A.M. Best has assigned a senior debt rating of “bbb” to Fairfax Financial Holdings Limited’s (Fairfax) [TSX: FFH and FFH.U] (Toronto, Canada) forthcoming CAD 300 million senior unsecured notes. Concurrently, A.M. Best has assigned a debt rating of “bb+” to CAD 200 million cumulative five-year rate reset preferred shares (Series M) of Fairfax. The outlook for all ratings is stable. Fairfax's issuer credit rating of “bbb,” existing debt ratings and ratings of its insurance operating entities are all unchanged.

Fairfax intends to use the proceeds of the Notes Offering, Preferred Share Offering and its recently announced Subordinated Voting Share Offering to partially fund the previously announced proposed acquisition of Brit PLC. Fairfax’s financial leverage position and the group’s risk-adjusted capital position are expected to deteriorate moderately but remain in line with A.M. Best’s expectations for the current ratings. The transaction adds a significant amount of intangible capital to the group’s balance sheet and moves their debt to tangible capital to the high end of the acceptable range.

The Series M preferred shares have a quarterly dividend rate of 4.75% for the initial five years. Thereafter, the rate will be reset every five years and will be equal to the then current five-year Government of Canada bond rate, plus 3.98%. Beginning March 31, 2020, and thereafter on every fifth March 31, holders of the Series M preferred shares will have the option to convert their shares to Series N preferred shares, on a one-for-one basis, which will be cumulative, floating rate preferred shares, with the interest rate reset quarterly to the then current three month Government of Canada Treasury Bill yield, plus 3.98%.

Additionally, A.M. Best has assigned indicative debt ratings of “bbb” senior unsecured, “bbb-” subordinated and “bb+” preferred stock to Fairfax's CAD 2 billion universal shelf. The new notes will be a drawdown under this shelf. The outlook for all ratings is stable. Concurrently, A.M. Best has withdrawn the debt ratings on the previous shelf registration, which has expired.

Finally, A.M. Best has assigned a debt rating of “bb+” to the recently issued CAD 99,590,400 Preferred Shares Series D. The outlook is stable. The Preferred Shares Series D (“Series D Shares”) are related to the Preferred Shares Series C - CAD 250 million cumulative five-year rate reset shares issued by Fairfax in October 2009 (“Series C Shares”), which are convertible at the option of the holders of Series C Shares beginning Dec. 31, 2014, and on Dec. 31 every five years thereafter, into Series D Shares on a one-for-one basis (subject to applicable restrictions on conversion). Holders of Series D Shares will be entitled to receive quarterly floating rate cumulative preferential cash dividends. Holders of Series D Shares will have the right, at their option, to convert such shares into Series C Shares, on a one-for-one basis, beginning on Dec. 31, 2019, and on December 31 every five years thereafter (subject to applicable restrictions on conversion).

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Key insurance criteria reports utilized:

• Catastrophe Analysis in A.M. Best Ratings

• Equity Credit for Hybrid Securities

• Insurance Holding Company and Debt Ratings

• Rating Members of Insurance Groups

• Risk Management and the Rating Process for Insurance Companies

• Understanding Universal BCAR

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. BestDarian Ryan, CPA, 908) 439-2200, ext. 5449Senior Financial Analystdarian.ryan@ambest.comorChristopher Sharkey, 908-439-2200, ext. 5159Manager, Public Relationschristopher.sharkey@ambest.comorMichael Lagomarsino, CFA, 908) 439-2200, ext. 5810Assistant Vice Presidentmichael.lagomarsino@ambest.comorJim Peavy, 908-439-2200, ext. 5644Assistant Vice President, Public Relationsjames.peavy@ambest.com

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