Toronto-based Fairfax Financial Holdings Ltd. has seen the financial strength of all but one of its subsidiaries affirmed, while its senior debt rating was lowered by A.M. Best. Only TIG Insurance Group’s financial strength ratings was dropped to B+ from B++. All ratings have a negative outlook, the result of the holding company’s constrained financial flexibility to meet “unforeseen” capital needs. A.M. Best notes that the other subsidiaries have capital levels exceeding the level commensurate with their ratings, and cites the parent’s improved combined ratio at 100.5% in 2002, as favorable signs. TIG’s downgrade reflects the run-off status of the restructured operation. A.M. Best expects profitable parts of the company will be consumed by other Fairfax subsidiaries within the year, and that Fairfax will be able to meet TIG’s obligations without compromising the capital position of the parent. The downgrade of Fairfax’s debt rating, to bb+ from bbb-, exclusive of TIG-related issues, is a result of the decreased flexibility of company cash flows, fewer refinancing options and reliance on non-public markets for refinancing. Fairfax has not in the past had to rely on subsidiary dividends for holding company liquidity, but, A.M. Best notes, “reliance upon non-public markets, sale of assets, realized investment gains, uncertain future liquidity and the potential for unforeseen financial shocks warrant debt ratings below the investment grade level.” TIG Holding’s senior notes were downgraded to bb- from bb+, and capital securities of TIG Capital Trust I were lowered to b+ from bb.