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The Once and Future C&F - Fair and Friendly
I joined the Fairfax family during the Seven Lean Years (mid-2000) at TIG. Fairfax acquired TIG in 1999 and successfully turned TIG’s reinsurance operations into one of Odyssey Re’s foundational pillars. Fairfax then brought in Courtney Smith, the former CEO of Coregis, to run TIG’s primary insurance operations. Courtney felt Coregis was headed in the right direction before the sale to GE. He wanted to see if he could re-create that momentum at TIG. Unfortunately, TIG had all of the same problems as C&F — and then some. In fact, my first meeting with Prem was to discuss California construction defect claims, the reserving issue that put C&F’s KKR deal sideways. I seem to recall him not being that happy to hear my thoughts on the topic. Prior to the Fairfax acquisition, TIG was a publicly traded company — and thus did not have the same level of financial air cover that Xerox was able to provide C&F. Also, TIG had pivoted to being a “virtual insurance company” before that was a thing, meaning that they outsourced many key functions, including underwriting and claims – a structure that was proving to be problematic. Recall that the first rule of turnarounds is that you have to admit you have a problem. TIG was operating as if it just needed a few tweaks to make everything fine – so TIG kept growing — until AM Best downgraded the company in November 2001. A year later, we put TIG into run-off. Around the same time they bought C&F, Fairfax acquired the Resolution Group — Talegen’s legacy run-off company (now called Riverstone) — and TIG’s legal entities found a home with them. It so happened that one of TIG’s key regulators wanted an ongoing entity domiciled in their state before they would approve the company’s run-off plan. Wayne Ashenberg (another Midwestern actuary) and I were picked to lead the start-up entity: Fairmont Specialty Group.
and a disciplined framework for tackling C&F’s challenges. Bruce and his team had a meaningfully difficult short-term goal. They needed to stabilize the company fast – and convince the rating agencies that the company was back on track. Bruce was a classic underwriter who liked what he liked — and he did not like what C&F was doing. Consistent with his AIG training, he pivoted C&F toward underwriting monoline segments of middle market accounts that the big standard lines package writers did not want – sort of an AIG-lite model. Consequently, C&F shrank precipitously. Not liking any of the business was right for that time in the market. Bruce and his team likely saved C&F. One of the other defining features of Fairfax is that the company takes the long view. It is more obvious these days, when you look at how the international operations have developed, but even during the lean years, Prem and Fairfax were looking to the future — and planting acorns. Let’s focus on the acorns for a while. In 2000, even as Bruce was wrestling with the challenges at C&F, he had the foresight to plant the first acorn: Seneca Insurance Company. Bruce was on Seneca’s board of directors – so he knew the company and its management well. CEO Doug Libby and his team had rehabilitated Seneca – with a conservative, focused approach toward underwriting property and small package business, mainly in the outer boroughs of New York City, from their office on Water Street. It was a small gem of a company available at a bargain price. In many ways, Seneca was reminiscent of the early days of
the North River Insurance Company. C&F was headed back to the future.
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