July 14, 2004 by Canadian Underwriter
Fairfax’s reinsurance subsidiary, Odyssey Re has seen its financial strength rating upgraded to “A3” from “Baa1” by Moody’s Investor Service, concluding a review announced in mid-May.
The rater points to Odyssey Re’s strong financial performance in the past two years in particular, with increased earnings, shareholders’ equity, and even improved underwriting leverage despite an increase in written premiums. Moody’s expects the reinsurer’s results to remain strong over the near term. Specifically cited is Odyssey Re’s strong position in the U.S. brokered p&c reinsurance market.
Concerns remain over Odyssey Re’s reserves, with the rater anticipating modest adverse reserve development on business from 1997-2001, and the rating includes provision for adverse development of less than 5% of total reserves. Odyssey Re’s exposure to property catastrophe losses and its credit exposure to reinsurance recoverables are also detractions.
There is room for the reinsurer to up its rating further by sustained profitability, which Moody’s set as maintaining a combined ratio below 100% through the cycle, as well as improved reserve adequacy and lower underwriting leverage.