A.M. Best Co. has upgraded Crum & Forster Group's financial strength ratings to "A" from "A-minus." The rating agency also upgraded Crum & Forster Group's issuer credit ratings to "a" from "a-minus."

A.M. Best said the upgrade for Morristown, N.J.-based Crum & Forster, a wholly owned subsidiary of Fairfax Financial Holdings Ltd., reflects the insurance group's proven underwriting capability, favorable five-year accident year results, competitive expense ratio, significantly reduced legacy issues, diversified product portfolio and robust capital levels.

The rating agency said, "A.M. Best believes that Crum & Forster's well-managed and profitable specialty book of business, appropriate reduction of price competitive core business lines, and material catastrophe exposure reductions will serve the group well through the current soft pricing market conditions."

A.M. Best also pointed to Crum & Forster's realized gains of $660 million over the last five years, which the rating agency said has "more than funded the dividends upstreamed to Fairfax."

Crum & Forster is expected to provide above average investment returns and surplus accumulation in 2008 as well, A.M. Best said.

A difficult pricing environment, asbestos and environmental reserve development, remaining legacy issues, and challenging retention ratios remain challenges, A.M. Best said, noting that Crum & Forster recorded a $25.5 million charge for an asbestos litigation in the first quarter of 2008.

Offsetting rating factors include a difficult pricing environment, persistent asbestos and environmental reserve development, challenging retention ratios, and remaining exposure to legacy issues.

In first-quarter 2008, Crum & Forster recorded a $25.5 million charge for the settlement of asbestos litigation, which has accounted for a substantial amount of adverse reserve development, Best said.

The voluntary contraction of premium resulting from underwriting discipline in the soft market will put pressure on retention rates and procurement of new business, Best predicted.

It said a continued material decline in certain high loss ratio property premium is expected to continue in 2008, which will benefit underwriting profitability.

Crum & Forster, it was noted, maintains two material collateralized finite reinsurance contracts that are mostly exhausted but cause a modest annual drag on investment income through interest on funds held as well as ceded loss redundancies.

Best said it believes Crum & Forster's investment positions will continue to provide above average investment returns and surplus accumulation in 2008. Fairfax's strong financial position, proven support of subsidiaries as well as insightful investment acumen provide the ability to support Crum & Forster, said Best, adding that Crum & Forster's ratings incorporate support from Fairfax.

A.M. best also upgraded Seneca Insurance Group's financial strength rating to "A" from "A-minus," and issuer credit rating to "a" from "a-minus." Seneca, based in New York, is a unit of Fairfax.

The rating agency upgraded the senior unsecured debt ratings of Fairfax and Crum & Forster Holdings Corp to "triple-b" from "triple-b-minus."

Special Reports /

A.M. Best Upgrades Crum & Forster Group

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