New York, January 27, 2016 -- Moody's Investors Service, ("Moody's") has
upgraded the senior debt and long-term issuer ratings of Alleghany
Corporation (Alleghany, NYSE: Y) to Baa1 from Baa2 and the
insurance financial strength (IFS) ratings of RSUI Indemnity Company and
Landmark American Insurance Company, the principal operating companies
of Alleghany Property and Casualty Group, to A2 from A3.
In the same rating action, Moody's affirmed the Baa1 senior
debt rating of Transatlantic Holdings, Inc. (TRH) and the
A1 IFS rating of Transatlantic Reinsurance Company (TransRe). The
rating outlook for these entities is stable.
RATING RATIONALE
ALLEGHANY CORPORATION
According to Moody's, the upgrade of Alleghany's senior
debt rating to Baa1 from Baa2 reflects the reduced structural subordination
of Alleghany's outstanding debt relative to debt issued by its TRH
subsidiary. Over the past 15 months, approximately $667
million of TRH notes have been retired through early redemption and scheduled
maturity, leaving $350 million of debt outstanding at the
TRH holding company level, reducing TRH's share of Alleghany's
consolidated debt outstanding to 26% from 59%. According
to Moody's lead analyst James Eck, "the annual interest
expense on the remaining TRH debt is modest relative to TransRe's
capitalization and unrestricted dividend capacity, which substantially
mitigates the impact of the structural subordination on Alleghany's
credit profile." Consequently, Moody's has aligned
the senior debt ratings of Alleghany and TRH at Baa1, three notches
below the A1 IFS rating at TransRe, which is the standard notching
convention for US-based insurance holding companies.
Going forward, an upgrade of TransRe's IFS rating could lead
to an upgrade of Alleghany's senior debt rating. Conversely,
factors that could lead to a downgrade of Alleghany include: 1)
a rating downgrade of TransRe; 2) erosion of equity capital by more
than 10% over a twelve-month period; 3) sustained consolidated
adjusted financial leverage above 25%; 4) earnings coverage
of interest below 4x times, and/or cash coverage below 3x.
TRANSATLANTIC HOLDINGS / TRANSRE
Moody's stated that TransRe's A1 IFS rating and TRH's
Baa1 senior debt rating reflect TransRe's strong competitive position
in the US and international reinsurance markets, its lead position
on many treaties, its well-diversified insured portfolio
and its high quality investment portfolio. Partly offsetting these
strengths are the persistent competition from the largest global reinsurers,
which have greater capital resources, the company's catastrophe
risk exposure relative to its capitalization and operational leverage,
and the firm's exposure to the risk of future inflation given its
high reserve leverage resulting from its sizable 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;
and 3) erosion of policyholders' surplus by more than 10%
over a one-year period.
RSUI GROUP
The upgrade of Alleghany Property & Casualty's IFS ratings (specifically,
on RSUI Indemnity Company and Landmark American Insurance Company,
collectively "RSUI") to A2 from A3, reflects the group's
well-established niche market position in the excess and surplus
lines property insurance, strong track record of profitability,
and implicit support from Alleghany.
According to Moody's lead analyst Alan Murray, "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." While RSUI has
high gross catastrophe exposure, the company has reduced its net
exposure through the purchase of multi-year covers and other enhancements
to its ceded reinsurance program, which should contribute to earnings
stability and risk-adjusted capital adequacy going forward.
Moody's ascribes one notch of support from Alleghany to RSUI relative
to its stand-alone credit profile, contributing to the rating
upgrade.
At the current rating level, a further upgrade for RSUI would be
unlikely absent formal capital and reinsurance support from TransRe,
and/or the achievement of significantly increased scale and spread of
risk. Conversely, factors that could lead to a rating 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;
and 4) divestiture by, or evidence of reduced implicit support from,
Alleghany Corporation.
The following ratings have been upgraded:
Alleghany Corporation -- senior unsecured debt to Baa1 from
Baa2, long-term issuer rating to Baa1 from Baa2, provisional
senior debt to (P)Baa1 from (P)Baa2;
RSUI Indemnity Company -- insurance financial strength to
A2 from A3;
Landmark American Insurance Company -- insurance financial
strength to A2 from A3.
The following ratings have been affirmed:
Transatlantic Holdings, Inc. -- senior unsecured
debt at Baa1;
Transatlantic Reinsurance Company -- insurance financial
strength at A1;
The rating outlook for all of the above entities is stable.
Alleghany Corporation (NYSE: Y) is a holding company that focuses
primarily on domestic and international property & casualty reinsurance
(through TransRe) and specialty insurance (primarily through its RSUI
Indemnity and Landmark American subsidiaries and to a considerably lesser
degree through CapSpecialty, Inc. and Pacific Compensation
Corporation, which together comprise the Alleghany Insurance Holdings
operations). For the nine months ended 30 September 2015,
Alleghany Corporation reported net income attributable to common shareholders
of $404 million. Shareholders' equity was approximately
$7.5 billion as of 30 September 2015.
The principal methodologies used in rating Alleghany Corporation were
Global Reinsurers published in December 2015, and Global Property
and Casualty Insurers published in December 2015. The principal
methodology used in rating Landmark American Insurance Company and RSUI
Indemnity Company was Global Property and Casualty Insurers published
in December 2015. The principal methodology used in rating Transatlantic
Reinsurance Company and Transatlantic Holding, Inc. was Global
Reinsurers published in December 2015. 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.
The person who approved Alleghany Corporation, Transatlantic Reinsurance
Company, and Transatlantic Holdings, Inc. credit ratings
is Stanislas Rouyer, Associate Managing Director, Finance,
Securities and Insurance Group, 212-553-3684.
The person who approved Landmark American Insurance Company and RSUI Indemnity
Company credit ratings is Robert Riegel, Managing Director -
Insurance, Financial Institutions Group, 212-553-4663.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
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.
James Eck
VP - Senior Credit Officer
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
Stanislas Rouyer
Associate Managing Director
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 upgrades Alleghany Corp. (senior to Baa1) and RSUI subs (IFS to A2); affirms A1 IFS of TransRe; stable outlooks
