Fairfax ups P&C underwriting profits 32% in Q2 on heavy top line gains

Insurance conglomerate  Fairfax Financial Holdings increased second quarter group P&C underwriting profits by 32.4% to $301.7 million on heavy rate- and volume-driven top line growth against a low-cat claims backdrop, Q2 financial statements indicated.

Underwriting profit growth was put to revenue gains, “including continued rate increases across most lines of business” that compared favourably to “modest changes” on the cost side and reduced nat cat, management said.

P&C lines were said to have led the way “primarily due to increased business volumes and continued rate increases in certain lines of business.”

The sub-segment focused on global customers and specialty lines that includes Allied World, Odyssey Group and Brit, led with 24.2% growth in gross written premium (GWP) and a stunning 35% year on year growth in net premiums earned (NPE).

That same group went on to post a 72% increase in Q2 underwriting profits to $188.7 million, 63% of the group total. Brit and Allied World were called out for decreased cat losses. Q2 combined ratios were said to be down 2.6 pps at Allied World and 2.4 pps at Brit.

Fairfax's stable of North American and international non-global insurers posted slower GWP and NPE growth rates in the mid-teens. The international group of re/insurers even slipped to a slight underwriting loss.

By combined ratio, P&C operations across the group were largely flat against the prior year period, down 0.2 pps to 94.1%.

Reduced nat cat losses accounted for more than all of that reduction. Q2 cat losses of $165 million, chiefly Australian floods and the Brazil drought, accounted for 3.2 points on the combined ratio, below the prior year period's 3.5 pps tied to US winter storms. Prior year period favourable reserve developments knocked off 0.9 pps. Current year loss and loss adjustment expense ratios rose 1.3 pps.

For the group as a whole, GWP of $7.31 billion was up 22.2% year on year ahead of a 28.1% increase in reportable income as net premiums earned as  Fairfax group companies ceded smaller portions to reinsurers.

By the bottom line, rough and tumble markets had taken $1.55 billion from the P&L to push the group to a second quarter net loss of $951 million, more than enough to wipe out the Q1 gain in the YTD tally.

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