Best Affirms Odyssey Re and Subs ‘A’ Ratings; Outlook Stable

February 10, 2011

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of Odyssey Reinsurance Group, based in Wilmington, Del., and its members. Best also affirmed the ICR of “bbb” and debt ratings of the parent holding company, Odyssey Re Holdings Corp. The outlook for all ratings is stable.

The ratings reflect Odyssey Re’s “excellent risk-adjusted capitalization, strong financial performance in recent years and sound business position,” said Best. “Odyssey Re is a global underwriter of reinsurance and specialty primary insurance products and ranks among the top 15 global reinsurance groups in terms of premium volume.

“Odyssey Re’s competitive position benefits from its diversified market presence with regard to business mix and geographic reach. These positive attributes are further supported by Odyssey Re’s diversified geographic client base, combined with its large line capacity, broad product capability and an opportunistic business strategy.”

Best also cited the Company’s “astute investment management philosophy emphasizing a total return strategy,” which has “augmented Odyssey Re’s earnings to the extent that on a total return basis the group has outperformed its reinsurance peers. The ratings also recognize Odyssey Re’s strong liquidity and the benefits derived from its ultimate parent company, Fairfax Financial Holdings Limited, and Fairfax’s access to public markets.”

As partial offsetting factors, Best noted the “challenging underwriting conditions reflective of price softening in major lines of business and Odyssey Re’s historical reliance on both realized and unrealized capital gains to bolster its overall financial performance.” Best added that it “views this source of earnings as more variable and less predictable than earnings sourced from underwriting.”

However, best also indicated that Odyssey Re “maintains a manageable exposure to natural catastrophes as measured by its one in 250 year probable maximum loss estimates relative to statutory surplus.” Best said that in its opinion, “Odyssey Re has made significant progress in building a holistic enterprise risk management framework.”

Best also announced that it had has downgraded the FSR to ‘B++’ (Good) from ‘A-‘ (Excellent) and ICR to “bbb+” from “a-” of Clearwater Insurance Company, headquartered in Stamford, Conn., and has assigned a negative outlook for the ICR, and has revised the outlook on the FSR to stable from negative, following the company’s sale in January 2011 to a Fairfax affiliate.

Best summarized the companies affected by the rating actions as follows:
The FSR of A (Excellent) and ICRs of “a” have been affirmed for Odyssey Reinsurance Group and its following members:

— Odyssey America Reinsurance Corporation
— Hudson Insurance Company
— Hudson Specialty Insurance Company
— Newline Insurance Company Limited

The following debt ratings have been affirmed:

Odyssey Re Holdings Corp.—
— “bbb” on $225 million 7.65 percent senior unsecured notes, due 2013
— “bbb” on $125 million 6.875 percent senior unsecured notes, due 2015

Source: A.M. Best

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