Fairfax won’t crimp capacity at units as long as hard market rolls on

Fairfax Financial will let its full array of insurance subsidiaries lean into the hard market and won’t pull any capacity away as long as the hard market holds, top officials have indicated. Over time, growth will prove headiest at units tapping into the broadest global growth.

“As long as the margins are good and we are getting good rate at our insurance companies, we always want to grow,” president and COO Peter Clarke (pictured) told his company’s Q1 earnings call.

Comments came amid a flurry of questions from market analysts about the group’s willingness to upstream cash from insurance subsidiaries to the parent holding, presumably in search of greater dividend paying capacity.

“Over time, premiums will flatten out when rates start coming down; it is a cyclical market,” Clarke said. “And when that occurs there will be a significant dividend, ability to dividend up money to the holding company” where the group will have “a lot of flexibility what to do with that.”

For now, market-driven growth can only flow through to a bolstered consolidated bottom line. Chairman and CEO Prem Watsa bragged of a first-ever expectation that the group can bring consolidated operating profits of above $3 billion per annum uninterrupted over the coming three years.

Growth to date, a 7.2% gain in gross written premium during the first quarter, followed “strong margins that prevail in many of our markets and increased pricing on property business, especially catastrophe exposed,” Watsa told investors. After reinsurance cessions, net premiums written in property and casualty and reinsurance increased 6.1%.

Fairfax, while required to report in the new IFRS17 accounting standard, declared a devotion to discussing results in terms of just those old-school concepts of premiums - gross, net, written and earned - as well as technical underwriting earnings, without discounting future expected cash flows according to the new dictates.

Mark Crum & Forster atop North American operations with 11.5% growth in gross written premium. Global units were led by Allied World at 7.5% growth, then the reinsurance unit Odyssey at 6.5% growth. Only Brit Insurance suffered a notable shortfall on growth, largely on a reduction on the unit’s binder business for North American property.

Longer-term, Fairfax is looking to the global and international units to drive the above-par growth. seemingly outside of core markets. Vide the latest purchase of the next 46% in unit Gulf Insurance, set to give a boost to the consolidated premium tally upon closing in H2 2023.

“Over time, we believe our international operations will be a significant source of growth, driven by under-penetrated markets and strong local economies,” Watsa told analysts and investors.

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