Fitch Affirms Fairfax's Ratings; Outlook Stable

  Fitch Affirms Fairfax's Ratings; Outlook Stable

Business Wire

CHICAGO -- May 07, 2012

Fitch Ratings has affirmed the ratings of Fairfax Financial Holdings Limited
(Fairfax) as follows:

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

--Senior debt at 'BBB-'.

Fitch has also affirmed the ratings of Fairfax's subsidiaries. In addition,
Fitch has assigned an 'A-' insurer financial strength (IFS) rating to First
Mercury Insurance Company reflecting its 100% reinsurance into the Crum &
Forster Insurance Group (Crum & Forster). A full list of rating actions
follows at the end of this press release.

The Rating Outlook is Stable.

Fitch's rationale for the affirmation of Fairfax's ratings reflects the
company's sizable cash position and favorable financial flexibility. The
ratings also reflect anticipated challenges in the overall competitive, but
generally improving property/casualty market rate environment, the potential
for additional adverse reserve development, particularly on older accident
years and in runoff operations, earnings volatility from catastrophes and
investments and increased financial leverage.

Fairfax posted limited recent net earnings of $0.1 million in the first
quarter of 2012 following $47.8 million for full year 2011. Results in 2012
have benefited thus far from more modest catastrophe losses, as full year 2011
included $1 billion of catastrophe losses from the Japanese earthquake and
tsunami, Thailand floods, U.S. tornados, New Zealand earthquake, Hurricane
Irene, Denmark floods, Australian storms and Cyclone Yasi. However, the
improved 2012 underwriting results were offset by weaker investment results
with $41 million of net losses on investments (includes both realized and
unrealized) in the first quarter of 2012 compared to $691 million of net gains
on investments in full year 2011. Gains have been driven by fixed income
securities, while losses have been incurred from CPI-linked derivatives
(deflation hedge that dropped in market value with CPI-index increasing),
foreign currency and overall net equity losses (in 2011) after equity hedges.

Fairfax's combined ratio was 98.7% in the first three months of 2012 compared
to 114.2% for full year 2011, which included 19.3 points for catastrophe
losses. Excluding the impact of catastrophes (2.0 points) and favorable
reserve development (0.1 points) in ongoing operations, Fairfax's combined
ratio for the first three months of 2012 was 96.8%, up slightly from 96.6% for
full year 2011.

Fairfax's financial leverage ratio (adjusted for equity credit and unrealized
gains on fixed income investments) was 34.1% at March 31, 2012, up from 33.2%
at Dec. 31, 2011, and 28.5% at Dec. 31, 2010, as Fairfax issued hybrid
preferred shares in 2012 and increased overall debt in 2011. Fitch expects
Fairfax's financial leverage ratio to remain below 35% with more normal
shareholders' equity growth in 2012. The increase in leverage was also due to
a 6% decline in Fairfax's common shareholders' equity since year-end 2010 to
$7.2 billion at Mar. 31, 2012, as common and preferred share dividends more
than offset the company's limited earnings.

Fairfax continues to maintain a sizable amount of holding company cash,
short-term investments and marketable securities of $1.0 billion at March 31,
2012, which Fitch believes provides Fairfax a sufficient cushion in meeting
potential subsidiary cash flow shortages and liquidity to service its debt.
Fairfax also continues to demonstrate favorable financial flexibility with
Crum & Forster, Northbridge Financial Insurance Group, Zenith Insurance Group,
and Odyssey Reinsurance Company serving as key sources of dividends as wholly
owned major ongoing operating subsidiaries.

The key rating triggers that could result in an upgrade include consistent
underwriting profitability and operating results in line with peers and
industry averages, overall flat-to-favorable loss reserve development,
financial leverage maintained below 20%, and continued maintenance of at least
$1 billion of holding company cash, short-term investments and marketable
securities.

The key rating triggers that could result in a downgrade include declines in
book value per share for an extended time period, sizable adverse loss reserve
development, movement to materially below-average underwriting or investment
performance, financial leverage maintained above 35%, operating earnings plus
holding company cash based interest and preferred dividend coverage of less
than 4x, significant acquisitions that reduce the company's financial
flexibility and a substantial decline in the holding company's cash position.

Fitch affirms the following ratings with a Stable Outlook:

Fairfax Financial Holdings Limited

--IDR at 'BBB';

--Senior debt at 'BBB-';

--$82 million 8.25% due Oct. 1, 2015 at 'BBB-';

--$48 million 7.75% due June 15, 2017 at 'BBB-';

--$144 million 7.375% due April 15, 2018 at 'BBB-';

--CDN$400 million 7.5% due Aug. 19, 2019 at 'BBB-';

--CDN$275 million 7.25% due June 22, 2020 at 'BBB-'.

--$500 million 5.8% due May 15, 2021 at 'BBB-';

--CDN$400 million 6.4% due May 25, 2021 at 'BBB-';

--$92 million 8.3% due April 15, 2026 at 'BBB-';

--$91 million 7.75% due July 15, 2037 at 'BBB-';

--CDN$250 million series C preferred shares at 'BB';

--CDN$200 million series E preferred shares at 'BB';

--CDN$250 million series G preferred shares at 'BB';

--CDN$300 million series I preferred shares at 'BB';

--CDN$230 million series K preferred shares at 'BB'.

Fairfax, Inc.

--IDR at 'BBB'.

Crum & Forster Holdings Corp.

--IDR at 'BBB';

--$6 million 7.75% due May 1, 2017 at 'BBB-'.

Crum & Forster Insurance Group:

Crum and Forster Insurance Company

Crum & Forster Indemnity Company

The North River Insurance Company

United States Fire Insurance Company

--IFS at 'A-'.

Northbridge Financial Insurance Group:

Federated Insurance Company of Canada

Northbridge Commercial Insurance Corporation

Northbridge General Insurance Corporation

Northbridge Indemnity Insurance Corporation

Northbridge Personal Insurance Corporation

Zenith Insurance Company (Canada)

--IFS at 'A-'.

Odyssey Re Holdings Corp.

--IDR at 'BBB';

--$50 million series A unsecured due March 15, 2021 at 'BBB-';

--$50 million series B unsecured due March 15, 2016 at 'BBB-';

--$40 million series C unsecured due Dec. 15, 2021 at 'BBB-';

--$183 million 7.65% due Nov. 1, 2013 at 'BBB-';

--$125 million 6.875% due May 1, 2015 at 'BBB-'.

Odyssey Reinsurance Company

--IFS at 'A-'.

Zenith National Insurance Corp.

--IDR at 'BBB'.

Zenith Insurance Company

ZNAT Insurance Company

--IFS at 'A-'.

Fitch assigns the following rating:

First Mercury Insurance Company

--IFS at 'A-'.

Fitch has withdrawn the following rating as it is no longer considered
analytically meaningful, as effective May 1, 2012 the company no longer issues
new or renewal policies:

Commonwealth Insurance Company of America

--IFS at 'A-'.

Additional information is available at 'www.fitchratings.com'. The ratings
above were unsolicited and have been provided by Fitch as a service to
investors. The issuer did not participate in the rating process, or provide
additional information, beyond the issuer's available public disclosure.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Sept. 22, 2011).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018

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Contact:

Fitch Ratings
Primary Analyst
Brian C. Schneider, CPA, CPCU, ARe, +1-312-606-2321
Senior Director
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Dafina M. Dunmore, CFA, +1-312-368-3136
Director
or
Committee Chairperson
Mark E. Rouck, CPA, CFA, +1-312-368-2085
Senior Director
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com