Global rating agency AM Best has upgraded Long-Term Issuer Credit Rating (Long- Term ICR) to “bbb+” (Good) from “bbb” (Good) and the Long-Term Issue Credit Ratings (Long-Term IR) on the unsecured debt and preferred equity of Fairfax Financial Holdings Limited (Fairfax) (Toronto, Canada).
At the same time, Best has also upgraded the Long-Term ICRs to “bbb+” (Good) from “bbb” (Good) and the Long-Term IRs of Zenith National Insurance Corp., and Fairfax (US) Inc. (Delaware), both of which are indirectly, wholly owned downstream holding companies of Fairfax.
The outlook of these Credit Ratings has been revised to stable from positive.
Best states that the Long-Term ICR upgrade for Fairfax reflects the company’s ability to limit investment volatility through year-end 2022, and the prospective earnings outlook from deploying substantial cash into higher yielding debt instruments.
The upgrade also considers that Fairfax’s financial leverage has improved materially compared with historically higher levels and has been consistently maintained at levels largely in line with comparably rated peers in recent years.
Best stated that it expects that Fairfax will continue to maintain financial leverage at or near current levels going forward, with the group’s capital position expected to continue to improve over time, as it benefits from higher levels of dividend and interest incomes.
Moreover, Best has also upgraded the Long-Term ICR to “a+” (Excellent) from “a” (Excellent) and affirmed the Financial Strength Rating (FSR) of A (Excellent) of Allied World Assurance Company Holdings, Ltd.’s operating affiliates.
Elsewhere, Best has also upgraded the Long-Term ICRs to “bbb+” (Good) from “bbb” (Good) of Allied World Holdings and its downstream holding company – Allied World Assurance Company Holdings I, Ltd.
Best also confirmed that it has upgraded the Long-Term IR to “bbb+” (Good) from “bbb” (Good) on the $500 million, 4.35% senior unsecured notes of Allied World Assurance Company Holdings I, Ltd, due 2025, which are unconditionally and irrevocably guaranteed by Allied World Holdings. The outlook of these ratings is stable.
Best noted that the ratings of Allied World reflect its balance sheet strength, which Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
In addition, the upgrading of Allied World group’s Long-Term ICRs follow Best’s recognition of implicit support provided by Fairfax to Allied World, which represents roughly one quarter of Fairfax’s overall GWPs and has been a key contributor to Fairfax’s earnings during the last five years.
Furthermore, Best notes that Allied World’s operating performance has been on a steadily positive trajectory for the last five years, reflecting broad rate improvement across many of the company’s key business lines, as well as changes in underwriting strategy.
The company has also reduced its catastrophe exposure, which ultimately has reduced volatility.
Best added that it expects that Allied World’s risk-adjusted capitalization as measured by the Best’s Capital Adequacy Ratio (BCAR) will continue to be supportive of the overall balance sheet assessment, supported by capital growth from operating earnings and supplemented by an eventual recovery of equity and fixed income markets prices over time.
