Standard & Poor’s today lowered its ratings on Fairfax Financial Holdings Ltd.

This rating action follows Fairfax’s third-quarter earnings release, in which the company reported a net after-tax loss of $458 million for the quarter.

S&P says the rating action also reflects the unexpected deterioration in loss reserves at Fairfax’s two principal subsidiaries, TIG Insurance Co. and Crum & Forster Insurance Co., and the resulting lack of progress the company has made to date in the areas of reported pretax earnings excluding realized capital gains and operating cash flow.

Standard & Poor’s expects both of these measures to be negative, though significantly improved, in 2001 and, possibly, 2002.

Another area of concern is the issue of reserve adequacy. Historically and more recently, the company has recognized significant adverse loss development, particularly with the U.S. operations of Ranger Insurance Co., TIG, and C&F.

Standard & Poor’s believes the frequency and severity of recent reserve adjustments raises questions about the quality of future earnings and, ultimately, the level of capitalization. Standard & Poor’s believes the organization’s ongoing efforts to improve the financial and competitive position of the franchise might be overshadowed by future adverse development in prior-year loss reserves. As a result, it could take several years before the organization is able to generate strong and consistent operating returns.