Agency may upgrade parent company's debt rating

Rating agency Moody's has assigned a positive outlook to the A3 insurance financial strength rating of Odyssey America Reinsurance Corporation and the Baa3 senior debt rating of its holding company, Odyssey Re Holdings Corporation (ORH).

The revised outlook follows Moody's decision to put the Ba1 senior unsecured debt rating of Odyssey's parent company, Canadian financial services firm Fairfax, on review for a possible upgrade.

Moody's said the change in outlook for ORH and Odyssey Re reflects improvements in the company's financial profile and its strong performance across a variety of financial metrics. These include its moderate operational leverage, and its longer-term profitability outperformance on an absolute basis, which has resulted in a significant increase in equity capital at the company, improving capital adequacy.

Moody's added that Odyssey Re has maintained a measured underwriting posture in the current soft market by shifting its business mix towards shorter-tail lines and reducing overall premium volumes.

The rating agency said three factors could result in ORH and Odyssey Re's ratings: continued development of the core franchise while maintaining a moderate catastrophe risk profile; improved operating returns on capital; and GAAP gross underwriting leverage of consistently less than three times.