Best Removes Odyssey Re From Review; Assigns Stable Outlook

October 17, 2005

A.M. Best Co. announced that it has removed from under review with negative implications and affirmed the financial strength rating (FSR) of “A” (Excellent) and issuer credit ratings (ICR) of “a” of Odyssey Re Holdings Corp.’s reinsurance and insurance subsidiaries – the Odyssey Reinsurance Group.

“These ratings apply to Odyssey America Reinsurance Corporation (Connecticut), Clearwater Insurance Company and Hudson Insurance Company (both of Delaware) and Hudson Specialty Insurance Company (New York), a reinsured affiliate,” said Best. It also affirmed the ICRs and debt ratings of “bbb” on the senior unsecured securities of Odyssey Re as well as all indicative ratings under a $400 million shelf registration. In addition Best assigned a “bb+” rating to each of the Series A and B non-cumulative perpetual preferred stock totaling $100 million recently issued by Odyssey Re Holdings. All ratings have been assigned a stable outlook.

“These rating actions follow the completion of a full review of the company’s financial position following a scheduled annual management meeting,” said Best’s bulletin. “The review included an assessment of the recent losses suffered from Hurricanes Katrina and Rita and the strengthening of risk adjusted capitalization by the issuance of common stock and perpetual non-cumulative preferred stock offerings by Odyssey Re Holdings.

“The affirmations reflect Odyssey Re’s prudent level of risk-adjusted capitalization, good underwriting performance, sustained earnings momentum and its respected market presence and position in the global broker 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. An astute investment management philosophy emphasizing a total return strategy and conservative financial leverage further support these positive rating attributes.”

Best also noted: “The ratings also recognize Odyssey Re’s financial flexibility, including its ability to access the debt and equity markets despite its restricted public float of common shares due to its 80 percent ownership by Fairfax Financial Holdings. Odyssey Re has historically maintained financial leverage–as measured by debt plus preferred securities to capital–at under 25 percent, supported by historical fixed charge coverage in the mid-single digit, each within the tolerance levels of its rating category.”

However, Best said, these “positive rating factors are tempered by the potential for continued adverse reserve development emerging from its older long-tail casualty reserves, in line with industry trends, although the expectation is that development will continue to decline over time as the liabilities continue to season.

“Further, exposure to natural catastrophic events as well as dependence on realized capital gains over time remain factors which add potential volatility to the earnings stream.”

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