Fairfax Financial’s third-quarter net earnings fell to US$929.6 million, or US$43.32 per diluted share, from US$1.15 billion a year earlier, as rising interest rates led to losses on its bond portfolio. Catastrophe losses at Canadian subsidiary Northbridge also weighed on underwriting.
The Toronto-based insurance holding company’s P&C operations still produced an underwriting profit of US$523.9 million, down from US$540.3 million. The undiscounted combined ratio edged up to 92.5% from 92.0%.
Fairfax said the increase mainly reflected higher catastrophe losses at Northbridge from severe weather across Canada, together with higher attritional losses and underwriting expenses at reinsurer Odyssey Group.
A costly year for Canadian weather
Northbridge’s losses reflect a heavy catastrophe year in Canada. Severe weather caused more than $3.7 billion in insured losses this summer, the third-costliest on record, according to CatIQ estimates cited by the Insurance Bureau of Canada. Storms in southern Ontario on September 2 and 3 added an estimated $563 million.
Gross premiums written rose 9.3%, driven mainly by Fairfax’s international operations, particularly Gulf Insurance, which wrote a large, fully ceded marine war contract. Net premiums written rose 5.4%.
Adjusted operating income from the P&C operations rose to US$1.38 billion from US$1.34 billion. However, net investment losses totalled US$858.7 million, mostly US$827.7 million of losses on bonds as interest rates rose, and US$257.9 million of unrealized losses on preferred shares, mainly its stake in India’s Digit.
Book value per basic share rose to US$1,349.15, up 8.4% since the start of the year after adjusting for the US$15 dividend.
Deal activity
Fairfax has been active on deals. In Canada, it completed the purchase of an 80% stake in winemaker Andrew Peller, and its Sleep Country subsidiary closed the acquisition of US bedding retailer Sleep Number. It has also agreed to take a 50% stake in UK pharmacy chain Boots and was selected by India’s government to buy a 60.72% stake in IDBI Bank for about US$5.6 billion.
“We are very excited to be selected by the Government of India to be the purchaser of the Government’s interest in IDBI Bank,” said Prem Watsa, chairman and CEO.
Northbridge’s results showed how this year’s storm losses are reaching Canadian commercial carriers’ underwriting results. Despite the soft commercial market described in recent broker reports, carriers with catastrophe-exposed property books may hold firmer on property pricing and deductibles at renewal.