AM Best

A.M. Best Affirms Ratings of Fairfax Financial Holdings Limited and Majority of its Subsidiaries


Darian Ryan
Senior Financial Analyst
(908) 439-2200, ext. 5449

Michael Lagomarsino, CFA
Assistant Vice President
(908) 439-2200, ext. 5810
Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644


OLDWICK - JUNE 04, 2015 02:34 PM (EDT)
A.M. Best has affirmed the issuer credit rating (ICR) of "bbb" and the unsecured debt and preferred equity ratings of Fairfax Financial Holdings Limited (Fairfax) [TSX: FFH and FFH.U] (Toronto, Canada). A.M. Best also has affirmed the financial strength rating (FSR) of A (Excellent) and the ICRs of "a" of the members of the Northbridge Companies (Toronto, Ontario), which comprise Fairfax's Canadian operations, the members of the Crum & Forster Insurance Group (C&F) (Morristown, NJ), the members of the Zenith National Insurance Group (Zenith Group) (Woodland Hills, CA), American Safety Casualty Insurance Company (ASCI) and American Safety Indemnity Company (ASII) (both domiciled in Oklahoma City, OK). Concurrently, A.M. Best has withdrawn the ratings of ASCI and ASII as Fairfax has requested that the companies no longer participate in A.M. Best's interactive rating process.

In addition, A.M. Best has upgraded the FSR to A (Excellent) from A- (Excellent) and the ICR to "a" from "a-" of Wentworth Insurance Company Limited (Wentworth) (Barbados).

A.M. Best also has affirmed the ICR of "bbb" and the unsecured debt ratings of Zenith National Insurance Corp. (Woodland Hills, CA), an indirect wholly owned, downstream holding company of Fairfax. The outlook for all ratings is stable. (See link below for a detailed listing of the companies and ratings.)

The ratings of Fairfax reflect its historically favorable, albeit variable, levels of pre-tax operating and net income and the company's financial leverage and cash coverage levels that are within A.M. Best's requirements for its rating level. At Dec. 31, 2014, Fairfax's adjusted debt-to-total-capital level was 26% (excluding accumulated other comprehensive income); this includes the debt of its subsidiaries that are capable of supporting their own debt. In addition, Fairfax maintained holding company cash and investments of approximately $1.2 billion at year-end 2014, which provided additional liquidity and flexibility for the group. In addition to maintaining a liquid investment position, the group also manages its downside investment risk through a hedging strategy, which has created volatile levels of investment earnings over the past few years.

The ratings of the Northbridge Companies acknowledge its supportive level of risk-adjusted capitalization, specialized product orientation, the strength of its respective franchises in Canada's property/casualty market and the broad geographic scope of its operations. The ratings also recognize the implicit support and financial flexibility these companies are afforded through Fairfax. Offsetting these positive rating factors are Northbridge Companies' unfavorable personal lines underwriting performance in recent years, higher than average expense structure and susceptibility to volatile investment results, partly the result of International Financial Reporting Standards treatment of unrealized gains and losses. Another mitigating factor is a decline in interest and dividend income in recent years given its liquid invested asset base. This has led to lower than average returns despite the unusually large level of investment income recognized in 2014, mainly relating to a variety of Canadian and international investments.

The ratings of C&F reflect its diversified product offering, historically supportive risk-adjusted capitalization and improved underwriting performance supported by recent underwriting initiatives to limit unprofitable books of business and catastrophe losses. The group also benefits from the implicit and explicit support and financial flexibility C&F is afforded as part of the Fairfax enterprise.

Offsetting these positive rating factors are C&F's variable underwriting performance over the past few years; higher than average underwriting expense levels and adverse development and strengthening on recent accident years. Furthermore, ongoing competitive pressures in its key markets, overall weak macroeconomic conditions and the long-term investment strategy practiced by Fairfax continue to depress operating results in the short term.

The ratings of the Zenith Group recognize its supportive level of risk-adjusted capitalization, historically strong operating performance, management's commitment to maintaining underwriting discipline through market cycles and the implicit support and financial flexibility the Zenith Group is afforded as part of the Fairfax enterprise.

Offsetting these positive rating factors are Zenith Group's below average operating results over the past few years, which were driven by depressed investment yields, competitive market conditions and rate reductions in its largest states, although rate increases have been realized more recently and benefitted recent underwriting performance. The concentration of Zenith Group's business in California and Florida exposes it to a heightened level of regulatory and legislative changes.

The rating upgrade for Wentworth acknowledges its improved and favorable underwriting and operating performance, which has moved back to historical levels following its 2011 underwriting losses related to catastrophes. In addition, the company benefits from a strong level of risk-adjusted capitalization and the implicit support and financial flexibility afforded it through Fairfax.

Offsetting these positive rating factors are Wentworth's relatively modest business profile within the highly competitive reinsurance market and the concentration of property catastrophe exposures within its book of business, which subjects it to volatility.

Although A.M. Best believes Fairfax and its operating companies are well-positioned at their current rating levels, favorable rating actions are possible should the group maintain a strong capital position along with underwriting and operating results that over time outperform peer averages. Factors that could lead to negative rating actions include operating performance falling short of A.M. Best's expectations or an erosion of surplus that causes a decline in risk-adjusted capital to a level no longer supporting the current ratings.

For a complete listing of Fairfax Financial Holdings Limited and its subsidiaries' FSRs, ICRs and debt ratings, please visit Fairfax Financial Holdings Limited.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at .

Key insurance criteria reports utilized:

  • Catastrophe Analysis in A.M. Best Ratings

  • Equity Credit for Hybrid Securities

  • Insurance Holding Company and Debt Ratings

  • Rating Members of Insurance Groups

  • Risk Management and the Rating Process for Insurance Companies

  • Understanding Universal BCAR

  • The Treatment of Terrorism Risk in the Rating Evaluation

  • Understanding BCAR for Canadian Property/Casualty Insurers

  • Understanding BCAR for Property/Casualty Insurers

  • Evaluating Country Risk

  • Rating Run-Off Insurers and Specialists

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.

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