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A.M. Best Assigns Credit Ratings to Colonnade Insurance S.A.; Assigns Indicative Issue Credit Ratings to Fairfax Financial Holdings Limited
[November 14, 2017]

A.M. Best Assigns Credit Ratings to Colonnade Insurance S.A.; Assigns Indicative Issue Credit Ratings to Fairfax Financial Holdings Limited


A.M. Best has assigned a Financial Strength Rating (FSR) of A- (Excellent) and a Long-Term Issuer Credit Rating (Long-Term ICR) of "a-" to Colonnade Insurance S.A. (Colonnade) (Luxembourg), a member of Fairfax Financial Holdings Limited (Fairfax) (Toronto, Canada) [TSX: FFH] group of companies. Additionally, A.M. Best has assigned indicative Long-Term Issue Credit Ratings (Long-Term IR) of "bbb" to senior unsecured debt, "bbb-" to subordinated debt and "bb+" to preferred stock of the recently filed short-form base shelf prospectus (base shelf prospectus) of Fairfax. The outlook assigned to these Credit Ratings (ratings) is stable. The existing ratings of Fairfax and its subsidiaries are unchanged. The assigned ratings, for securities that may be issued under the shelf registration statement, are consistent with the current ratings of Fairfax's outstanding securities. The new base shelf prospectus replaces Fairfax's previous shelf registration, which expired Oct. 19, 2017. Consequently, the indicative Long-Term IRs for the previous shelf registration have been withdrawn. The company's financial leverage and coverage ratios are within A.M. Best's guidelines for Fairfax's current ratings and are expected to remain so over the near term.

The ratings of Colonnade reflect the overall strength of its balance sheet, supported by its ultimate parent Fairfax, favorable loss performance, the expected improvement in overall operating performance and adequate business profile. Colonnade benefits from explicit and implicit support provided by its ultimate parent, Fairfax, including a legally binding guarantee, track record of capital support, technical reserving support, investment management services and enterprise risk management (ERM) expertise. Key offsetting rating factors are Colonnade's current operating performance, which is reflective of its elevated expense ratio, and marginal ERM.

Colonnade's adequate balance sheet strength is supported by its strong risk-adjusted capitalization. A.M. Best expects Colonnade's risk-adjusted capitalization to remain reliant on support from Fairfax over the next few years as it implements its grwth plans and absorbs startup costs. Colonnade's premium volume has grown rapidly since 2015, accelerating in 2017, as a result of the rollover of books of business acquired from QBE and AIG. The risk associated with Colonnade's premium growth is moderated by the retention of a high proportion of management, staff and business.

Colonnade's adequate operating performance is driven by its favorable loss performance, which is offset by the initial costs incurred in its developmental stage with expenses outpacing premium by a sizable margin. The company's adequate business profile reflects its concentration in the Central and Eastern European region, with the two largest countries (the Czech Republic and Poland) representing about 40% of the premium written. Concentration risk is somewhat offset by the dispersion of the remaining 60% of the business in four other central European countries, and the product offering, with personal and commercial business representing 40% and 60% respectively.

A.M. Best considers the company's risk management capability to be generally in-line with its risk profile, which is supported by its focus on maintaining geographic and by line diversity of its business, conservative reserving and per risk reinsurance limits. However, the company maintains an outsized 1-in-500 years all perils probable maximum loss which, if incurred, would result in a sharp deterioration of risk-adjusted capital levels. While the current guarantee from Fairfax would cover Colonnade's liabilities in that scenario, the company's risk appetite and current reinsurance structure do not support an overall adequate ERM assessment.


This press release relates to Credit Ratings that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best's Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best's Credit Ratings. For information on the proper media use of Best's Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best's Credit Ratings and A.M. Best Rating Action Press Releases.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2017 by A.M. Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED.


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