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A.M. Best Downgrades Rating of TIG; Affirms Rating of Crum and Forster; Affirms Ratings of Fairfax and its Subsidiaries.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Nov. 30, 2001

A.M. Best Co. has downgraded the financial strength rating of TIG Insurance Group, Irving, Texas, from A- (Excellent) to B++ (Very Good), affirmed the A- (Excellent) financial strength rating of Crum and Forster Insurance Group (CFI), Morristown, New Jersey, and has removed both ratings from under review.

Concurrent with these rating actions, A.M. Best also affirmed the financial strength ratings relating to other insurance subsidiaries of Fairfax Financial Holdings (FFH), Toronto, as delineated below. The "bbb-" senior debt rating relating to FFH, the "bb+" senior debt and "bb" trust preferred ratings relating to TIG Holdings have also been affirmed.

These various rating actions are consequences of FFH's previously announced third quarter loss of C$458 million, which included a substantial charge relating to reserve strengthening at its two largest U.S. insurance subsidiaries, CFI and TIG. On November 6, 2001, following FFH's earnings release, A.M. Best placed the financial strength ratings of these companies under review with developing implications. The current rating actions are based on A.M Best's recently completed review of the holding company and FFH's various insurance subsidiaries. A.M. Best's review focused on the adequacy of current carried reserves at CFI and TIG, capitalization, prospective earnings capabilities for the consolidated group and the financial flexibility at the holding company.

FFH's unsatisfactory earnings performance over the last several years has been largely attributable to poor underwriting performance at CFI and TIG through the transition period that followed their acquisition by FFH. These companies were acquired at the height of a soft commercial insurance market in 1998. As such, each company has been negatively impacted by underwriting losses emerging from business written under the oversight of prior ownership. While each company strengthened its respective reserve position following FFH's acquisition, earlier reserving actions did not contemplate deficiencies in claims practices that have since been corrected, nor the extent of under-pricing in the existing inforce book of business at the time of acquisition.

The recent reserving actions are based on improved data quality following a comprehensive restructuring at both CFI and TIG. These actions, combined with prudent reinsurance protections, sound capitalization and improved risk selection and pricing across all insurance subsidiaries should provide material improvement in FFH's operating performance in 2002.

Further, throughout the transition period, FFH has and will continue to maintain a conservative liquidity position at the holding company to compensate for any residual weakness in earnings at CFI or TIG. Holding company cash and short-term securities are expected to approximate C$800 million by December 2001, supported by realized capital gains and a recent C$250 million equity offering. This favorable cash cushion, combined with available dividends from profitable international insurance subsidiaries and a favorable debt maturity schedule, provide for an adequate level of cash coverage relating to debt service. Further, the need to access dividends from under-performing insurance subsidiaries to service holding company debt is alleviated during their transition period to profitability. It is A.M Best's expectation that FFH will maintain financial leverage at or below current levels and cash coverage of at least four times over the mid-term.

The downgrade of TIG's A- (Excellent) rating to B++ (Very Good) reflects A.M. Best's belief that despite significant remedial actions already taken by the current management, TIG's turnaround will be protracted due to its operating platform, which limits flexibility in pricing and underwriting control. TIG maintains a significant concentration of business with a limited number of managing general agents. In addition, the company's historical dependence on third party administrators heightens the uncertainty with respect to the adequacy of its reserve position. However, the current rating continues to reflect TIG's adequate level of capitalization even with consideration to the continued significance of affiliated invested assets. In addition, A.M. Best believes that the company will benefit from improving market conditions within the commercial insurance sector.

The affirmation of CFI's A- (Excellent) rating is reflective of A.M. Best's belief that as a result of the current management's underwriting and reserving actions, CFI's operating performance will significantly improve in 2002. This improvement has already begun to emerge in both accident and policy year underwriting trends. This, combined with CFI's strengthened reserves, solid capitalization and significant reinsurance protection relating to prior accident years, positions the company to take advantage of the favorable turn in the commercial insurance sector.

Concurrently, the A- (Excellent) rating on Compagnie Transcontinentale de Reassurance's (CTR), Paris, has been downgraded to B++, reflecting a change in its status to a non-strategic affiliate of Odyssey Reinsurance Group. Also the A- (Excellent) rating on Commonwealth Insurance Company and its direct subsidiary, Commonwealth Insurance Company of America has been placed under review with developing implications pending the termination of its inter-company reinsurance arrangement with TIG Insurance Company.

The sustainability of the ratings for FFH and each of its insurance subsidiaries is contingent upon the overall success of the group to execute its business strategy in accordance with its own and A.M. Best's expectations.

 The individual ratings affected are as follows:

Company Rating Action

FFH, senior unsecured debt bbb- Affirmed
TIG Holdings, senior unsecured debt bb+ Affirmed
TIG, trust preferred bb Affirmed
TIG Insurance Group B++ Downgrade from A-
Crum & Forster Insurance Group A- Affirmed
Ranger Insurance Group B++ Affirmed
Odyssey Reinsurance Group A Affirmed
International Insurance Company B++ Affirmed
Seneca Insurance Group A- Affirmed
Lombard General Insurance Company
 of Canada A- Affirmed
Markel Insurance Company of Canada A- Affirmed
Federated Insurance Company of Canada A- Affirmed
Federated Life Insurance Company
 of Canada B++ Affirmed
Commonwealth Insurance Company A- Under Review
CTR B++ Downgrade from A-


A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.
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Publication:Business Wire
Geographic Code:1CANA
Date:Nov 30, 2001
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