Investing.com -- Fitch Ratings has raised the senior debt rating of Fairfax Financial Holdings (OTC: FRFHF ) Limited from ’BBB’ to ’BBB+’, and the preferred stock rating from ’BB+’ to ’BBB-’. The Long-Term Issuer Default Rating (IDR) of Fairfax has also been upgraded from ’BBB+’ to ’A-’, with the Rating Outlook marked as Stable.
This upgrade is backed by Fairfax’s positive business profile as a global property and casualty (re)insurer, strong financial performance, and increased investment income. The company’s healthy holding company cash and investments, along with improved fixed-charge coverage from higher earnings, also contributed to the positive rating action.
Fitch views Fairfax’s business profile favorably when compared to other U.S. and Canadian (re)insurance organizations. Fairfax holds a competitive position with a large operating scale, with total net premiums written (NPW) of $25.6 billion in 2024 and shareholders’ equity of $28.3 billion as of December 31, 2024. The company’s business risk profile is considered moderate, with favorable diversification.
As of December 31, 2024, Fairfax held a sizable $2.3 billion in holding company cash and investments, excluding assets pledged for derivative obligations. This figure marks an increase from $1.6 billion as of December 31, 2023. Fitch believes this provides Fairfax with a sufficient buffer to address potential subsidiary cash flow shortages and liquidity to service its debt.
Fairfax’s financial performance and earnings are strong but can be highly volatile due to investments and catastrophe loss events. The company reported favorable net income of $3.9 billion in 2024, $4.3 billion in 2023, and $3.3 billion in 2022. In 2024, net income was boosted by solid underwriting income, higher interest and dividend income, $1.0 billion share of profits of associates, and $1.1 billion in net gains on investments.
Fairfax has consistently shown underwriting profitability for the past seven years. This includes a 92.7% combined ratio (undiscounted) for 2024, which included 4.5 points of catastrophe losses primarily from Hurricane Milton, Hurricane Helene, Canadian events, and Dubai floods, and 2.4 points of favorable reserve development.
Fitch views Fairfax’s capitalization as strong, providing a buffer against underwriting, reserve, and investment risks. Fairfax’s financial leverage ratio (FLR) was a relatively high 30.3% as of December 31, 2024, up from 27.8% as of December 31, 2023. The more limited total equity growth in 2024 reflects strong net earnings that were partially offset by increased share repurchases and common share dividends.
Fixed-charge coverage, excluding net gains and losses on investments, improved to 7.2x in 2024, 6.6x in 2023, and 5.4x in 2022 as operating earnings grew. Including the sizable holding company cash, fixed-charge coverage was more robust at 10.6x in 2024, 9.6x in 2023, and 7.9x in 2022.
Fitch has also outlined several factors that could lead to a downgrade or an upgrade of Fairfax’s ratings. Factors that could lead to a downgrade include combined ratios of 95% or worse, a decline in the holding company’s cash position to less than $1 billion, sizable adverse reserve development, or significant acquisitions that reduce financial flexibility. Factors that could lead to an upgrade include combined ratios in the low 90s or better, maintaining a ’Very Strong’ Prism score, or flat to favorable reserve development.
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