Windfall gains from its Indian insurance operations have swung Prem Watsa's Canada-based Fairfax Financial Holdings to the profit in the fiscal year 2017. Aided by a massive profit in its ICICI Lombard deal, the multinational re/insurer has reported net earnings of $1.74 billion in its global operations for 2017 compared to a net loss of $512.5 million in 2016.
The results improvement was driven by net after-tax gains in excess of $1.9 billion related to the reduction of its shareholding in ICICI Lombard and the sale of its 97.7 percent equity interest in First Capital.
Watsa, who through one of his companies Lombard was holding 36 per cent in ICICI Lombard General Insurance till July 2017, had to pair it down to below 10 per cent in tranches for regulatory compliance as he intended to set up another general insurnace company -Digit- along with the partneship of Kamesh Goyal, who quit his job in Allianz before joining hands with Watsa.The joint venture was 17 years old when Watsa had to bring down his stakes in it.
“Our results in 2017 were the best in our thirty-two-year history, in spite of some of the largest catastrophe losses in history as a result of hurricanes Harvey, Irma and Maria and the California wildfires,” said Prem Watsa, CEO, Fairfax while announcing results of the company. .
“We also ended the year with a record $2.4 billion in cash and marketable securities at the holding company level. The reduction of our shareholding in ICICI Lombard to about 10 percent resulted in a net after-tax gain of $930 million; and we entered into a strategic alliance with Mitsui Sumitomo Insurance Company resulting in the sale of First Capital for cash proceeds of $1.7 billion and a net after-tax gain of approximately $1.0 billion.”
Meanwhile , the company, with a 49 per cent stake, has established another general insurance company-Digit- in India and has also applied for a license from India’s insurance regulator, IRDAI to set up a reinsurance branch in India.
Overall, Fairfax grew gross premium written to €12.21 billion in 2017 from $9.53 billion in 2016.
The combined ratio of the insurance and reinsurance operations was 106.6 percent on a consolidated basis, including 11.2 consolidated combined ratio points of losses from hurricanes Harvey, Irma and Maria, and the California fires.
For 2016 the combined ratio was of 92.5 percent. As a result, the operations produced an underwriting loss of $641.5 million compared to an underwriting profit of $575.9 million in 2016.
The insurance and reinsurance operations produced an operating loss (excluding investment results) of $215.7 million, compared to an operating income of $1.04 billion in 2016, reflecting $906.1 million of hurricane losses from hurricanes Harvey, Irma and Maria.