A.M. Best Upgrades Issuer Credit Ratings of Transatlantic Holdings Inc. and Its Subsidiaries
Feb 28th 2013 4:12PM
Updated Feb 28th 2013 4:35PM
A.M. Best Upgrades Issuer Credit Ratings of Transatlantic Holdings Inc. and Its Subsidiaries
OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has upgraded the issuer credit ratings (ICR) to "a+" from "a" and affirmed the financial strength rating (FSR) of A (Excellent) of Transatlantic Reinsurance Company (TransRe), Fair American Insurance and Reinsurance Company (both domiciled in New York, NY) and Trans Re Zurich Reinsurance Company Ltd. (Switzerland). The outlook for the FSR is stable, while the outlook for the ICR has been revised to stable from positive.
In addition, A.M. Best has upgraded the ICR to "bbb+" from "bbb" and the debt ratings of Transatlantic Holdings Inc. (Transatlantic Holdings). The outlook for these ratings has been revised to stable from positive.
Concurrently, A.M. Best has revised the outlook to positive from stable and affirmed the FSR of A (Excellent) and ICRs of "a+" of RSUI Indemnity Company and its reinsured subsidiaries, collectively referred to as RSUI Group (RSUI) (headquartered in Atlanta, GA).
A.M. Best also has affirmed the ICR of "bbb+" and debt ratings of "bbb+" of Alleghany Corporation (Alleghany) (headquartered in New York, NY) (NYS: Y) . The outlook for these ratings are stable.
Additionally, A.M. Best has revised the ICRs outlook to stable from positive and affirmed the FSR of A (Excellent) and ICRs of "a" of Capitol Indemnity Corporation, its subsidiary and an affiliate, which operate under a pooling agreement, collectively referred to as Capitol Insurance Group (Capitol) (headquartered in Middleton, WI). The outlook for the FSR is stable.
At the same time, A.M. Best has revised the FSR outlook to positive from stable, the ICR outlook to positive from negative and affirmed the FSR of B++ (Good) and ICR of "bbb+" of Pacific Compensation Insurance Company (Pacific Comp) (headquartered in Agoura Hills, CA). The revised outlook is based on the potential for further explicit support through intercompany reinsurance to Pacific Comp. (See below for a detailed listing of the companies and ratings.)
The ICR upgrades for TransRe recognize the successful completion of the merger with Alleghany and A.M. Best's expectation that being part of Alleghany will enable TransRe to focus on underwriting opportunities and further enhance its excellent market profile.
The company continues to maintain strong capitalization and consistent operating results stemming from its casualty orientation. Operating results have been further complemented by strong investment income.
Transatlantic Holdings' debt-to-capital ratio remains within the acceptable range for its ratings, while fixed charge coverage rebounded in 2012 to 5.0 times and is expected to be maintained in the near term.
Partially offsetting these positive attributes is A.M. Best's concern regarding the current soft pricing conditions in the casualty market from which TransRe derives a substantial portion of its premiums. A.M. Best's concern regarding pre 2001 reserve adequacy have been markedly reduced as the level of these reserves have declined relative to the company's total reserve position.
Potential upward movement on the ratings of TransRe could result from continued consistent operating performance and sustained strong risk-adjusted capitalization. Negative rating actions could occur if TransRe incurs an outsized catastrophic or investment loss relative to its peer group or if its operating performance consistently falls below the market resulting in erosion of its capital base and a decline in its risk-based capitalization.
The ratings and revised outlook of RSUI reflect its continued strong capitalization, excellent historical underwriting profitability and the benefits it derives from being part of Alleghany. Partially offsetting these positive rating factors is RSUI's dependence on reinsurance and exposure to weather-related losses as evidenced by the losses from Superstorm Sandy.
Potential upward movement in the ratings of RSUI could result from continued superior underwriting results and maintaining a strong risk-adjusted capital position. Downward movement in the ratings could result from a material decline in the organization's capitalization, negative trends in claim frequency or severity that could materially impair underwriting results, as well as a significant decline in equity capital markets and its impact on RSUI's investment portfolio and capitalization.
The ratings of Capitol acknowledge its strong level of capitalization, historically solid underwriting performance and long-standing agency relationships. The revised ICR outlook reflects recent underwriting losses mostly the result of adverse loss reserve development relating to a discontinued program.
Potential upward movement in the ratings or another revised outlook for Capitol could result from an improvement in its underwriting results back to historical levels and maintaining a strong risk-adjusted capital position. Downward movement in the ratings could result from a material decline in the organization's capitalization, negative trends in claim frequency or severity that could materially impair underwriting results, a significant decline in equity capital markets and its impact on Capitol's investment portfolio and capitalization.
The ratings of Pacific Comp acknowledge its supportive capitalization, which has benefited from $105 million in capital contributions from Alleghany since 2007. In 2009, Pacific Comp ceased soliciting new or renewal business on a direct basis in California as management determined that it was unable to write business at rates deemed adequate. Pacific Comp now operates as a broker carrier and began writing new business in 2011 in the California workers' compensation market as conditions improved. The revised outlook reflects the demonstrated support from Alleghany in the form of capital contributions and the potential for additional explicit support through intercompany reinsurance agreements that would protect the balance sheet from adverse loss reserve development and its income statement from unexpected losses on current business.
Potential upward movement in Pacific Comp's ratings could result from the finalization and implementation of the proposed reinsurance support from Alleghany and improved operating performance. Downward movement in the ratings could result from a decline in the organization's capitalization to levels not supportive of its ratings, continued poor underwriting results and an indication of non-support from Alleghany.
As of December 31, 2012, Alleghany had $6.4 billion in GAAP equity, $18.3 billion of investments and a total debt-to-capital ratio of 22.7%. Furthermore, Alleghany also maintains substantial financial flexibility, having roughly $732 million of marketable securities and cash on its balance sheet that is comprised of $464 million at the parent company, $90 million at Alleghany Insurance Holdings LLC (AIHL) and $178 million at Transatlantic Holdings. AIHL is the intermediate holding company that owns all of Alleghany's wholly owned operating insurance subsidiaries, outside of Transatlantic Holdings.
The FSR of A (Excellent) and ICRs of "a" have been affirmed for the following members of Capitol Insurance Group:
- Capitol Indemnity Corporation
- Platte River Insurance Company
- Capitol Specialty Insurance Corporation
The FSR of A (Excellent) and ICRs of "a+" have been affirmed for the following members of RSUI Group:
- RSUI Indemnity Company
- Landmark American Insurance Company
- Covington Specialty Insurance Company
The following debt rating has been affirmed:
-- "bbb+" on $299 million 5.625% senior unsecured notes, due 2020
The following debt rating has been assigned:
-- "bbb+" to $400 million 4.95% senior unsecured notes, due 2022
The following indicative ratings available under the shelf registration have been affirmed:
-- "bbb+" on senior unsecured debt
The following debt ratings have been upgraded:
Transatlantic Holdings Inc. —
-- to "bbb+"from "bbb" on $667 million 5.75% senior unsecured notes, due 2015
-- to "bbb+" from "bbb" on $350 million 8% senior unsecured notes, due 2039
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.
Founded in 1899, 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 © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
A.M. Best Co.
Rick Barracato, 908-439-2200, ext. 5422
Senior Financial Analyst
Peter Dickey, 908-439-2200, ext. 5053
Assistant Vice President
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
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