A.M. Best has issued a series of ratings announcements relating to Canada’s Fairfax Financial Holdings and its subsidiaries. The bulletins are as follows:
A.M. Best Co. has removed from under review with negative implications and downgraded the financial strength rating (FSR) to ‘B++’ (Good) from ‘A-‘ (Excellent) and issuer credit rating (ICR) to “bbb” from “a-“for Charleston SC-based General Fidelity Insurance Company (GFIC) (Charleston, SC). The outlook assigned to both ratings is stable.
Best said the “rating actions follow the sale of GFIC to TIG Insurance Company, a wholly owned, indirect subsidiary of Fairfax Financial Holdings Limited,” and Best’s discussions with management regarding the status of GFIC’s reserves and its expected financial performance through run-off.
The ratings of GFIC “reflect its supportive level of risk-adjusted capital” and Best’s expectation that the “run-off of its liabilities will be effectively managed by The Riverstone Group, a Fairfax subsidiary responsible for Fairfax’s run-off operations. GFIC’s investments will be overseen by another Fairfax subsidiary, Hamblin Watsa Investment Counsel, which has a long-standing track record of producing better-than-average total returns, which should reinforce the company’s balance sheet.”
As offsetting factors, Best GFIC’s “poor operating results in recent years, significant adverse development of loss reserves that led to a significant strengthening of reserves in late 2010, GFIC’s minimal business profile and the decline in underwriting and operating results associated with the run-off of its business.”
However, Best also indicated that despite the uncertainties associated with its run-off, the outlook reflects its “expectation that any further adverse development of the company’s reserves in the near-term will be modest and that the current reserves and future investment returns will adequately cover the run-off of the company’s liabilities.”
In a related action Best has affirmed the financial strength rating (FSR) of ‘B+’ (Good) and the issuer credit rating (ICR) of “bbb-” of Manchester NH-Based TIG Insurance Group and its P/C members. Best also affirmed the FSR of ‘B++’ (Good) and the ICR of “bbb” of Fairmont Specialty Group and its P/C members. All members of TIG and Fairmont are indirect, wholly owned subsidiaries of Fairfax, and they are all in run-off. The outlook for all ratings is stable.
Best said TIG’s ratings, which are based upon the consolidated financial results of TIG Insurance Company and its wholly owned subsidiaries (including the members of Fairmont), “reflect the group’s adequate level of risk-adjusted capitalization and the implicit support and financial flexibility as part of the Fairfax enterprise. Offsetting factors include TIG’s run-off status, significant adverse development of prior years’ loss reserves and its elevated level of affiliated investments.
“The ratings of Fairmont reflect the group’s supportive level of risk-adjusted capitalization and the to-date orderly progress of the run-off of the group’s remaining liabilities. Offsetting factors to the rating include an elevated level of affiliated investments and the run-off status of the company.”
A.M. Best Co. has also affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and ICR of “a” of Vancouver-based Commonwealth Insurance Company, Seattle-based Commonwealth Insurance Company of America (collectively referred to as Commonwealth), Federated Insurance Company of Canada, based in Winnipeg, Manitoba, Markel Insurance Company of Canada, Lombard General Insurance Company of Canada and Zenith Insurance Company. In addition Best affirmed the FSR of ‘A-‘ (Excellent) and ICR of “a-“of Lombard Insurance Company.
All of the companies are subsidiaries of Northbridge Financial Corporation, an indirect, wholly owned downstream holding company of Fairfax. All companies are domiciled in Toronto, Ontario, except where specified. Northbridge is one of the largest commercial property/casualty insurance groups in Canada.
The outlook for all ratings is stable.
The ratings of Commonwealth reflect its “supportive level of risk-adjusted capitalization, highly specialized product orientation and the broad geographic scope of its operations,” said Best. The ratings also recognize the implicit support and financial flexibility the company is afforded through Fairfax, its ultimate parent.”
As offsetting factors, Best noted Commonwealth’s “exposure to shock losses, the variability of operating results in recent years and the challenges associated with competitive market conditions in both Canada and the United States.
“The ratings of Federated, Lombard General, Markel and Zenith reflect the companies’ strong risk-adjusted capital levels, better-than-average historical underwriting and operating performance, long-term profitability and the strength of their respective franchises in the Canadian property/casualty market.”
As partial offsetting factors, Best cited “competitive market conditions and an increase in variability of net investment income in recent years resulting from the inclusion of certain unrealized gains and losses in net investment income under the presentation requirements of the Office of the Superintendent of Financial Institutions. Challenging macroeconomic conditions have contributed to the decline in recent years of the underwriting performance at Lombard General and Markel.
“Lombard Insurance’s ratings recognize its adequate level of risk-adjusted capitalization, the strategic role of the company within the Lombard enterprise and the strength of the Lombard brand in the Canadian insurance market. The ratings also reflect the implicit support and financial flexibility Lombard Insurance is afforded as part of the Fairfax enterprise.
Offsetting these positive factors are Lombard Insurance’s generally below average underwriting and operating results, the variability of its earnings, its concentration in the Ontario personal auto market and continuing competitive market conditions.
A complete listing of Fairfax Financial Holdings Ltd. and its subsidiaries’ FSRs, ICRs and debt ratings may be obtained on Best’s web site.
Source: A.M. Best
Topics Carriers AM Best Property Casualty Canada
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