A pricey market for car, home and commercial insurance buyers is fuelling record profits and global expansion at domestic property and casualty insurers such as Fairfax Financial Holdings Ltd. and Intact Financial Corp.
P&C insurers tightened standards and boosted premiums last year – creating what’s known in the industry as a “hard market” – in part because they faced significant claims from severe weather events. As a result, even after paying out US$1.1-billion to cover natural catastrophes, Fairfax founder and chief executive Prem Watsa said 2021 was “the best year we have had in our history.”
Late Thursday, Toronto-based Fairfax announced it earned a US$3.4-billion profit in 2021, compared with US$218-million the previous year. The insurer brought in a record US$23.9-billion in premiums, up 25 per cent, and Mr. Watsa said in a press release that underwriting performance “was exceptionally strong.”
Intact meanwhile announced on Wednesday it earned a $2.1-billion profit in 2021, almost doubling its $1.1-billion profit the previous year, after acquiring Britain’s RSA Insurance Group PLC. In a press release, chief executive Charles Brindamour said: “We had a milestone year.”
Toronto-based Intact said there is currently a hard market for home insurance, along with commercial lines, and these industry-friendly conditions are expected to persist in 2022. Intact said the only market where insurers are dropping rates is auto insurance because of reduced driving during the pandemic.
However, Intact did tell analysts it expects to pay out more on catastrophic losses going forward, increasing its guidance on these losses to $600-million annually, from $570-million.
Insurance companies also did well on their investments last year as equity markets soared, with Fairfax earning US$3.4-billion on its portfolio, up from US$313-million in 2020, and Intact making $706-million, up 22 per cent from the previous year. Mr. Brindamour said the combination of strong underwriting results from insurance and “emerging inflation and the still relatively low interest rate environment support continuation of favourable market conditions.”
Intact’s results exceeded analysts’ forecasts and in a report, Scotiabank’s Phil Hardie said: “We find it hard not to be awed by the sizeable beat and results.”
Analysts agree the favourable market for insurers – and, the flip side of the coin, higher premiums for many customers – is expected to last. “The industry outlook for pricing conditions remains favourable,” Mr. Hardie said. “Overall, management expects hard market conditions to continue in commercial lines on both sides of the border.”
Over the past two years, Mr. Watsa has publicly stated that Fairfax shares were “ridiculously cheap.” He backed this view in December by having the company buy back 7 per cent of its outstanding stock, a total of two million shares, for US$500 each, or US$1-billion.
On Thursday, Fairfax said its book value – a common metric for valuing insurance companies – increased by 34 per cent last year to US$630.60 a share. Prior to the announcement of the company’s financial results, Fairfax stock closed at US$514.18 on the New York Stock Exchange.
Intact’s book value per share increased by 40 per cent last year to $82.34. The company’s stock closed Thursday at $184.81 on the Toronto Stock Exchange, an all-time high and up 23 per cent over the past 12 months. On Wednesday, Intact’s board authorized a normal course issuer bid that allows the company to buy back up to 3 per cent of its shares this year.
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Andrew Willis