A.M. Best Co. 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). Concurrently, A.M. Best has assigned indicative ratings of “bbb” to senior unsecured debt, “bbb-” to subordinated debt and “bb+” to preferred stock, which may be issued under Fairfax’s December 2010 approved universal shelf filing. The new USD 2 billion shelf registration replaces Fairfax’s previous shelf registration, which was withdrawn simultaneously with the approval. Consequently, A.M. Best has withdrawn its ratings on the previous shelf.
Concurrently, A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and ICR of “a” of CRC Reinsurance Limited (CRC) (Barbados), formerly CRC (Bermuda) Reinsurance Limited. At the same time, A.M. Best has affirmed the FSR of A- (Excellent) and the ICR of “a-“ of Wentworth Insurance Company Limited (Wentworth) (Barbados). The outlook for all ratings is stable.
The ratings of Fairfax reflect A.M. Best’s assessment of its operating subsidiaries, which have historically produced favorable levels of pre-tax operating and net income, and the company’s financial leverage and cash coverage levels that are well within A.M. Best’s requirements for its rating level. At September 30, 2010, Fairfax’s unadjusted debt-to-total-capital level was 33%, which includes debt of operating subsidiaries that are capable of supporting their own debt. In addition, Fairfax maintained holding company cash and short-term securities of $1.35 billion.
The ratings of CRC reflect its adequate level of risk-adjusted capitalization, historical operating results and strategic role as a provider of internal reinsurance to various Fairfax affiliates. The ratings also reflect the implicit support and financial flexibility it is afforded as part of the Fairfax enterprise. Offsetting factors include CRC’s recent underwriting and operating performance that are not in line with historical levels, the increased exposure to global property shock losses as a result of its reinsurance agreement with its Advent affiliate, and the concentration of business with the operating subsidiaries of Northbridge Financial, a Canadian affiliate. Recent results reflect in particular the challenging market conditions faced by the Northbridge companies.