ratio of the insurance and reinsurance operations was 100.4 percent, producing an underwriting loss of $13.3 million, compared to a combined ratio of 96.8 percent and an underwriting profit of $101.0 million in 2019, reflecting COVID-19 and higher current period catastrophe losses, partially offset by growth in net premiums earned and higher net favourable prior year reserve development.

Total COVID-19 losses in the first six months of 2020 of $392.4 million were derived primarily from coverages related to business interruption (approximately 46 percent, principally from international business) and event cancellation (approximately 36 percent). Incurred but not reported losses comprised approximately 70 percent of the total losses.

Prem Watsa, chair and chief executive officer of Fairfax, said: "In the second quarter of 2020, all of our insurance companies achieved a combined ratio below 100%, except for Brit. Our consolidated combined ratio of 100.4% in the second quarter of 2020 included $308.1 million or 9.2 combined ratio points of COVID-19 losses. Core underwriting performance continues to be very strong with a combined ratio excluding COVID-19 losses of 91.2%, continued favourable reserve development and growth in gross premiums written of 8.4%, and operating income was $120.5 million despite the COVID-19 losses.

"We remain focused on continuing to be soundly financed and ended the quarter with approximately $1.9 billion in cash and investments in the holding company."