DBRS Morningstar Upgrades Credit Ratings on Fairfax India Holdings Corporation to BBB from BBB (low); Changes Trends to Stable from Positive

DBRS Limited (DBRS Morningstar) upgraded the Issuer Rating and Unsecured Senior Notes credit ratings of Fairfax India Holdings Corporation (Fairfax India or the Company) to BBB from BBB (low). The trends on both ratings were changed to Stable from Positive. This follows DBRS Morningstar’s one notch upgrade and trend change on the Issuer Rating of the Company’s parent, Fairfax Financial Holdings Limited (Fairfax; rated A (low) with a Stable trend by DBRS Morningstar), on December 01, 2023.

KEY CREDIT RATING CONSIDERATIONS
As a supported credit rating, Fairfax India’s credit ratings and trends typically move in tandem with Fairfax’s Issuer Rating, which was recently upgraded to A (low) by DBRS Morningstar from BBB (high). This reflects DBRS Morningstar’s expectation of support for the Company from Fairfax. The level of parental support is deemed to be high, which is reflected by the effective control and significant economic ownership by Fairfax; the Company’s name, which links it to Fairfax; and the Company’s use of other Fairfax subsidiaries for investment management and other services. Together, these characteristics provide significant motivation for Fairfax to support the Company, if needed. The two-notch differential between the credit ratings on Fairfax India and Fairfax considers that the Company is a noninsurance subsidiary based in Toronto whose underlying assets are predominantly located and operated in India.

CREDIT RATING DRIVERS
An upgrade is unlikely in the near term because of the recent upgrade of Fairfax.

Conversely, the credit ratings of Fairfax India would be downgraded, if there was a downgrade of Fairfax, a reduction in the perceived support from Fairfax, or a downgrade of the sovereign credit rating of India to below investment-grade.

CREDIT RATING RATIONALE
The credit ratings of Fairfax India reflect DBRS Morningstar's assessment of the expected support from the Company's controlling shareholder, Fairfax, which reported total assets of $84.3 billion on its balance sheet as at the nine months ended September 30, 2023. Although there is no explicit support from the controlling shareholder, the assessment considers the position of Fairfax India within Fairfax’s overall group structure. Fairfax's aggregate control represented a 95.2% voting interest and a 43.1% equity interest in Fairfax India as at 9M 2023. The Company maintains an investment advisory agreement with Fairfax and Hamblin Watsa Investment Counsel Ltd., a wholly owned subsidiary of Fairfax. The agreement covers the provision of advice for all investment transactions and portfolio administration services. Fairbridge Capital Private Limited, a wholly owned India-based investment advisor of Fairfax, acts as a subadvisor to Fairfax India in the sourcing and assessment of investment opportunities.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

Environmental (E) Factors
Environmental concerns regarding Climate and Weather Risks are relevant to Fairfax's credit rating as a property and casualty insurer but did not affect the assigned credit rating or trend. As part of its P&C product offering, Fairfax is exposed to weather-related losses from natural catastrophic events such as wind, wildfire, hail, flooding, and other extreme weather events. These events can lead to earnings volatility and increased reinsurance cost. DBRS Morningstar considered this ESG factor as part of product risk when assessing Fairfax’s risk profile. Fairfax has not adopted the processes of the Task Force on Climate-Related Financial Disclosures.

There were no Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at (July 4, 2023) (https://www.dbrsmorningstar.com/research/416784).

Notes:
All figures are in U.S. Dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Insurance Companies and Insurance Organizations (July 14, 2023) (https://www.dbrsmorningstar.com/research/417109). In addition, DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (https://www.dbrsmorningstar.com/research/416784) in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrsmorningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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