Fairfax Financial Holdings Ltd.

The positive outlook reflects our expectation of strengthening in Fairfax's competitive position supported by operating earnings expansion, improving capitalization supporting robust growth, and a moderating financial leverage profile. We could raise our ratings on Fairfax within the next 12-24 months if: Capitalization improves sustainably to a level that is redundant at the 'A' confidence level; Financial leverage (excluding nonrecourse debt held at non-insurance operations) improves to below 35% (consolidated ratio less than 40%); The company's fixed-charge coverage ratio increases to comfortably above 4x; and Fairfax's diverse insurance operations continue to leverage market opportunities, with sustained operating performance in line with that of higher-rated peers. We could revise our outlook to stable and affirm the ratings in the next 12-24 months

...Fairfax Financial Holdings Ltd.'s (TSX:FFH; Fairfax) credit profile benefits from the company's large and diversified re/insurance operations that are well established in their respective markets. These operations are well positioned to take advantage of the hardening rate environment, which should add to the prospective underwriting earnings. For first-quarter 2021, gross premiums written (GPW) rose 17.3% year-over-year, helped by significant price increases in most of Fairfax's major business segments and new business writings. For the same period, the company reported a combined ratio of 96.0% (excluding run-off and corporate expenses), which includes 5.7 points impact from catastrophe losses and 0.5 points from COVID-19-related losses. A potentially improving investment earnings profile could further add to operating earnings strength, although it is tempered by market volatility and interest rate environment, and Fairfax's investment positioning. We expect net earnings to improve year-over-year...

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