TEXT-Fitch rates Fairfax Financial notes 'BBB-'

Tue Oct 16, 2012 3:49pm EDT

Oct 16 - Fitch Ratings has assigned a 'BBB-' rating to Fairfax Financial
Holdings Limited's (Fairfax) new CDN$200 million issue of 5.84% senior
notes due 2022. Fitch has also affirmed the ratings of Fairfax and its
subsidiaries. A full list of rating actions is shown below. The Rating Outlook
is Stable.

Fairfax intends to use the net proceeds of the offering to augment its cash
position, to increase short-term investments and marketable securities held at
the holding company level, to retire outstanding debt, and for general corporate
purposes.

Fitch's rationale for the affirmation of Fairfax's ratings reflects the
company's sizable cash position and favorable financial flexibility. The ratings
also reflect anticipated challenges in the overall competitive, but generally
improving, property/casualty market rate environment, the potential for
additional adverse reserve development - particularly on older accident years
and in runoff operations, earnings volatility from catastrophes, and investments
and increased financial leverage.

Fairfax's financial leverage ratio (adjusted for equity credit and to exclude
unrealized gains on fixed income investments) was 33.4% at June 30, 2012, up
slightly from 33.2% at Dec. 31, 2011. Following the CDN$200 million senior note
issuance, Fairfax's pro forma financial leverage ratio increases to
approximately 34.6% at June 30, 2012, just within Fitch's expected range of
20%-35%.

Operating earnings-based interest and preferred dividend coverage (excluding net
gains and losses on investments) has been very low in recent years as operating
earnings have declined with weaker underwriting results and high catastrophe
losses. Including holding company cash, operating earnings-based coverage has
been better, averaging 6.5x from 2009 to 2011, with 5.2x through the first half
of 2012.

Fairfax continues to maintain a sizable amount of holding company cash,
short-term investments and marketable securities of $1 billion at June 30, 2012,
which Fitch believes provides Fairfax a sufficient cushion in meeting potential
subsidiary cash flow shortages and liquidity to service its debt. Fairfax also
continues to demonstrate favorable financial flexibility with Crum & Forster,
Northbridge Financial Insurance Group, Zenith Insurance Group, and Odyssey
Reinsurance Company serving as key sources of dividends as wholly owned major
ongoing operating subsidiaries.

The key rating triggers that could result in an upgrade include consistent
underwriting profitability and operating results in line with peers and industry
averages, overall flat-to-favorable loss reserve development, financial leverage
maintained below 20%, and continued maintenance of at least $1 billion of
holding company cash, short-term investments and marketable securities.

The key rating triggers that could result in a downgrade include declines in
book value per share for an extended time period, sizable adverse loss reserve
development, movement to materially below-average underwriting or investment
performance, financial leverage maintained above 35%, operating earnings plus
holding company cash-based interest and preferred dividend coverage of less than
4x, significant acquisitions that reduce the company's financial flexibility,
and a substantial decline in the holding company's cash position.

Fitch assigns the following rating:

Fairfax Financial Holdings Limited
--CDN$200 million 5.84% senior notes due 2022 at 'BBB-'.

Fitch affirms the following ratings with a Stable Outlook:

Fairfax Financial Holdings Limited
--Issuer Default Rating (IDR) at 'BBB';
--Senior debt at 'BBB-';
--$82 million 8.25% due Oct. 1, 2015 at 'BBB-';
--$48 million 7.75% due June 15, 2017 at 'BBB-';
--$144 million 7.375% due April 15, 2018 at 'BBB-';
--CDN$400 million 7.5% due Aug. 19, 2019 at 'BBB-';
--CDN$275 million 7.25% due June 22, 2020 at 'BBB-'.
--$500 million 5.8% due May 15, 2021 at 'BBB-';
--CDN$400 million 6.4% due May 25, 2021 at 'BBB-';
--$92 million 8.3% due April 15, 2026 at 'BBB-';
--$91 million 7.75% due July 15, 2037 at 'BBB-';
--CDN$250 million series C preferred shares at 'BB';
--CDN$200 million series E preferred shares at 'BB';
--CDN$250 million series G preferred shares at 'BB';
--CDN$300 million series I preferred shares at 'BB';
--CDN$230 million series K preferred shares at 'BB'.

Fairfax, Inc.
--IDR at 'BBB'.

Crum & Forster Holdings Corp.
--IDR at 'BBB';

Crum & Forster Insurance Group:
Crum and Forster Insurance Company
Crum & Forster Indemnity Company
The North River Insurance Company
United States Fire Insurance Company
--Insurer Financial Strength (IFS) at 'A-'.

First Mercury Insurance Company
--IFS at 'A-'.

Northbridge Financial Insurance Group:
Federated Insurance Company of Canada
Northbridge Commercial Insurance Corporation
Northbridge General Insurance Corporation
Northbridge Indemnity Insurance Corporation
Northbridge Personal Insurance Corporation
Zenith Insurance Company (Canada)
--IFS at 'A-'.

Odyssey Re Holdings Corp.

--IDR at 'BBB';
--$50 million series A unsecured due March 15, 2021 at 'BBB-';
--$50 million series B unsecured due March 15, 2016 at 'BBB-';
--$40 million series C unsecured due Dec. 15, 2021 at 'BBB-';
--$183 million 7.65% due Nov. 1, 2013 at 'BBB-';
--$125 million 6.875% due May 1, 2015 at 'BBB-'.

Odyssey Reinsurance Company
--IFS at 'A-'.

Zenith National Insurance Corp.
--IDR at 'BBB'.

Zenith Insurance Company
ZNAT Insurance Company
--IFS at 'A-'.

Additional information is available at 'www.fitchratings.com'. The issuer did
not participate in the rating process, or provide additional information, beyond
the issuer's available public disclosure. The ratings above were unsolicited and
have been provided by Fitch as a service to investors.

Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Sept. 19, 2012).

Applicable Criteria and Related Research:
Insurance Rating Methodology