A.M. Best Affirms the Issuer Credit Rating of Fairfax Financial Holdings (FFH)

June 22, 2009 1:43 PM EDT

A.M. Best Co. has affirmed the issuer credit rating (ICR) of "bbb" and the unsecured debt ratings of Fairfax Financial Holdings Limited (Fairfax) (Toronto, Canada) (NYSE: FFH) (TSE: FFH). A.M. Best also has affirmed the financial strength ratings (FSR) of A (Excellent) and ICRs of "a" of Crum & Forster Insurance Group (Crum & Forster) (New Jersey) and Seneca Insurance Group (Seneca) (New York), both wholly-owned subsidiaries of Fairfax. Additionally, A.M. Best has affirmed the ICR of "bbb" and the unsecured debt ratings of Crum & Forster Holdings Corp. (Morristown, NJ).

At the same time, 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 (both of Texas), 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 Crum & Forster reflect its role within Fairfax, its strong risk-adjusted capital levels, proven opportunistic underwriting strategy (particularly in underserved markets) and management's commitment to reduce the group's property catastrophe exposure to improve overall profitability. Significantly reduced legacy issues, including the commutation of most finite reinsurance contracts and the resolution in 2008 of its largest outstanding asbestos claim, also lends to the group's profitability prospects going forward.

The ratings of Fairfax recognize the quality of its on-going operations, which are well-managed, diversified and well-capitalized. These on-going operations also are historically profitable, and the underwriting losses in 2008 were more than overcome by realized gains on investments, which produced a record level of profits for Fairfax. Operating losses at Fairfax's run-off operations declined in 2008, and future adverse loss reserve development and operational costs are expected to be, in the future, only a modest drag. The operating losses were more than offset by investment gains in 2008.

Financial leverage at Fairfax remains within A.M. Best's tolerance levels for its current ratings, measuring 26.9% at March 31, 2009 (based on US GAAP).

Furthermore, A.M. Best notes the cash, short-term investment and marketable securities held at the holding company level totaled $786.4 million at March 31, 2009. The company repaid a loan and closed several transactions in first quarter 2009, totaling almost $400 million, which resulted in a decline in cash balances from December 31, 2008. [SM]

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