Also assigns rating to RSUI Indemnity Company (A3; outlook stable), lead insurance subsidiary.
New York, September 15, 2010 -- Moody's Investors Service has assigned a (P)Baa2 provisional rating to
the senior unsecured shelf of Alleghany Corporation (NYSE: Y),
and a Baa2 rating to the company's proposed $300 million
offering of senior unsecured notes, due 2020. In the same
action, Moody's assigned an A3 insurance financial strength
(IFS) rating to RSUI Indemnity Company, Alleghany's lead insurance
subsidiary. The outlook for the ratings is stable. Proceeds
from the offering are expected to be used for general corporate purposes,
including, but not limited to, potential capital contributions
to subsidiaries as well as potential future acquisitions.
RATINGS RATIONALE
According to Moody's, the A3 IFS rating for RSUI Indemnity Company
(RIC) is based on the company's sound capitalization, its strong
investment profile and profitable underwriting track record (notwithstanding
catastrophe-induced volatility), and its solid and consistent
reinsurance panel. Additional positive credit considerations include
the ample financial flexibility at the parent company which continues
to enable the operating subsidiaries to retain a greater proportion of
their earnings than most industry peers, and the availability of
holding company assets to support the existing operations and/or future
acquisitions. These positive factors are tempered by RSUI's significant
underwriting exposures to natural and man-made catastrophes,
by intense competition in its chosen specialty markets, and by contingent
credit risks arising from reinsurance recoverables. Furthermore,
the potential for transition risks associated with the parent company's
historically opportunistic acquisition (as well as divestiture) strategy
also factors into the ratings of RIC and Alleghany Corporation.
Aside from RSUI and Landmark American (A3 IFS), the rating agency
has also considered Alleghany's other insurance operations (most notably
Capitol Transamerica and Pacific Compensation Insurance; both unrated
by Moody's) in its ratings on Alleghany. Alleghany's insurance
operations function autonomously, with their own management team,
and do not generally share common branding or operational platforms with
one another. Specifically, Moody's noted that the underwriting
losses sustained by Pacific Compensation in 2008 and 2009 --
together with previous catastrophe losses at RSUI -- have
highlighted the volatility of Alleghany's subsidiaries' opportunistic
underwriting strategy.
The Baa2 senior unsecured and long-term issuer ratings at the parent
company are based primarily on the credit profile of RSUI/Landmark American
and the other insurance subsidiaries, and is notched downward to
reflect the structural subordination of parent company creditor claims
relative to policyholder claims at the insurance operating companies.
The rating also considers the parent company's opportunistic approach
to investments managed outside of its insurance operations. The
two notch difference between RIC's IFS rating and Alleghany Corporation's
senior debt (or long-term issuer) ratings is narrower than the
normal three notch difference for U.S. insurance holding
company structures because the parent company currently has --
and is expected to maintain -- substantial assets to support
its modest fixed obligations without a foreseeable need for dividends
from its subsidiaries. Specifically, Moody's expects
that holding company cash and unencumbered liquid investments will continue
to significantly exceed 75% of the group's debt obligations
at any given time.
According to Alan Murray, senior credit officer, "Alleghany's
long term strategy continues to focus on an opportunistic approach to
insurance underwriting, and to making selective acquisitions and
divestitures over time. The holding company's modest utilization
of financial leverage (Moody's adjusted leverage below 15%,
after the debt offering) remains a significant credit positive.
That said, the group's opportunistic approach suggests that strategic
direction can change over time, as it has occasionally done in the
past."
Moody's noted several factors that could lead to an upgrade of the company's
ratings: 1) a sustained strategy of building and retaining multiple
profitable insurance operating platforms, with a diversified underwriting
risk profile; 2) further reduction in gross and net catastrophe exposures,
with reduced reliance on catastrophe reinsurance (as measured by modeled
losses relative to RSUI's statutory surplus); 3) sustained financial
leverage below 20% (the company has a history of maintaining low
parent company financial leverage); and 4) consolidated ROE's at
or above 10% over the cycle. Conversely, the following
could lead to a downgrade of the company's ratings: 1) erosion of
consolidated book value by more than 10% over a twelve-month
period; 2) financial leverage above 20%; 3) failure to
recoup significant balances due from reinsurers; 4) holding company
cash and liquidity investments falling below 75% of consolidated
debt obligations; or 5) an acquisition that noticeably weakens the
credit profile and raises the volatility of the insurance operations.
The following ratings have been assigned with a stable outlook:
Alleghany Corporation -- senior unsecured shelf provisional rating
at (P)Baa2; senior unsecured debt at Baa2; Note: Moody's
expects that future offerings of senior unsecured notes under the current
shelf will be rated at the same level as the provisional rating of the
shelf;
RSUI Indemnity Company -- insurance financial strength rating
at A3.
The last rating action on Landmark American Insurance Company took place
on April 19, 2010 when Moody's affirmed Landmark American's insurance
financial strength rating at A3, as well as Alleghany Corporation's
Baa2 long term issuer rating, with stable outlooks.
Alleghany Corporation (NYSE: Y), headquartered in New York
City, is a holding company that focuses on property & casualty
insurance and strategic equity investments. Through Alleghany Insurance
Holdings LLC (AIHL), the company owns property and casualty insurance
subsidiaries that were largely pieced together from acquisitions or start-ups
in recent years: Capitol Transamerica Corporation (CATA) acquired
in January 2002; RSUI Group Inc. (RSUI) acquired in July 2003;
and (Pacific Compensation Insurance (formerly Employers Direct Insurance)
acquired in August 2007. Through RSUI, the company ranks
among the ten largest commercial property insurers and surplus lines insurers
in the U.S. For the first six months of 2010, Alleghany
Corporation reported net premiums earned of $383.5 million,
and net earnings available to common shareholders of $124.4
million. Shareholders' equity as of June 30, 2010 was $2.7
billion.
The principal methodology used in rating Alleghany Corporation and its
principal subsidiaries are Moody's Global Rating Methodology for Property
and Casualty Insurers, which can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating Alleghany can also be found in the
Rating Methodologies sub-directory on Moody's website.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to pay punctually senior policyholder claims and
obligations. For more information, visit our website at www.moodys.com/insurance.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Alan Murray
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Robert Riegel
MD - Insurance
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA
Moody's rates Alleghany Corp.'s senior notes Baa2; outlook stable
