Best Affirms Ratings for Odyssey Re Holdings Corp.

July 6, 2004

A.M. Best Co. has affirmed the financial strength ratings of A (Excellent) of Odyssey Re Holdings Corp.’s (Odyssey Re) (New York, N.Y.) reinsurance and insurance subsidiaries, which comprise the Odyssey Reinsurance Group.

These ratings apply to Odyssey America Reinsurance Corporation (Connecticut), Clearwater Insurance Company (formerly named Odyssey Reinsurance Corporation), Hudson Insurance Company (both of Delaware) and Hudson Specialty Insurance Company (New York), a reinsured affiliate. Concurrently, A.M. Best has affirmed the debt ratings of “bbb” on the senior unsecured securities of Odyssey Re as well as all indicative ratings under a $400 million shelf registration. The outlook for all ratings remains negative.

The rating affirmations are based on Odyssey Re’s excellent stand-alone capitalization, disciplined historical underwriting performance, strong and sustained earnings momentum and its respected market presence and position in the global reinsurance market. These attributes are supported by Odyssey Re’s diversified geographic client base, combined with its large line capacity, broad product capability and an opportunistic business philosophy.

Odyssey Re’s risk-adjusted capitalization has been supportive of its significant growth over the past three years as it has taken advantage of robust opportunities emanating from a hard market, market dislocations and capacity shortages in specific global regions. Furthermore, an astute investment strategy, which has allowed the company to harvest significant realized gains particularly in 2003, as well as disciplined access to the capital markets, has helped to strengthen the company’s capital base. A.M. Best expects that sustained earnings momentum will continue to drive the company’s financial strength and flexibility.

Partially offsetting these positive rating attributes is Odyssey Re’s somewhat elevated but improving operating leverage and the potential for continued adverse reserve development emerging from its older long-tail casualty reserves as well as from its less seasoned new business growth.

Financial leverage at 22.1 percent at end of first quarter 2004 is supported by fixed charge and cash coverage ratios in the mid to upper single digit range – well within the acceptable levels of its rating category. A.M. Best anticipates that Odyssey Re will manage its debt-to-capital ratio below 25 percent, while coverage ratios will continue at similar strong levels as earnings momentum is sustained.

The negative outlook, which was initially assigned to all of the insurance subsidiaries of its majority owner, Fairfax Financial Holding Limited (Canada), is being maintained due to concerns related to Fairfax’s diminished financial flexibility; more specifically, Fairfax’s remaining debt obligations and long-term cash coverage of these obligations.

The financial strength ratings of A (Excellent) have been affirmed with a negative outlook for the following members of Odyssey Reinsurance Group:

Odyssey America Reinsurance Corporation
Clearwater Insurance Company
Hudson Insurance Company
Hudson Specialty Insurance Company.

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