S&P Affirms Fairfax Ratings; Outlook Raised to Positive

Standard & Poor’s Ratings Services announced that it has affirmed its “BBB” counterparty credit and financial strength ratings on Fairfax Financial Holdings Ltd.’s (FFH) ongoing operating insurance companies (collectively, Fairfax).

S&P also said it has affirmed its ‘BB’ counterparty credit ratings on FFH and Crum & Forster Holdings Corp., and has raised its outlook on all of the ratings to positive from stable.

“The positive outlook is due to FFH and its operating companies having shown substantial improvement in almost all of the major rating factors, and this is expected to continue,” explained S&P credit analyst Damien Magarelli.

S&P said the “ratings are based on improving competitive position, strong consolidated capitalization (even after adjustments for finite reinsurance), and improved financial flexibility.

“Offsetting these positives are reserves, which though not an immediate concern, have frequently been strengthened and might require some further modest charges; some very poor acquisitions and sizeable reserve charges for which Fairfax has utilized finite reinsurance; and debt to support operating company obligations, resulting in high debt leverage.”

The rating agency indicated that a future ratings upgrade is possible “based on year-end 2005 financial statements should earnings improvements continue and no longer be dependant on realized capital gains and net investment income. A combined ratio near 96 percent at the continuing operations (excluding runoff) without any sizeable reserve charges (including runoff) would potentially warrant raising the ratings.”

On the other hand S&P said “should reserves deteriorate above expectations, if holding company funds are not maintained near $350 million, or if earnings do not continue to improve as the market softens, the positive outlook might be revised to stable.”