Press Release - FEBRUARY 28, 2018

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


CONTACTS:
 Darian Ryan, CPA
Senior Financial Analyst
+1 908 439 2200, ext. 5449
darian.ryan@ambest.com

Jennifer Marshall
Director
+1 908 439 2200, ext. 5327
jennifer.marshall@ambest.com

Christopher Sharkey
Manager, Public Relations
(908) 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Public Relations
(908) 439 2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK - FEBRUARY 28, 2018
A.M. Best has affirmed the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb” and the Long-Term Issue Credit Rating (Long-Term IR) on the unsecured debt and preferred equity of Fairfax Financial Holdings Limited (Fairfax) [TSX: FFH and FFH.U] (Toronto, Canada). A.M. Best also has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICRs of “a+” of the subsidiaries of Odyssey Re Holdings Corp. (Odyssey Re). Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and the Long-Term ICRs of “a” of the members of the Northbridge Companies, the members of the Crum & Forster Insurance Group (C&F), the members of the Zenith National Insurance Group (Zenith Group), and Wentworth Insurance Company Limited (Wentworth) (Barbados). In addition, A.M. Best has affirmed the Long-Term ICRs of “bbb” and the Long-Term IRs of Zenith National Insurance Corp. (headquartered in Woodland Hills, CA) and Fairfax (US) Inc. (Delaware), both of which are indirect wholly owned, downstream holding companies of Fairfax. The outlook of these Credit Ratings (ratings) is stable. (See link below for a detailed listing of the companies and ratings.)

The ratings of Fairfax reflect its historically favorable, albeit variable levels of pre-tax operating and net income, supported by profitable underwriting performance of the insurance operations, and most recently, realized gains on the sale of two strategic holdings and unrealized gains generated by strong global equity markets. Offsetting these positive rating factors are the lower earnings on its large holdings of cash and short-term bonds following the reduction in duration on its fixed income portfolios.

Fairfax maintains favorable financial leverage and significant liquidity. At year-end 2017, Fairfax’s adjusted debt-to-total-capital level was approximately 26%. This figure includes capital related to the non-controlling interests and the debt related to those interests (although such debt is non-recourse to Fairfax for its non-insurance entities) and excludes accumulated other comprehensive income. Fairfax consistently maintains a significant amount of holding company cash and investments to provide additional liquidity and flexibility for the group. While the majority of Fairfax’s invested assets are held by its insurance operating subsidiaries, the additional assets maintained at the holding company are available to support subsidiary capital levels. Fairfax has a demonstrated willingness to contribute funds to subsidiaries to support growth strategies and capital positions. Fairfax’s investment strategy reflects management’s long-term, value-oriented total return approach, the result of which has been historically variable. In recent years, Fairfax has experienced sizable net losses on investments and depressed net investment income, due in large part to the company’s equity hedging, and sizable net gains following the removal of its equity hedges and the sale of investments in First Capital Insurance Limited and ICICI Lombard General Insurance Company Limited.

The insurance companies benefit from being part of Fairfax’s diversified business platform, decentralized yet collaborative business practices, and fungible and strong capital position.

The ratings of Odyssey Re reflect its balance sheet strength, which A.M. Best categorizes as strongest, as well as its strong operating performance, neutral business profile and adequate enterprise risk management (ERM).

Odyssey Re’s ratings also reflect its rank among the top global reinsurers supported by its diversified global geographic footprint, which includes reinsurance and specialty primary insurance, large-line capacity and broad product offerings. These positive attributes are supported by Odyssey Re’s strongest risk-adjusted capitalization and strong operating performance. Somewhat offsetting these strengths is Odyssey Re’s challenging operating environment, which limits growth and accordingly, Odyssey Re’s ability to improve its position in the global reinsurance market.

The ratings of the Northbridge Companies reflect the group’s balance sheet strength, which A.M. Best categorizes as strongest, as well as its adequate operating performance, neutral business profile and appropriate ERM.

The ratings of the Northbridge Companies also acknowledge the group’s position within Canada’s commercial insurance market, diversified commercial lines franchise and strong broker distribution network. In addition, the ratings reflect the group’s strongest balance sheet strength and improved and strong underwriting performance within its small to mid-market commercial segment. Partially offsetting these positive rating factors are competitive market conditions that persist in Canada’s commercial and personal lines segments, and the group’s relatively unfavorable expense levels.

The ratings of C&F reflect its balance sheet strength, which A.M. Best categorizes as strong, as well as its adequate operating performance, neutral business profile and appropriate ERM.

The ratings of C&F also reflect the consolidated group’s improved underwriting performance within its specialty market segments. C&F benefits from its diversified and growing product portfolio and distribution networks. Management continues to focus on growth in its specialty business through the strategic acquisition of agencies, as well as expanding established books of business at appropriate rates, terms and conditions. Partially offsetting these positive rating factors are the competitive market conditions that persist in the commercial lines sector and relatively unfavorable expense levels; however, the anticipated growth in premium should eventually enable C&F to realize a more competitive expense ratio.

The ratings of the Zenith Group reflect its balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM.

The ratings of the Zenith Group also reflect management’s expertise and commitment to maintaining underwriting discipline throughout market cycles. Somewhat offsetting these positive rating factors is Zenith’s concentration of written premium in California and Florida.

The ratings of Wentworth reflect its balance sheet strength, which A.M. Best categorizes as strongest, as well as its adequate operating performance, limited business profile and appropriate ERM.

The ratings of Wentworth also are supported by its investment portfolio, which includes a significant allocation of cash and short-term securities. Partially offsetting these positive rating factors are the company’s 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.

For a complete listing of the members of Fairfax Financial Holdings Limited’s FSRs, Long-Term ICRs and Long-Term IRs, please visit Fairfax Financial Holdings Limited.

This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

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