Best Affirms Fairfax, U.S. Members Ratings; Upgrades Seneca’s ICR

June 4, 2010

A.M. Best Co. has affirmed the issuer credit rating (ICR) of “bbb” and the unsecured debt and preferred equity ratings of Toronto-based Fairfax Financial Holdings Limited. Best also affirmed the ICR of “bbb” and unsecured debt rating of Crum & Forster Holdings Corp., an indirect, wholly owned, downstream holding company of Fairfax, based in Morristown, NJ.

Best has also upgraded the ICRs to “a+” from “a” and affirmed the financial strength rating (FSR) of A (Excellent) of New York-based Seneca Insurance Group and its P/C, as wells as affirming the FSR of ‘A’ (Excellent) and ICRs of “a” of Crum & Forster and its P/C members.

Best has also affirmed the FSR of ‘B+’ (Good) and ICRs of “bbb-” and the FSR of ‘B++’ (Good) and ICRs of “bbb” of TIG Insurance Group (TIG) and Fairmont Specialty Group, both based in Manchester, NH, and their P/C members, respectively, which are both in run-off. The outlook for all ratings is stable.

Best explained that its ratings on Seneca “reflect its consistently better-than-average underwriting and operating performance, which has been sustained over many years; strong level of risk-adjusted capitalization and management of loss reserves that has resulted in favorable development of prior years’ loss reserves.”

Best cited the company’s “above-average level of expenses relative to premiums and a five-year average investment yield that lags that of its commercial casualty peer group, although Seneca’s yield improved in 2009,” as partially offsetting factors.

The ratings of Crum & Forster recognize its “underwriting performance (as reflected in its better-than-average loss and loss adjustment expense levels); its diversified product portfolio; favorable development of recent accident years’ loss reserves; reduced reliance on finite reinsurance; and risk-adjusted capital levels that are well-supportive of the ratings,” Best continued. “Crum & Forster’s ratings also reflect the support of Fairfax.”

However, Best indicated that Crum & Foster’s positive factors are partially offset by “competitive market conditions that persist in the commercial lines sector; challenging expense levels, which have declined at a slower pace than premiums in recent years; continued exposure to legacy reserve issues; and historical variability in underwriting results, driven primarily by weather-related losses.”

Best added that the company’s management has “acted to address these offsetting issues, particularly with respect to reducing property exposure and expenses, but the sustained benefit of these actions has not yet been reflected in results.

“The ratings of TIG and Fairmont acknowledge their run-off status and the impact on performance. Adverse development of loss reserves, reflecting strengthening of those reserves, and termination of agreements under which certain business was transferred to affiliates negatively impacted the performance of TIG and Fairmont in 2009.

“TIG and Fairmont’s risk-adjusted capitalization remains supportive of their current ratings, but has been negatively affected by the privatization of certain affiliates’ investments whose equity is owned by the companies within both groups.”

Best also explained that its ratings on Fairfax “recognize the quality of its subsidiaries, which have historically produced favorable levels of pre-tax operating and net income. Adjusted financial leverage at Fairfax remains within A.M. Best’s tolerance levels for its current ratings, measuring 24.4 percent at March 31, 2010, and projected at 24.6 percent following the recently completed acquisition of Zenith National Insurance Corporation (Zenith). The calculation of financial leverage includes the subsidiaries’ debt that is not guaranteed by Fairfax and which the subsidiaries are capable of servicing.

“Fairfax’s interest coverage ratio is well within expectations for its current ratings, and its ability to service its obligations is enhanced by its solid liquidity position. Cash, short-term investments and marketable securities held at Fairfax totaled approximately $1.8 billion as of March 31, 2010 and remains substantial following the close of the Zenith acquisition.”

For a complete listing of Fairfax Financial Holdings Limited and its subsidiaries’ FSRs, ICRs and debt ratings, please visit

Source: A.M. Best

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