Affirms IFS ratings of Transatlantic Re and RSUI with stable outlooks.
New York, December 17, 2013 -- Moody's Investors Service has affirmed the Baa2 senior unsecured debt
and issuer ratings of Alleghany Corporation (NYSE: Y) as well as
the Baa1 senior debt rating of Transatlantic Holdings, Inc.
Concurrently, the rating agency has also affirmed its insurance
financial strength (IFS) ratings on Transatlantic Reinsurance Company
("TransRe"; IFS at A1), and on RSUI Indemnity Company
and Landmark American Insurance Company ("RSUI"; IFS
both at A3). The outlooks for the ratings are stable.
According to Alan Murray, lead analyst for Alleghany Corporation,
"Since the combination with Transatlantic Holdings in 2012,
Alleghany has demonstrated sustained stability in its combined insurance
and reinsurance operations, while restoring the holding company's
liquidity position, primarily through a high degree of earnings
retention and the absence of parent company dividend payments.
Furthermore, each of the group's principal subsidiaries operate
autonomously, which has minimized integration challenges."
RATINGS RATIONALE
Transatlantic Reinsurance
According to Moody's, TransRe's ratings reflect the
company's strong competitive position in the US and international
reinsurance markets, its lead or co-lead position on over
50% of its treaties, its well-diversified reinsurance
portfolio and its high quality investment portfolio. Partly offsetting
these strengths are competitive pressures from other large global reinsurers
and the growing presence of alternative reinsurance providers, the
company's meaningful catastrophe risk exposure relative to its capitalization
and operational leverage, and the firm's meaningful exposure
to the risk of future inflation given its high reserve leverage resulting
from its long-tail casualty business.
Moody's noted that given the current rating of TransRe, its
business and financial profile and the competitive environment in the
reinsurance sector, there is limited potential for upward rating
movement. However, the following factors could enhance the
firm's credit profile: 1) reduced catastrophe risk exposure
relative to capitalization; 2) reduction in gross underwriting leverage
to levels below 2.5x; and 3) improved business diversification.
Conversely, the following factors could lead to a downgrade of TransRe's
ratings: 1) consistently weak underwriting results; 2) adverse
loss reserve development exceeding 5% of carried reserves;
3) erosion of policyholders' surplus by more than 10% over
a one-year period; and 4) significant credit deterioration
at Alleghany.
RSUI
Moody's said that the ratings on the RSUI companies reflect their
profitable track record and established niche market position in commercial
and excess and surplus lines property insurance, as well as their
strong asset quality and sound risk-adjusted capitalization.
RSUI has maintained statutory combined ratios averaging in the low-80%
range over the past five years, which compares favorably with most
of its specialty P&C industry peers. The insurer also maintains
a balanced underwriting profile of property and casualty risk, with
casualty operations focused primarily on management and professional liability,
program and excess/umbrella coverages. The ratings also consider
the modest debt service requirements at the ultimate holding company that
enable RSUI to retain a high percentage of its earnings and the availability
of some holding company assets to support internal growth. These
strengths are tempered by RSUI's somewhat above-average underwriting
risk profile as a specialty insurer in the excess-and-surplus
lines and as reflected in its significant underwriting exposures to natural
and man-made catastrophes, and to a lesser degree by reliance
on reinsurance markets to support its underwriting capacity.
With respect to RSUI Indemnity and Landmark American, factors that
could lead to an upgrade include the following: 1) further reduction
in gross and net catastrophe exposures, with reduced reliance on
catastrophe reinsurance (as measured by modeled losses relative to statutory
surplus); 2) consolidated returns on capital at or above 10%
over the cycle at RSUI; 3) significantly increased scale and spread
of risk. Conversely, factors that could lead to a downgrade
include the following: 1) persistent underwriting losses (e.g.,
combined ratios in excess of 100%); 2) erosion of statutory
surplus by more than 10% over a twelve-month period;
3) significantly increased catastrophe risk relative to capital.
Alleghany Corporation
According to Moody's, the affirmation of Alleghany Corporation's
debt and issuer ratings primarily reflects the underlying insurance financial
strength of TransRe and RSUI, its principal operating subsidiaries,
as well as the parent company's manageable financial leverage and
good internal liquidity. Alleghany Corporation manages approximately
$750 million in other controlling and non-controlling investments
at September 30, 2013. The Baa2 ratings also reflect the
structural subordination of Alleghany Corporation's creditors to
those of Transatlantic Holdings, whose senior debt is rated Baa1
consistent with the application of Moody's standard three-notch
spread between the A1 IFS rating of TransRe.
With respect to Alleghany's Corporation's Baa2 senior debt
and issuer ratings, factors that could lead to an upgrade on the
debt of Alleghany Corporation include the following: 1) rating upgrade
of TransRe and/or RSUI; 2) sustained consolidated financial leverage
below 20%; and 3) earnings coverage of interest consistently
above 8x times. Conversely, factors that could lead to a
downgrade include the following: 1) rating downgrade of TransRe
and/or RSUI; 2) erosion of equity capital by more than 10%
over a twelve-month period; 3) sustained consolidated financial
leverage above 30%; 4) earnings coverage of interest below
4x times, and/or cash coverage below 3x.
The following insurance ratings have been affirmed with stable outlooks:
Alleghany Corporation -- senior unsecured debt at Baa2;
long-term issuer rating at Baa2;
Transatlantic Holdings, Inc. -- senior unsecured
debt at Baa1;
Transatlantic Reinsurance Company -- insurance financial
strength at A1;
Landmark American Insurance Company -- insurance financial
strength rating at A3;
RSUI Indemnity Company -- insurance financial strength rating
at A3.
Alleghany Corporation (NYSE: Y) is a holding company that focuses
primarily on domestic and international property & casualty reinsurance
(through Transatlantic Reinsurance Company) and specialty insurance (primarily
through its RSUI Indemnity and Landmark American subsidiaries and to a
considerably lesser degree through Capitol Transamerica Corporation and
Pacific Compensation Insurance Company, which together comprise
the Alleghany Insurance Holdings operations). For the first nine
months of 2013, Alleghany Corporation reported revenues from continuing
operations of $3.2 billion and net income of $423
million. Shareholders' equity as of September 30, 2013 was
$6.7 billion.
The methodologies used in this ratings were Moody's Global Rating Methodology
for Property and Casualty Insurers published in May 2010, and Moody's
Global Rating Methodology for Reinsurers published in December 2011.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Alan Murray
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's affirms ratings of Alleghany Corp. (senior debt at Baa2) and subsidiaries; outlook stable
