A.M. Best Affirms Ratings of Northbridge Financial Corporation’s Subsidiaries and CRC (Bermuda) Reinsurance Limited

A.M. Best Co. has affirmed the financial strength ratings (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” of Markel Insurance Company of Canada (Markel) (Toronto, Ontario), Federated Insurance Company of Canada (Federated) (Winnipeg, Manitoba), Commonwealth Insurance Company (Commonwealth) (Vancouver, B.C.), Commonwealth Insurance Company of America (Seattle, WA), Lombard General Insurance Company of Canada (Lombard General) and Zenith Insurance Company (Zenith) (both of Toronto, Ontario) and CRC (Bermuda) Reinsurance Limited (CRC) (Hamilton, Bermuda).

A.M. Best also has affirmed the FSR of A- (Excellent) and ICR of “a-” of Lombard Insurance Company (Lombard) (Toronto, Ontario). All the above companies, except CRC, are wholly owned subsidiaries of Northbridge Financial Corporation (Northbridge) (Canada), which is an indirect, wholly owned downstream holding company of Fairfax Financial Holdings Limited (Fairfax) (Toronto, Ontario) (NYSE: FFH; TSX: FFH). CRC is a direct subsidiary of Fairfax. The outlook for all ratings is stable. (See below for a detailed listing of the companies and ratings.)

Concurrently, A.M. Best has withdrawn the ICR of “bbb” of Northbridge, due to the reprivatization of the company’s common shares by Fairfax The rating has been assigned an “nr”.

The ratings of Markel, Federated, Lombard General and Zenith acknowledge their historic underwriting and operating performances, respective niche profiles, well respected franchises, consistent long-term earnings capabilities and stable balance sheets, which are based in part on conservative reserve cultures.

Offsetting rating factors include the continued soft pricing market in 2008 and into 2009, weather-related losses and, at Markel, foreign exchange translation of U.S. dollar-denominated reserves (which are ultimately offset by the translation of corresponding levels of U.S. dollar-denominated investments). Investment market conditions have led to some variability in the companies’ net income in recent years. Accounting presentation requirements of the Office of the Superintendent of Financial Institutions (OSFI) have caused fluctuations in net investment income in recent years, as it now reflects unrealized gains and losses.

The ratings of Commonwealth reflect its supportive risk-adjusted capital level, its niche position within the commercial insurance sector (particularly in Canada), geographic diversification within North America and the implicit and explicit support of Fairfax. Offsetting these rating factors are variability in Commonwealth’s underwriting and operating results in recent years due to the effects of weather-related and catastrophic losses and the foreign exchange translation on its U.S. dollar-denominated reserves.

The ratings of Lombard recognize its supportive level of risk-adjusted capital, generally favorable accident year underwriting performance generated by its personal lines business and the implicit and explicit support of Fairfax. Offsetting these rating factors are the impact of soft market conditions on the company’s recent underwriting performance and its historically below average calendar year results, due in part to adverse loss reserve development of older accident years when Lombard had commercial liability exposures.

The ratings of CRC reflect its adequate level of risk-adjusted capitalization, favorable long-term operating and underwriting results and the implicit and explicit support of Fairfax. Offsetting rating factors are the significant operating loss posted by CRC in 2008, the increase in exposure to catastrophe events through its quota-share agreement with Advent Syndicate 780 and the concentration in its source of business, with the majority of premiums generated by relationships with its Fairfax affiliates.

The stable rating outlook acknowledges A.M. Best’s belief that the companies will maintain supportive levels of risk-adjusted capital and demonstrate operating results in line with their historic norms. The outlook also reflects the financial flexibility the companies receive as part of the Fairfax enterprise.

The FSRs of A (Excellent) and ICRs of “a” have been affirmed for the following operating subsidiaries of Northbridge Financial Corporation:

Commonwealth Insurance Company
Commonwealth Insurance Company of America
Federated Insurance Company of Canada
Lombard General Insurance Company of Canada
Markel Insurance Company of Canada
Zenith Insurance Company

The FSR of A- (Excellent) and ICR of “a-” have been affirmed for Lombard Insurance Company.

The FSR of A (Excellent) and ICR of “a” has been affirmed for CRC (Bermuda) Reinsurance Limited.

The ICR of “bbb” has been withdrawn and assigned an “nr” for Northbridge Financial Corporation.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

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.

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