OLDWICK, N.J. - (Business Wire)
A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings of “a” of
Odyssey Reinsurance Group (Odyssey Re) (Delaware) and its members. Additionally, A.M. Best has affirmed the ICR and debt ratings of
Odyssey Re Holdings Corp. (Odyssey Re Holdings) (Delaware) [NYSE: ORH]. The outlook for all ratings is stable. (See below for a detailed list of the companies and ratings.)
The ratings reflect Odyssey Re’s strong capitalization, strong financial performance and sound business position. Odyssey Re is a global underwriter of reinsurance and specialty insurance products and ranks among the top 15 global reinsurance groups in terms of premium volume. Odyssey Re’s competitive position benefits from its diversified market presence with regard to business mix, product offering and geographic bearing. Through September 30, 2008, Odyssey Re reported very strong net income of $441 million despite challenging underwriting and capital market conditions, which included an estimated $120 million of pretax catastrophe losses attributed to Hurricanes Ike and Gustav and significant turmoil within the global capital markets.
The group’s astute investment strategy, which is managed by Hamblin Watsa Investment Council, contributed significantly to earnings through nine months of 2008, primarily through realized gains on credit default swaps and equity total return swaps, which have provided Odyssey Re with economic hedges in recent challenging economic times. Moreover, Odyssey Re’s total investments and cash holdings of approximately $8 billion include $2.5 billion of longer-term U.S. treasury securities and over $2 billion of cash and cash equivalents with approximately 91% of its fixed income holdings rated ‘AAA’ or better.
Odyssey Re maintains modest financial leverage with debt-to-total capital approximating 15% and strong interest coverage measures. None of the company’s debt obligations are due prior to 2013. Odyssey Re maintains strong liquidity through its high quality, invested asset base and has additional access to funding through a $200 million credit facility that expires in 2012. Although Odyssey Re’s public float of common shares is somewhat constricted given Fairfax Financial Holdings Limited’s 70.6% ownership as of September 30, 2008, Odyssey Re historically has successfully utilized the capital markets to raise capital. From December 31, 2007 through September 30, 2008, Odyssey Re experienced a decline in shareholders’ equity of less than 2%, which is modest when compared to its peer group of companies. However, this decline of shareholders’ equity is predominately driven from the repurchase of common shares.
Somewhat offsetting these rating strengths are challenging underwriting conditions reflective of price softening in major lines of business, reliance on investment results to boost total return measures and prior accident year adverse loss reserve development, which has added to the loss ratio over the most recent five-year period. However, loss reserve development has stabilized in large part, while more recent accident year loss reserve development has demonstrated positive trends and favorably affected underwriting results. Prospectively, underwriting margins could potentially benefit from the need to earn higher returns, given the increased cost of capital impacting the global reinsurance and insurance industry. In A.M. Best’s opinion, Odyssey Re has made significant progress in building a holistic enterprise risk management framework and currently views it as adequate.
The FSR of A (Excellent) and the ICRs of “a” have been affirmed for Odyssey Reinsurance Group and its following members:
- Odyssey America Reinsurance Corporation
- Hudson Insurance Company
- Hudson Specialty Insurance Company
- Newline Insurance Company Limited
The ICR of “bbb” has been affirmed for Odyssey Re Holdings Corp.
The FSR of A-(Excellent) and the ICR of “a-” remain under review with negative implications for Clearwater Insurance Company. This company, which is not part of Odyssey Reinsurance Group’s rating unit, is separately rated.
The following debt ratings have been affirmed:
Odyssey Re Holdings Corp.—
--“bbb” on $225 million 7.65% senior unsecured notes, due 2013
--“bbb” on $125 million 6.875% senior unsecured notes, due 2015
--“bb+” on $50 million of series A perpetual non-cumulative preferred stock
--“bb+” on $50 million of series B perpetual non-cumulative preferred stock
The following indicative ratings available under a $400 million shelf registration have been affirmed:
Odyssey Re Holdings Corp.—
--“bbb” on senior unsecured debt
--“bbb-” on subordinated debt
--“bb+” on preferred shares
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.
A.M. Best
Analysts
Devin Inskeep, (908) 439-2200, ext. 5449
devin.inskeep@ambest.com
or
Robert DeRose, (908) 439-2200, ext. 5453
robert.derose@ambest.com
or
Public Relations
Jim Peavy, (908) 439-2200, ext. 5644
james.peavy@ambest.com
or
Rachelle Morrow, (908) 439-2200, ext. 5378
rachelle.morrow@ambest.com
