Fairfax president says California wildfires well within risk appetite as he highlights UW profits

By David Bull

May 4 - (The Insurer) - Fairfax Financial president Peter Clarke said the $682 million California wildfire losses taken across the Canadian company’s insurance and reinsurance operations was “well within” its risk appetite, as he pointed to the almost $100 million underwriting profit generated despite the event.

On Thursday after markets closed, the company reported that its underwriting profit fell by 74.0% to $96.9 million as it absorbed $781.3 million of cat losses that largely came from the California wildfires.

The loss contributed to a drop-off in adjusted operating income at the Toronto-based parent from $977.1 million in Q1 2024 to $685.5 million in the same quarter this year.

Fairfax Financial had forecast back in February that it would face an estimated $500 million to $750 million of net losses from the California wildfires.

The majority of the losses came from the reinsurance operations of carrier subsidiaries Odyssey, Allied World and Brit.

On the company’s earnings call, Clarke was asked whether events like the California wildfires would make Fairfax revisit its reinsurance strategy, given the magnitude of losses.

Clarke, who is also chief operating officer, commented: “It was a significant event, and we think probably close to a $40 billion industry loss, and we take most of our exposure on the reinsurance side, cat exposure that is. And we like it that way… In our minds, it’s easier to control.

“We know what limits we have outstanding, and our companies do a really, really good job measuring their exposure and make sure it’s within their risk tolerances. So an event this size, the loss we had was well within our risk appetite and in the range we expected.”

The executive noted that despite such a significant event, the underlying results at Fairfax Financial’s insurance and reinsurance operations meant it was able to produce the level of underwriting profit it did in the quarter.

“Which again just shows the strength of and scale of our insurance and reinsurance operations globally,” he commented.