A.M. Best Affirms Ratings of Fairfax Financial Holdings Limited and Its Subsidiaries

Thu Mar 28, 2013 1:04pm EDT

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OLDWICK, N.J.--(Business Wire)--
A.M. Best Co. has affirmed the issuer credit rating (ICR) of "bbb" and the
unsecured debt and preferred equity ratings of Fairfax Financial Holdings
Limited (Fairfax) [TSX: FFH and FFH.U] (Toronto, Canada). 

Concurrently, A.M. Best has affirmed the financial strength rating (FSR) of A
(Excellent) and ICRs of "a" of the members of the Northbridge Companies
(Toronto, Ontario), which represent Fairfax`s Canadian operations. 

A.M. Best also has upgraded the FSR to A (Excellent) from A- (Excellent) and ICR
to "a" from "a-" of Northbridge Personal Insurance Corporation (Toronto,
Ontario) due to its status as a member of the Northbridge Companies, which
provides it with operating efficiencies, underwriting expertise and other
implicit benefits such as marketing and common management. 

In addition, A.M. Best has affirmed the FSR of A- (Excellent) and ICRs of "a-"
of Commonwealth Insurance Company of America (CICA) (Seattle, WA), CRC
Reinsurance Limited (CRC) and Wentworth Insurance Company Limited (Wentworth)
(both domiciled in Barbados). CICA was a wholly owned subsidiary of Northbridge
Indemnity Insurance Corporation before its January 2013 sale to an affiliate and
its placement into run off. Concurrently, A.M. Best has withdrawn the ratings of
CICA and CRC as Fairfax has requested that both companies no longer participate
in A.M. Best`s interactive rating process. 

Additionally, A.M. Best has affirmed the FSRs of A (Excellent) and ICRs of "a"
of the members of the Crum & Forster Insurance Group (C&F) (Morristown, NJ) and
the Zenith National Insurance Group (Zenith Group) (Woodland Hills, CA), as well
as the FSR of A (Excellent) and ICRs of "a+" of the members of the Seneca
Insurance Group (New York, NY). 

At the same time, A.M. Best has affirmed the ICRs of "bbb" and the unsecured
debt ratings of Zenith National Insurance Corp. (Woodland Hills, CA), an
indirect wholly owned downstream holding company of Fairfax. The outlook for all
ratings is stable. (See link below for a detailed listing of the companies and

The ratings of Fairfax reflect its historically favorable, albeit variable,
levels of pre-tax operating and net income and its financial leverage and cash
coverage levels, which are within A.M. Best`s requirements for its rating level.
At December 31, 2012, Fairfax`s adjusted debt-to-total-capital level was 27.2%
(excluding accumulated other comprehensive income), which includes the debt of
its subsidiaries that are capable of supporting their own debt. In addition,
Fairfax maintained holding company cash and investments of approximately $1.2
billion at year-end 2012, which provides additional liquidity and flexibility
for the group. 

The ratings of the members of the Northbridge Companies acknowledge their
supportive level of risk-adjusted capitalization, highly specialized product
orientation, the strength of their respective franchises in the
property/casualty market in Canada and the broad geographic scope of their
operations. The ratings also recognize the implicit support and financial
flexibility these companies are afforded through Fairfax. 

Offsetting these positive rating factors are Northbridge Companies` members`
unfavorable underwriting performance in recent years as a result of ongoing
competitive market conditions, higher than average expense structure and
difficult personal lines operating environment, given the high level of
fraudulent claims and punitive legislation. Additionally a decline in net
investment gains in recent years and extremely liquid invested asset base has
led to lower than average returns. 

The ratings of C&F acknowledge its diversified product offering, supportive
risk-adjusted capitalization that benefits from its significantly diminished
asbestos and environmental exposure (via a recently completed inter-company
transaction with an affiliate), and the implicit support and financial
flexibility C&F is afforded as part of the Fairfax enterprise. 

Offsetting these positive rating factors are C&F`s elevated underwriting expense
levels and adverse development on new and older accident years, which has
resulted in generally poor underwriting results in recent years. Furthermore,
ongoing competitive pressures in its key markets and overall weak macroeconomic
conditions continue to depress operating results. 

The ratings of the Zenith Group recognize its supportive level of risk-adjusted
capitalization, historically strong operating performance, management`s
commitment to maintaining underwriting discipline through market cycles and the
implicit support and financial flexibility it is afforded as part of the Fairfax

Offsetting these positive rating factors are Zenith Group`s poor underwriting
and operating results in recent years, which were driven by competitive market
conditions and rate reductions in its largest states (although rate increases
have been noted more recently), and areas of prior year adverse reserve
development. The concentration of Zenith Group`s business in two states,
California and Florida, exposes it to a heightened level of regulatory and
legislative changes. 

The rating affirmations of Wentworth reflect its improved underwriting and
operating performance, which have returned to the historical levels that
followed its 2011 underwriting losses relating to catastrophe losses. In
addition, the company benefits from a strong level of risk-adjusted
capitalization and the implicit support and financial flexibility it receives
through Fairfax. 

Offsetting these positive rating factors are Wentworth's relatively modest
business profile within the highly competitive reinsurance market and the
concentration of property catastrophe exposures within its book of business,
which subjects it to a substantial degree of volatility, as evidenced over the
past few years. 

Although A.M. Best believes Fairfax and its operating companies are well
positioned at their current rating levels, factors that could lead to negative
rating actions include operating performance falling short of A.M. Best`s
expectations, driven by either underwriting or investment results or a decline
in risk-adjusted capitalization that would no longer support their current

For a complete listing of Fairfax Financial Holdings Ltd. and its subsidiaries`
FSRs, ICRs and debt ratings, please visit

The methodology used in determining these ratings is Best`s Credit Rating
Methodology, which provides a comprehensive explanation of A.M. Best`s rating
process and contains the different rating criteria employed in the rating
process. Key criteria utilized include: "Risk Management and the Rating Process
for Insurance Companies"; "Understanding Universal BCAR"; "Understanding BCAR
for Property/Casualty Insurers"; "Rating Members of Insurance Groups"; "Equity
Credit for Hybrid Securities"; and "Insurance Holding Company and Debt Ratings."
Best`s Credit Rating Methodology can be found at

A.M. Best Company is the world's oldest and most authoritative insurance rating
and information source. For more information, visit www.ambest.com. 

Copyright © 2013 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Co.
Darian Ryan, CPA
Senior Financial Analyst
(908) 439-2200, ext. 5449
Michael J. Lagomarsino, CFA
Assistant Vice President
(908) 439-2200, ext. 5810
Rachelle Morrow
Senior Manager, Public Relations
(908) 439-2200, ext. 5378
Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644

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