A.M. Best Comments on the Ratings of Fairfax Financial Holdings Limited and Its Subsidiaries Following Acquisition Announcement

A.M. Best has commented that the issuer credit rating (ICR) of "bbb" and the unsecured debt and preferred equity ratings of Fairfax Financial Holdings Limited (Fairfax) [TSX: FFH and FFH.U] (Toronto, Canada) are unchanged following the announcement that Fairfax is expanding its global presence by acquiring Brit PLC (Brit) for $1.88 billion. The closing is expected to take place before the third quarter of 2015, and is subject to regulatory approvals and other customary closing conditions. All other ratings of Fairfax’s insurance subsidiaries are expected to remain unchanged.

Fairfax’s financial leverage position and the group’s risk-adjusted capital position are expected to deteriorate moderately but remain supportive in line with A.M. Best’s expectations for the current ratings. The execution risk of this transaction is mitigated given Fairfax’s decentralized operating strategy and the group’s track record of raising capital. The transaction does add a significant amount of intangible capital to the group’s balance sheet and moves their debt to tangible capital to the high end of the acceptable range.

A.M. Best will continue to monitor the group’s financial position as Fairfax works to complete its financing needs, for which it has various viable financing options. Any material changes from the options suggested in the transaction’s structure will be reviewed to determine the impact to the financial position of Fairfax.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Key insurance criteria reports utilized:

• Catastrophe Analysis in A.M. Best Ratings
• Equity Credit for Hybrid Securities
• Insurance Holding Company and Debt Ratings
• Rating Members of Insurance Groups
• Risk Management and the Rating Process for Insurance Companies
• Understanding Universal BCAR

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.

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