A.M. Best Co. has affirmed the various financial strength ratings of the operating subsidiaries of Fairfax Financial Holdings Limited (Fairfax) (Toronto), with the exception of TIG Insurance Group (TIG), which was lowered to B+ (Very Good) from B++ (Very Good).
Concurrently, the senior debt rating of Fairfax was lowered to “bb+” from “bbb-“, the senior notes of TIG Holdings were lowered to “bb-” from “bb+” and the capital securities of TIG Capital Trust I were lowered to “b+” from “bb”. The outlook on all ratings is negative.
These rating actions are the result of a comprehensive review of Fairfax and each of its insurance and reinsurance subsidiaries including ORC Re, its Dublin reinsurance subsidiary.
The downgrade of Fairfax’s debt ratings was based on the decreased flexibility in the company’s cash flows, diminished refinancing options and reliance upon the non-public markets for refinancing to maintain holding company liquidity. Management has historically utilized the non-public markets to create options to provide several avenues to liquidity. As such, Fairfax has been in a position over the past few years to provide capital to its subsidiaries and to meet corporate obligations without heavily relying on subsidiary dividends. However, reliance upon non-public markets, sale of assets, realized investment gains, uncertain future liquidity and the potential for unforeseen financial shocks warrant debt ratings below the investment grade level.
Currently, the capital levels of each of Fairfax’s operating companies meet or exceed the level commensurate with their financial strength ratings. No additional operating capital requirement is anticipated in 2003 if premium growth projections are maintained.
The lowering of TIG’s financial strength rating reflects the ultimate run-off nature of the restructured operation. There are currently ongoing books of profitable business within TIG, which A.M. Best anticipates will be moved to other Fairfax subsidiaries within the next twelve months.
Further, A.M. Best believes that Fairfax will continue to meet its obligations without compromising the capital levels of the subsidiaries.
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