MOODY'S CONFIRMS UNDERWRITERS REINSURANCE GROUP, INC. SENIOR DEBT AT Baa2; ASSIGNS A3 FINANCIAL STRENGTH RATING TO UNDERWRITERS RE; REVISES OUTLOOK ON RATING OF ULTIMATE PARENT, ALLEGHANY CORPORATION, TO STABLE.
Moody's Investors Service has confirmed the Baa2 rating on the senior debt of Underwriters Reinsurance Group, Inc. (Underwriters Re) following the closing of its acquisition of Venton Holdings Ltd. (Venton) in the fourth quarter of 1998. This rating action concludes a review initiated on August 7, 1998. The rating outlook for Underwriters Re remains stable.
Moody's has also assigned an insurance financial strength ratings of A3 to Underwriters Reinsurance Company and Baa1 to certain subsidiaries that act as primary issuing carriers. Moody's stated that its rating review did not affect the Baa2 issuer credit rating of Alleghany Corporation, the ultimate parent company of Underwriters Re, which benefits from business diversification associated with its investments in asset management, mining, and insurance. While the issuer credit rating remains unchanged, Moody's has revised its rating outlook for Alleghany from positive to stable as a result of incremental risks associated with the Venton acquisition and its reduced earnings diversification resulting from the spin off of Chicago Title Insurance Group in June of 1998.
According to Moody's, the rating confirmation of Underwriters Re reflects the company's established position as a mid-sized broker reinsurer, through its principal subsidiary Underwriters Reinsurance Company as well as its disciplined underwriting approach, its positive earnings performance, and its overall sound financial fundamentals. In addition, the acquisition of Venton will also provide diversification of lines of business and access to new markets. Underwriters Re premium has historically been derived from the US market while most of Venton's business is transacted through its three Lloyds syndicates, writing a balanced book of US and international business. In addition, the acquisition will also diversify the company's premium from liability business written through Underwriters reinsurance facility, to more property and marine business underwritten through Venton's primary operations.
These strengths are attenuated by the significant premium paid for Venton, and the incremental business risk associated with the new operation, which is exposed to volatile insurance markets and a rapidly changing business structure within Lloyd's. Further, the goodwill created from the acquisition and the financing of the transaction from internal funds will result in a material increase in the operating leverage, however, Moody's noted that the proforma operating leverage is still considered to be reasonable. Additional risk factors include the high growth rates of both Underwriters Re and Venton's book of business in their respective markets and Underwriter Re's future strategy to grow its primary operations in non-standard and excess & surplus lines, which have a moderately higher risk profile than the reinsurer's core business.
The following rating was confirmed:
Underwriters Re Group, Inc. - senior debt at Baa2;
The following ratings were assigned:
Underwriters Reinsurance Company - insurance financial strength at A3,
Commercial Underwriters Insurance Company - insurance financial strength at Baa1,
Newmarket Underwriters Insurance Company - insurance financial strength at Baa1,
Underwriters Insurance Company - insurance financial strength at Baa1.
Underwriters Re Group, Inc. is a subsidiary of Alleghany Corporation (Alleghany). Alleghany has operations in asset management, mining, and insurance. Underwriters Re Group, Inc. based in Calabasas, California is a property and casualty reinsurer with primary insurance operations which reported total assets of $2.5 billion and shareholders equity of $625.3 million as of September 30, 1998.
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