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Fitch Comments on Fairfax's Commutation and Restatement.

CHICAGO -- Fitch Ratings commented today that the ratings for Fairfax Financial Holdings Limited (Fairfax), Odyssey Re Holdings Corp and its insurance subsidiaries (Odyssey Re), and TIG Holdings Inc. (TIG) are unchanged following the company's recent announcement that it will commute a reinsurance contract and restate its financial results. However, the ratings remain on Negative Rating Watch due to the continued substantial uncertainty surrounding the ongoing investigations of Fairfax and Odyssey Re.

TIG's Negative Rating Watch reflects the alignment of the company's and Fairfax's debt ratings given that Fairfax has traditionally guaranteed TIG's debt. The holding company ratings of Crum & Forster Holdings Corp., and the insurance company ratings of Crum & Forster Insurance Group, Northbridge Financial Insurance Group, and TIG Insurance Group are not affected. (See complete list of ratings below).

Fairfax announced that it expects to commute its $1 billion corporate insurance cover with a Swiss Re subsidiary in early August 2006, resulting in a pretax loss of approximately $415 million in the third quarter 2006. While Fitch has always adjusted the reported results of Fairfax to exclude the finite benefit from the Swiss Re Cover and other similar contracts, the commutation is still viewed favorably as it reduces reinsurance credit risk, lowers interest expense on funds withheld, improves liquidity and provides for greater transparency of results.

The company also estimates that its shareholders' equity will be reduced by approximately $225 million to $240 million as a result of a restatement of prior period financial results. The restatement is necessary to correct for various non-cash accounting errors (primarily in 2001 and prior years) that were discovered during the company's review of the Swiss Re commutation, and includes an estimated $175 million to $190 million that relates to erroneous accounting for the Swiss Re cover. Fitch does not consider this level of restatement to be significant relative to the company's capitalization. In addition, Fitch's ratings of Fairfax and its subsidiaries incorporate a certain amount of risk related to the ultimate potential negative effect of issues surrounding the company's use of finite reinsurance and transactions in Fairfax securities. These issues have led to various subpoenas received by Fairfax, its subsidiaries, its independent auditors and a shareholder, in addition to a class action lawsuit filed by the company's debt holders.

However, there continues to be a risk that the ongoing investigations of Fairfax and Odyssey Re by the Securities and Exchange Commission (SEC) and the U.S. Attorney's office for the Southern District of New York could bring about a civil action against the company. Fitch believes that any such action could negatively affect the companies' franchise, reputation, and competitive position, particularly for Odyssey Re as a reinsurer, in addition to the financial implications of any fines and/or penalties levied. Fitch will continue to monitor events for any additional developments related to the restatements or ongoing investigations of the company.

The following ratings remain on Rating Watch Negative by Fitch:

Fairfax Financial Holdings Limited

-- Issuer Default Rating (IDR) 'BB-';

-- $62 million unsecured due April 15, 2008 'B+';

-- $466 million unsecured due April 15, 2012 'B+';

-- $100 million unsecured due Oct. 1, 2015 'B+';

-- $184 million unsecured due April 15, 2018 'B+';

-- $98 million unsecured due April 15, 2026 'B+';

-- $91 million unsecured due July 15, 2037 'B+';

-- $137 million convertible due July 15, 2023 'B+'.

Fairfax, Inc.

-- Issuer Default Rating (IDR) 'BB-';

-- $101 million exchangeable due Nov. 19, 2009 'B+'.

Odyssey Re Holdings Corp.

-- Issuer Default Rating (IDR) 'BBB-';

-- $50 million series A unsecured March 15, 2021 'BB+';

-- $50 million series B unsecured due March 15, 2016 'BB+';

-- $40 million unsecured due Nov. 30, 2006 'BB+';

-- $80 million convertible due June 15, 2022 'BB+';

-- $225 million unsecured due Nov. 1, 2013 'BB+';

-- $125 million unsecured due May 1, 2015 'BB+';

-- $50 million series A preferred shares 'BB';

-- $50 million series B preferred shares 'BB'.

Odyssey Re Group:

Odyssey America Reinsurance Corporation

Clearwater Insurance Company

-- Insurer financial strength 'BBB+'.

TIG Holdings, Inc.

-- Issuer Default Rating (IDR) 'BB-';

-- TIG Capital Trust I $52 million trust preferred stock due 2027 'B'.

The following ratings remain unchanged by Fitch:

Crum & Forster Holdings Corp.

-- Issuer Default Rating (IDR) 'BB-';

-- $300 million unsecured due June 15, 2013 'B+'.

Crum & Forster Insurance Group:

Crum & Forster Insurance Company

Crum & Forster Indemnity Company

The North River Insurance Company

United States Fire Insurance Company

-- Insurer financial strength 'BBB-'.

Northbridge Financial Insurance Group:

Commonwealth Insurance Company

Commonwealth Insurance Company of America

Federated Insurance Company of Canada

Lombard General Insurance Company of Canada

Lombard Insurance Company

Markel Insurance Company of Canada

Zenith Insurance Co. (Canada)

-- Insurer financial strength 'BBB'.

TIG Insurance Group:

TIG Indemnity Company

TIG Insurance Company

TIG Specialty Insurance Company

-- Insurer financial strength 'BB+'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. The issuer did not participate in the rating process other than through the medium of its public disclosure.
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Geographic Code:1CANA
Date:Jul 31, 2006
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