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) (Toronto, Ontario) (TSX: FFH and FFH.U). Additionally, A.M. Best has affirmed the ICR of “bbb” and unsecured debt rating of Crum & Forster Holdings Corp. (Morristown, NJ), an indirect, wholly owned, downstream holding company of Fairfax. A.M. Best also has upgraded the ICRs to “a+” from “a” and affirmed the financial strength rating (FSR) of A (Excellent) of Seneca Insurance Group (Seneca) (New York, NY) and its property/casualty members. In addition, A.M. Best has affirmed the FSR of A (Excellent) and ICRs of “a” of Crum & Forster Insurance Group (Crum & Forster) (Morristown, NJ) and its property/casualty members. At the same time, A.M. Best has affirmed the FSR of B+ (Good) and ICRs of “bbb-” and the FSR of B++ (Good) and ICRs of “bbb” of TIG Insurance Group (TIG) and Fairmont Specialty Group (Fairmont) (both of Manchester, NH), and their property/casualty members, respectively, which are both in run-off. The outlook for all ratings is stable. (See link below for a detailed listing of the companies and ratings). The ratings of Seneca reflect its consistently better-than-average underwriting and operating performance, which has been sustained over many years; strong level of risk-adjusted capitalization and management of loss reserves that has resulted in favorable development of prior years’ loss reserves. Partially offsetting these positive factors are Seneca’s above-average level of expenses relative to premiums and a five-year average investment yield that lags that of its commercial casualty peer group, although Seneca’s yield improved in 2009. The ratings of Crum & Forster recognize its underwriting performance (as reflected in its better-than-average loss and loss adjustment expense levels); its diversified product portfolio; favorable development of recent accident years’ loss reserves; reduced reliance on finite reinsurance; and risk-adjusted capital levels that are well-supportive of the ratings. Crum & Forster’s ratings also reflect the support of Fairfax.
Crum & Foster’s positive factors are partially offset by competitive market conditions that persist in the commercial lines sector; challenging expense levels, which have declined at a slower pace than premiums in recent years; continued exposure to legacy reserve issues; and historical variability in underwriting results, driven primarily by weather-related losses. Management has acted to address these offsetting issues, particularly with respect to reducing property exposure and expenses, but the sustained benefit of these actions has not yet been reflected in results.The ratings of TIG and Fairmont acknowledge their run-off status and the impact on performance. Adverse development of loss reserves, reflecting strengthening of those reserves, and termination of agreements under which certain business was transferred to affiliates negatively impacted the performance of TIG and Fairmont in 2009. TIG and Fairmont’s risk-adjusted capitalization remains supportive of their current ratings, but has been negatively affected by the privatization of certain affiliates investments whose equity is owned by the companies within both groups. The ratings of Fairfax recognize the quality of its subsidiaries, which have historically produced favorable levels of pre-tax operating and net income. Adjusted financial leverage at Fairfax remains within A.M. Best’s tolerance levels for its current ratings, measuring 24.4% at March 31, 2010, and projected at 24.6% following the recently completed acquisition of Zenith National Insurance Corporation (Zenith). The calculation of financial leverage includes the subsidiaries’ debt that is not guaranteed by Fairfax and which the subsidiaries are capable of servicing. Fairfax’s interest coverage ratio is well within expectations for its current ratings, and its ability to service its obligations is enhanced by its solid liquidity position. Cash, short-term investments and marketable securities held at Fairfax totaled approximately $1.8 billion as of March 31, 2010 and remains substantial following the close of the Zenith acquisition. For a complete listing of Fairfax Financial Holdings Limited and its subsidiaries’ FSRs, ICRs and debt ratings, please visit www.ambest.com/press/060208fairfax.pdf. The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology. 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 www.ambest.com.