Standard & Poor's Affirms Rating on Fairfax Financial Holdings, Positive Outlook for Skandia International Insurance

Strategic Insights -

Standard & Poor's has announced the affirmation of its triple-'B'-plus rating on Canadian-based Fairfax Financial Holdings' senior unsecured notes, as well as its triple-'B'-plus counterparty rating on Fairfax. Additionally, the rating agency has revised its CreditWatch implication on Skandia International Insurance Corp.'s (SIIC) triple-'B'-plus claims-paying ability and counterparty ratings to positive from negative. This move comes after Fairfax announced its intention to acquire SIIC, a Swedish reinsurer, along with its remaining business and UK affiliate, Skandia U.K. Insurance Plc (SUKI). The acquisition is expected to be funded internally and will not impact Fairfax's financial leverage or debt service capabilities.

Key Takeaways:

  • Standard & Poor's affirmed its triple-'B'-plus rating on Fairfax Financial Holdings' senior unsecured notes and its triple-'B'-plus counterparty rating on Fairfax.
  • The revision of CreditWatch implication on Skandia International Insurance Corp.'s (SIIC) triple-'B'-plus claims-paying ability and counterparty ratings to positive from negative reflects explicit support from Fairfax's wholly owned subsidiary, Odyssey Reinsurance Corp.
  • The purchase price of US$75 million (CN$107.5 million) will be funded internally and will not impact Fairfax's financial leverage or debt service capabilities.
  • As of December 31, 1997, Fairfax's debt as a percentage of capital was 35% versus 34% for the full-year 1996, with interest coverage excluding and including realized capital gains remaining supportive of the rating at 3.9 times (x) and 8.7x, respectively.
  • The transaction will increase Fairfax's invested assets by approximately US$500 (CN$715 million) and expand its reinsurance presence (i.e., Odyssey Re Group) and licenses to write business.

Statistics:

  • Fairfax's total rated debt is US$450 million (CN$645 million).
  • Fairfax's invested assets will increase by approximately US$500 (CN$715 million) as a result of the transaction.
  • The purchase price of US$75 million (CN$107.5 million) is expected to be funded internally.
  • As of December 31, 1997, Fairfax's debt as a percentage of capital was 35%, compared to 34% for the full-year 1996.
  • Interest coverage excluding and including realized capital gains remained supportive of the rating at 3.9 times (x) and 8.7x, respectively.
  • The combined operations of SIIC and SUKI reported shareholders' equity of US$105 million (CN$150.5 million) as of December 31, 1997.

Sources:

  • Business Wire, "Standard & Poor's CreditWire" (February 20, 1998)
  • Standard & Poor's, "CreditWatch Implication" (February 20, 1998)
  • Fairfax Financial Holdings, "Press Release" (February 20, 1998)