Fitch Ratings has upgraded its ratings of Fairfax Financial Holdings Ltd. and several of its subsidiaries.

The rating agency says that these actions reflect Fairfax’s improved capitalization, strong profitability, reasonable financial leverage and sizable cash position. Fairfax has posted net income totaling $3.5 billion over the past three full years, Fitch notes, and its financial leverage remains within or below Fitch’s expected range of 25%-30%. It also continues to maintain a sizable amount of holding company cash, short-term investments and marketable securities.

The firm also reports that Fairfax’s common shareholders’ equity has increased significantly in recent years, including 62% growth since year-end 2008 to $7.9 billion at March 31, 2010, driven by strong net income, equity issuances primarily for acquisitions and improvements in the unrealized investment gain/loss position.

“Partially offsetting these positives are anticipated challenges in the overall competitive property/casualty market rate environment and the potential for additional adverse reserve development, particularly on older accident years and in runoff operations,” it adds.

Looking ahead, Fitch says that Fairfax “should benefit from increased upstream dividend capacity through its wholly owned operating subsidiaries. Furthermore, while the company’s insurance groups will continue to operate under a decentralized management approach, with investment management centralized at Fairfax, Fitch expects that Fairfax will continue to demonstrate a willingness to provide support to its insurance operating subsidiaries.”

IE