Fairfax turns profitable in Q1 ahead of Allied World acquisition

Canada-based property/casualty re/insurer Fairfax Financial Holdings has recorded a profit in the first quarter of 2017 after a loss in the same period a year earlier while in the process of acquiring Allied World Assurance Company.

Fairfax reported net earnings of $82.6 million for the first quarter of 2017 compared to a net loss of $51.0 million in the same period a year ago, reflecting lower net losses on investments.

"Our insurance companies continued to have excellent underwriting performance in the first quarter of 2017,” said Prem Watsa, chairman and CEO of Fairfax.

“All of our insurance companies again had combined ratios less than 100 percent, with Zenith National at 80.2 percent, OdysseyRe at 90.4 percent and Fairfax Asia at 93.6 percent, and our operating income was strong at $209 million.”

Overall, the combined ratio of the insurance and reinsurance operations excluding run-off was 94.6 in the first quarter compared to 93.1 percent in the same period of 2016.

Fairfax’s underwriting profit dropped to $107.2 million in the first quarter, compared to $121.7 million in the same period of 2016.

Net losses on investments were reduced to $18.4 million from $159.6 million over the period.

“The investment actions we took in the fourth quarter of 2016 to remove all our defensive equity index hedges and reduce the duration of our bond portfolios to approximately one year have resulted in our having cash and short term investments in excess of $10 billion at March 31, 2017," Watsa noted.

"We continue to be soundly financed, with quarter-end cash and marketable securities in the holding company approaching $1 billion."

On March 10, 2017, Fairfax exercised its option to increase the cash consideration component of its offer to Allied World shareholders by $18.00 (out of a possible increase of $30.00) per ordinary share. As a result, the $54.00 per ordinary share consideration under the offer will consist of $23.00 cash per ordinary share payable by Fairfax, a $5.00 per ordinary share special cash dividend payable by Allied World and $26.00 per ordinary share payable in Fairfax stock.

Allied World shareholders have approved both of the proposals that were voted on at the company’s special shareholder meeting held on March 22, 2017 in connection with the announced merger transaction with Fairfax.

Allied World provides property, casualty and specialty insurance and reinsurance solutions.