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Allied World's cat losses under Fairfax ownership should fall, Watsa says

Fairfax Financial Holdings Ltd. Founder, Chairman and CEO Prem Watsa admitted that underwriting losses at Allied World due to natural catastrophes "were a little higher than we have expected" after that business generated an underwriting loss of $587 million since its acquisition by Fairfax in July 2017.

Speaking during an earnings call, Watsa said Fairfax is "very careful about cat losses across our company" and will ensure that Allied World's future cat losses "would be significantly reduced."

Allied World's combined ratio of 132.7% during the fourth quarter of 2017 was well above the company's overall combined ratio of 100.8% for insurance and reinsurance operations. Allied World bore the brunt of losses from hurricanes Harvey, Irma and Maria, and from wildfires in California.

CFO David Bonham said a reserve addition of nearly $50 million was related to "one specific claim at Allied World that developed unfavorably in the quarter," but he saw no cause for concern and emphasized that Allied World's reserving procedures "were relatively consistent with ours."

While insurance rates during the renewal season have not climbed significantly, Watsa was relieved that the trend of declining prices had finally reversed. Casualty premiums rose up to 5% and property rates in loss-affected areas went up 25% or higher, he said.