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The Once and Future C&F - Fair and Friendly
their partner agency Hartville was looking to sell, Fairmont Specialty was the natural home. This acquisition was like planting an acorn dropped from an earlier-planted oak tree. Later in 2013, First Mercury CEO Richard Smith announced his retirement. Fairfax called to see if I would be interested in running First Mercury. I definitely was! The timing was perfect with the E&S market on the verge of a historic run: another acorn. F airfax is well known for holding its underwriting companies responsible for generating underwriting profits. In that sense, it was a frustrating time to be at C&F. While the investment results were great and the acorns were germinating, C&F’s flagship business was veering sideways. Since this business was the traditional focus of the company’s operational machinery, a disproportionate amount of the corporate resources and energy was spent chasing a patchwork of fixes. There was a revolving door of people, business segments and regions. Even with the new specialty businesses growing, overall production was choppy: the 2010 premium was less than $900 million – back to where it had been in 2001. While Seneca and Fairmont Specialty were profitable, C&F’s overall combined ratios were consistently over 100. Underwriting losses from the acquisition through 2014 were north of $900 million. C&F was finding it difficult to chart a course to long-term underwriting success. Fortunately, Fairfax is also well known for its investment acumen. C&F’s investment gains from the acquisition through 2014 were an impressive $4.0 billion – more than offsetting the underwriting losses and allowing C&F to dividend $1.3 billion to Fairfax. Fairfax’s investment in C&F generated an annualized return on equity of 13% - successful (even if not quite up to
Fairfax’s 15% target return). Insurance is a tough business. Everyone makes mistakes. But the great thing about Fairfax is that they own up to their mistakes and work through them. The long-term, patient application of Fairfax’s guiding principles 1 helped C&F navigate some rough years. H ow do you weigh the legacy of any management team? While the numbers speak for themselves, your legacy exists in the minds of the next generation. To what extent did you prepare your successor for what could come next? Did you model behaviors that would be successfully carried into the future? Were you intentional about how you passed along your management DNA? Did you meaningfully influence the lives of future generations – or are you a distant memory? Are the answers to these questions different depending on the financial results? Tough questions. I guess I am the future generation my predecessors were influencing – even if that was not always clear to us at the time. I learned a tremendous amount from Courtney, Wayne, Nick, Doug and many others around C&F and Fairfax – even if sometimes it was not exactly what they intended to convey. I am grateful to all of them. I carry their legacy with me - and look to pass it forward to the next generation. There is a reason so many executives in the Fairfax empire are very long- tenured. While some people find it difficult to be fair and friendly when faced with long stretches of deep uncertainty, others find a way to make it work — and they tend to gravitate toward each other. A team forged while working through such a chaotic period is difficult to otherwise replicate – and is uniquely well suited to steer the company into the future.
1 . To see a full list of the Fairfax guiding principles, please see the Appendix.
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