FFH - A.M. Best ICR Rating

[Tommm50]

As focus is turning to the annual meeting there's one topic I'd love to see discussed either at the meeting or at the post meeting festivities. That is: "What's up with A.M. Best and Fairfax?". As I'm sure most of you are aware A.M. Best is an extremely influential rating agency for insurance companies. When Fairfax announced their preferred share offering a few weeks ago A.M. Best gave the offering an ICR rating of bb+. That's a below investment grade rating.  This is the web address of A.M. Best's description of their rating methodology. (http://www.ambest.com/ratings/methodology/bcrm.pdf)

 

There are a number of considerations but given Fairfax's operating earnings record, their excellent liquidity, and their diversified insurance and reinsurance operations I'd really be interested in learning what conversations Fairfax is having with A.M. Best and has Best told them what exactly they need to do to be considered an investment grade?

[Estimated Profit]

I was searching for a price on the last 10 year bond offering that FFH did in June(?) as I was interested in picking some up when it was priced at $102  lo and behold when I searched the inventory for bonds that yielded north of 5% over a period of 10 years, I saw that there was another issue from another company that came due in 2019 not 2020 that had a yield about 50bps lower than the FFH bond.

 

The company was Yellow Pages.  Frankly I couldn't believe it. The Yellow Pages bond had a higher price than the Fairfax bond with only one year maturity difference.

 

What is Mr. Market thinking?  ???

[ALLYCAT]

Hi Tommm

I always wondered what is up with AM Best as well.I wonder if something happened when fairfax was going through its tough patch and Am Best have a long memory. I thought they were one of the few agencies Fairfax was willing to talk with. Is it Fairfax not paying  enough for their services? I remember it being said many times  on this board that once they got the rating up to investment grade

this stock will take off. Well in my books it is I am just waiting to see when AM Best realises it.

[biaggio]

it sounds like FFH bonds are being mis priced in the market. Does anyone hold FFH bonds or prefereds? (I own ORH.A).May it be a good holding instead of cash which is yielding nothing?

[ALLYCAT]

Tomm, I am with you there. I think the Am Best rating is one of the major reasons why market  behaving like it does towards Fairfax.I don't know why there is not the discussion. I thought  alot of Fairfax's  moves the last 3 years were influenced partly by this and lessons from there past.

[beerbaron]

There is probably an opportunity for profit here. Watsa has made it clear in the last year that what he if after is credit rating improvements.

 

I wish I could get quotes on those 7.25% Senior notes. Are they traded or privately held?

 

BeerBaron