Fairfax, Allied World outlooks turns positive on strong performance

The outlook for Fairfax Financial Holdings, its subsidiaries and Allied World Assurance Company Holdings has turned positive on improved performance and investment cash flow.

AM Best has revised the outlook to positive from stable and affirmed the “bbb+” long-term issuer credit rating on the unsecured debt and preferred equity of Canada-based Fairfax Financial Holdings, and its indirectly, wholly owned downstream holding companies Fairfax (US) (Delaware) and Zenith National Insurance.

The positive shift reflects Fairfax's improved earnings profile, investment cash flow, stabilising underwriting earnings at various operating subsidiaries, and operating performance metrics relative to peers in recent years.

AM Best highlighted that Fairfax deployed significant cash into highly rated fixed income instruments as interest rates increased in 2022, which resulted in dividend and interest income run rate more than tripling by year-end 2023.

Additionally, the agency has revised the outlooks to positive from stable and affirmed the “A” financial strength rating (FSR) of the operating affiliates of Allied World Assurance Company Holdings (Bermuda) and its subsidiaries.

The ratings reflect Allied World's balance sheet strength, assessed as “strongest” by AM Best, along with adequate operating performance, favorable business profile and appropriate enterprise risk management (ERM).

AM Best has also upgraded Allied World’s business profile assessment to favorable from neutral, citing strong growth, favourable market position and solid underwriting performance across many of the key markets where it competes.

The revised outlooks reflect sustained improvement in Allied World’s overall operating performance, which AM Best noted, has stabilised at improved levels for the past several years.

The ratings agency views Allied World’s underwriting results as reflective of sound cycle management strategies that have reduced volatility, while at the same time steadily increasing underwriting income.

Like its parent and other affiliates, Allied World’s operating earnings are expected to continue benefiting from higher investment income, fueled by Fairfax's significant investments in high-yield fixed income securities in a rising interest rate environment.

Allied World’s risk-adjusted capitalisation that has remained at the strongest level over time, according to Best’s Capital Adequacy Ratio (BCAR).

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