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The Once and Future C&F - Fair and Friendly
It took all of 2003 to launch Fairmont Specialty. We established the headquarters in Houston and then got busy hiring people, cleaning up legal entities, getting regulatory approvals, transitioning business and getting systems plugged in before launch day on January 1, 2004. We had $200 million of business pulled together from TIG and Ranger (Fairfax’s first US insurance company acquisition). We had four business units. From TIG, we kept the Accident & Health business and the local Hawaii business. From Ranger, we kept the Specialty Customer Group business — which specialized in customers with a tendency to explode (propane distributors, explosives contractors, fertilizer dealers) — and the Bail Bond team. You might ask how we came up with that list of “keepers.” Well, out of the business going into run-off, these were the only businesses that were both profitable and rating insensitive (the profitable but rating sensitive business went to Odyssey Re). Very few people buying bail bonds ask about the company’s AM Best rating. Even if we felt like an A company, AM Best would not upgrade Fairmont’s B++ rating. Given the history of failed turnarounds at TIG and Ranger, they were probably being generous. H ard markets in the insurance business are few and far between - because greed usually swamps fear. Think about the Xerox annual reports where they lamented that “the market” just wouldn’t let them get the prices that they needed to make money. Management wanted the market to come to its senses, without considering what forces would actually be required to precipitate a hard market. Sometimes the fear is real and justified. The liability crisis of the mid- 1980s was a perfect cocktail, with everything going wrong at the same time, resulting in a widespread hard market. You know things are tough when
Fairmont Specialty Group motivational handout from 2004.
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