AM Best

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


Darian Ryan, CPA
Senior Financial Analyst
+1 908 439 2200, ext. 5449

Jennifer Marshall
+1 908 439 2200, ext. 5327

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644


OLDWICK - OCTOBER 20, 2016 04:37 PM (EDT)
A.M. Best has affirmed the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb” and the Long-Term Issue Credit Rating (Long-Term IR) on the unsecured debt and preferred equity 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 Long-Term ICRs of “a+” of the members of Odyssey Reinsurance Group (Odyssey Re). Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and the Long-Term ICRs of “a” of the members of the Northbridge Companies; the members of the Crum & Forster Insurance Group (C&F), the members of the Zenith National Insurance Group (Zenith Group), and Wentworth Insurance Company Limited (Wentworth) (Barbados).

In addition, A.M. Best has affirmed the Long-Term ICRs of “bbb” and the Long-Term IRs of Zenith National Insurance Corp. (headquartered in Woodland Hills, CA), Fairfax (US) Inc. (Delaware) and Odyssey Re Holdings Corp. (Wilmington, DE), all of which are indirect wholly owned, downstream holding companies of Fairfax. Concurrently, A.M. Best has withdrawn the Long-Term ICR of Odyssey Re Holdings Corp., as the company no longer has any rated debt outstanding. The outlook of all of these Credit Ratings (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, as well as its financial leverage and cash coverage levels, which are within A.M. Best’s requirements for its rating level. At June 30, 2016, Fairfax’s adjusted debt-to-total-capital level was 25.3% (excluding accumulated other comprehensive income). This includes subsidiary debt that is guaranteed by Fairfax, although the subsidiaries are capable of supporting their own debt. In addition, Fairfax consistently maintains a significant amount of holding company cash and investments to provide additional liquidity and flexibility for the group. While the majority of Fairfax’s invested assets are held by its insurance operating subsidiaries, the additional assets maintained at the holding company are available to support subsidiary capital levels. Fairfax has a demonstrated willingness to contribute funds to subsidiaries to support growth strategies or meet unanticipated needs. Fairfax’s investment strategy reflects management’s long-term, value-oriented total return approach which has been affected by net losses on investments and depressed net investment income, producing volatile and lower than average total returns at the insurance operations in recent years. However, favorable underwriting performance has helped support total return over the past few years. The insurance companies benefit from being part of the Fairfax’s diversified business platform, decentralized yet collaborative business practices and fungible and strong capital position.

Odyssey Re’s ratings reflect its rank among the top 15 global reinsurers supported by its diversified global geographic footprint, which includes reinsurance and specialty primary insurance, large line capacity and broad product offerings. These positive attributes are supported by Odyssey Re’s excellent risk-adjusted capitalization and strong financial performance. Somewhat offsetting these strengths is Odyssey Re’s challenging operating environment, which limits growth and accordingly Odyssey Re’s ability to improve its position in the global reinsurance market. The ratings of the Northbridge Companies acknowledge the group’s position within Canada’s commercial insurance market, diversified commercial lines franchise and strong broker distribution network. The ratings also reflect the group’s supportive balance sheet strength and improved underwriting performance within its small to mid-market commercial segment. Partially offsetting these positive rating factors are competitive market conditions that persist in Canada’s commercial and personal lines segments and the group’s relatively unfavorable expense levels. Additionally, the improved underwriting results over the past few years have been driven in part by favorable loss reserve development recognized on the most recent accident year performance, which could be susceptible to variability.

The ratings of C&F reflect the consolidated group’s supportive balance sheet strength and improved underwriting and operating performance within its specialty market segments. C&F benefits from its diversified and growing product portfolio and distribution networks. Management has recently focused on growth of its specialty business through the strategic acquisition of agencies, as well as expanding established books of business at appropriate rates, terms and conditions. The growth in premium, as well as the absorption of the related integration costs, should eventually enable C&F to realize a more competitive expense ratio. Partially offsetting these positive rating factors is the variability in loss reserve development over the past few years, due in part to adverse development on more recent accident years relating to general liability and its California workers’ compensation business. The group is also exposed to competitive market conditions that persist in the commercial lines sector, significant dividend payments and relatively unfavorable expense levels.

The ratings of the Zenith Group reflect its excellent capitalization, strong operating performance and management’s expertise and commitment to maintaining underwriting discipline throughout market cycles. Somewhat offsetting these positive rating factors is Zenith’s concentration of written premium in California and Florida. Additionally, the improved underwriting results are driven by the most recent accident year performance, which could be susceptible to variability.

The rating for Wentworth is based on its supportive level of risk-adjusted capitalization, historically profitable underwriting and operating performance and its investment portfolio, which includes a significant allocation of cash and short-term securities. Partially offsetting these positive factors are the company’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 a substantial degree of volatility as evidenced over the past few years.

For a complete listing of Fairfax Financial Holdings Limited’s FSRs, Long-Term ICRs and Long-Term IRs, please visit Fairfax Financial Holdings Limited.

This press release relates to Credit Ratings 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 see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.

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