Recent announcements from Fairfax Financial Holdings Ltd. have prompted comment from Dominion Bond Rating Service. Fairfax’s credit ratings remain unchanged.

DBRS says that it has reviewed the unaudited second quarter results released by Fairfax, noting that the company simultaneously announced its intention to commute its Swiss Re finite insurance coverage as well as a restatement of its shareholder equity. “While not material to the company’s credit rating, these developments are worthy of comment,” it says.

DBRS estimates that, after taking into account the first half results, and the pro forma estimated impacts of the commutation and the accounting restatements to be finalized during the third quarter, the holding company debt ratio has increased marginally from 34.9% at year-end 2005 to 35.8%. It does not regard these developments as being material to the rating on the senior debt of Fairfax.

The rating agency adds that it believes that commutation reduces, at minimum cost, cash-flow uncertainty at the ultimate holding company over the next few years. Moreover, DBRS recognizes that none of these developments have any bearing on the strong earnings generation capability at the company’s three major insurance operating subsidiaries, which are the foundation of DBRS’s rating.

“The net impact of the commutation is to eliminate any residual uncertainty associated with Fairfax’s obligations to fund the European Runoff book in the intermediate term, while providing the cash resources and flexibility necessary to settle claims on an opportunistic basis,” DBRS says, adding, “The decision to commutate the Swiss Re cover has also revealed a non-cash accounting error that will cause an estimated net reduction of between $225 million and $240 million in shareholders’ equity, comprising reductions in the currency translation account as well as in retained earnings. These restatements stem from the implementation of new accounting software and not systemic weakness.”

The second quarter results are otherwise in line with DBRS’s expectations, it says.