AM Best

A.M. Best Upgrades Ratings of Crum & Forster Group; Upgrades Debt Ratings of Fairfax Financial Holdings Limited



Joyce Sharaf

(908) 439-2200, ext. 5046

Andrew Colannino

(908) 439-2200, ext. 5706
Public Relations

Jim Peavy

(908) 439-2200, ext. 5644

Rachelle Morrow

(908) 439-2200, ext. 5378


OLDWICK, N.J. - JUNE 25, 2008 12:00 AM (EDT)
A.M. Best Co. has upgraded the financial strength ratings (FSR) to A (Excellent) from A- (Excellent) and issuer credit ratings (ICR) to "a" from "a-" of the Crum & Forster Group (Crum & Forster) (New Jersey) and Seneca Insurance Group (Seneca) (New York). Crum & Forster is a wholly-owned subsidiary of Fairfax Financial Holdings Limited (Fairfax) (Toronto, Canada) [NYSE:FFH; TXS:FFH].

A.M. Best also has upgraded the senior unsecured debt ratings to "bbb" from "bbb-" of Fairfax and Crum & Forster Holdings Corp. (Morristown, NJ).

In addition, A.M. Best has affirmed the FSR of B+ (Good) and ICR of "bbb-" and the FSR of B++ (Good) and ICR of "bbb" of TIG Insurance Group and Fairmont Specialty Group (Fairmont) (both of Texas), respectively. These groups represent the U.S. run-off operations of Fairfax and exclude the ongoing business segments continued by Crum & Forster under the Fairmont brand name. The outlook for all ratings is stable. (See link below for a detailed listing of the companies and ratings.)

The ratings of Crum & Forster reflect management's proven underwriting capability and ingrained culture, favorable five-year accident year results, competitive expense ratio, significantly reduced legacy issues, diversified product portfolio and robust capital levels. A.M. Best believes that Crum & Forster's well managed and profitable specialty book of business, appropriate reduction of price competitive core business lines and material catastrophe exposure reductions will serve the group well through the current soft pricing market conditions. The group's accident year results have favorably developed each year since 2002, and A.M. Best anticipates continued favorable development from current accident year results.

Crum & Forster has produced a 14% compound annual growth rate in statutory surplus over the past five years, albeit with a heavy reliance on realized and unrealized gains for which the group receives qualitative credit. Over the past five years, the group has produced realized gains of $660 million, which more than funded the dividends upstreamed to Fairfax. Given reductions in its risk profile and a superior capital position, dividends have not been burdensome. A.M. Best believes Crum & Forster's investment positions will continue to provide above average investment returns and surplus accumulation in 2008. Fairfax's strong financial position, proven support of subsidiaries as well as insightful investment acumen provide the ability to support Crum & Forster. Crum & Forster's ratings incorporate support from Fairfax.

Offsetting rating factors include a difficult pricing environment, persistent asbestos and environmental reserve development, challenging retention ratios and remaining exposure to legacy issues. In first quarter 2008, Crum & Forster recorded a $25.5 million charge for the settlement of asbestos litigation, which has accounted for a substantial amount of adverse reserve development. The voluntary contraction of premium resulting from underwriting discipline in the soft market will put pressure on retention rates and procurement of new business. A continued material decline in certain high loss ratio property premium is expected to continue in 2008, which will benefit underwriting profitability. Crum & Forster maintains two material collateralized finite reinsurance contracts that are mostly exhausted but cause a modest annual drag on investment income through interest on funds held as well as ceded loss redundancies.

The ratings of Fairfax recognize the quality of its ongoing operations, which are respectively well-managed, diversified, profitable and well capitalized. The run-off operations have achieved a level of stability to the point where A.M. Best expects only modest drag from future adverse reserve development and operational costs. The drag was more than offset in 2007 by investment gains, which caused these operations to produce a substantial profit. The company's once elevated financial leverage declined as of March 31, 2008 to 24.4% based on U.S. GAAP and includes the debt of Odyssey Re Holdings Corp., a majority-owned public company capable of servicing its debt. In addition, debt maturities were proactively refinanced, leaving Fairfax without a need to access the credit markets for several years.

Most notable is Fairfax's liquidity position, whereby the holding company holds $1 billion of cash and readily marketable securities. For the foreseeable future, Fairfax is expected to maintain a similar level of liquidity net of potential cash requirements at its European run-off operations, which is not expected to be significant. Those operations have historically produced volatile results attributable to commutations in more recent years. Run-off reserves have stabilized and the level of volatility is not expected to continue. Fairfax's investment in ICICI Lombard, an Indian property/casualty company, maintains substantial unrecognized valuation potential.

All of Fairfax's investments are managed by Hamblin Watsa Investment Counsel, a subsidiary of Fairfax, which has an exceptional long-term track record of producing total investment returns. Hamblin Watsa—having correctly anticipated the current credit market crisis—steered clear of sub-prime exposures in particular and asset-backed securities in general, and produced significant investment gains mainly through the purchase of credit default swaps. Fairfax maintains a hedge on substantially all of its equity portfolio. Fairfax has maintained a conservative investment portfolio with 74% of the portfolio invested in cash and government bonds, comprised mainly of U.S. treasuries.

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

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit

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