Best Affirms Fairfax, Caribbean Re Subs Ratings

February 10, 2011

A.M. Best Co. has affirmed the issuer credit rating (ICR) of “bbb” and the unsecured debt and preferred equity ratings of Toronto-based Fairfax Financial Holdings Limited, and 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.

Best explained that the new US$ 2 billion shelf registration “replaces Fairfax’s previous shelf registration, which was withdrawn simultaneously with the approval.”

Best has also affirmed the financial strength rating (FSR) of A (Excellent) and ICR of “a” of CRC Reinsurance Limited, which is based in Barbados, and was formerly CRC (Bermuda) Reinsurance Limited. In addition best has affirmed the FSR of ‘A-‘ (Excellent) and the ICR of “a-” Barbados-based Wentworth Insurance Company Limited.

The outlook for all of the ratings is stable.

Best explained that Fairfax ratings reflect its “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 Best’s requirements for its rating level. At September 30, 2010, Fairfax’s unadjusted debt-to-total-capital level was 33 percent, 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.”

Best said 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.”

As offsetting factors, Best cited 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.”

Best’s ratings of Wentworth “reflect its supportive level of risk-adjusted capital, historically profitable operating results and the conservative nature of its investment portfolio,” said the bulletin. “The ratings also reflect the implicit support and financial flexibility it is afforded as part of the Fairfax enterprise. Offsetting these factors are the company’s modest business profile and the concentration of property exposures in its book of business, which expose the company to shock losses and have caused some variability in underwriting and operating performance in recent years.”

A complete listing of Fairfax Financial Holdings Ltd. and its subsidiaries’ FSRs, ICRs and debt ratings may be obtained on Best’s website.

Source: A.M. Best

Topics Reinsurance

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