No. of Recommendations: 3
I worked for one of the Fairfax companies from late 17 through mid 21. Just FYI, one of the methods Prem Watsa uses to make their profitability / net income numbers better, is "ship" the toxic / money losing insurance policies to that company to get them off the books of say, a Crum-Forster. This is "runoff". The effect is similar to having an internal, internally funded hedge fund where the objective of the fund is to minimize losses (payments) by negotiating settlements with plaintiffs and reduce exposure from claims-mill law firms. I suppose most large insurers do this, but Watsa has shown mastery at large bets.
Thanks for the insight. I have a pretty limited understandiing of the notion of 'runoff', with every insurance company seeming to have this kind of operation. In Berkshire, it is largely in National Insurance Co. (NICO), and in Fairfax, it is RiverStone, which expanded significantly in 2012 when it bought Brit Insurance Limited (BIL) which was the runoff part of Brit PLC which they also acquired, but only in 2015. Maybe partly because there had been no bad surprises with BIL in the intervening 3 years?
But are you suggesting that there is something wrong with what Fairfax is doing, or different in nature from other runoff operations, where there is a known future liability that has to be managed in a different way from regular insurance policies? Obviously there are accounting considerations, but RiverStone's loss is counted in Fairfax results, so if Crumk-Forster dumps a bad policy onto RiverStone, I guess Crum-Forster looks better but it doesn't improve Fairfax's results, does it? If you have any further thoughts on this, I would be very interested to hear them.
Regards, DTB
