S&P Lowers Transatlantic Re Ratings to ‘AA-‘; Off CreditWatch

November 23, 2005

Standard & Poor’s Ratings Services announced that it has lowered its counterparty credit and financial strength ratings on Transatlantic Reinsurance Co. and its wholly owned subsidiaries–Putnam Reinsurance Co. and Trans Re Zurich (collectively referred to as Transatlantic)–to “AA-” from “AA” and removed from them CreditWatch with negative implications, where they were placed on Sept. 27, 2005. The ratings outlook is stable.

“We lowered the ratings because Transatlantic’s recent operating performance, albeit better than that of the global reinsurance market as a whole, was not consistent with the previous rating,” explained S&P credit analyst Laline Carvalho. S&P also noted that, although “the group enjoys a very strong franchise and diversified platform, it is not sufficiently differentiated from other ‘AA-‘ peers and has not produced better operating results than this peer group in recent years.

“Similar to other global reinsurers, Transatlantic’s operating results over the last five years have been affected by significant volatility related to large catastrophe losses and moderate loss reserve development related to business written in the late 1990s.

“The ratings on Transatlantic reflect its very strong business franchise, strong underwriting culture, conservative investment strategy, and excellent financial flexibility.

“These strengths are partially offset by lower-than-expected operating performance, declining capital adequacy, and a relatively volatile business profile given its opportunistic business strategy.”

S&P indicated that it expects Transatlantic “will have a slight pretax loss at year-end 2005, largely because of about $100 million in pretax losses related to Hurricane Wilma in the fourth quarter of 2005. Assuming normal catastrophe losses, operating performance is expected to improve substantially in 2006 because of better market conditions. Capital adequacy is expected to improve to the strong range at year-end 2005 and into 2006. Transatlantic’s competitive position is expected to remain very strong though dynamic with respect to lines of business and geographic markets. Net premium growth is expected to increase by low double digits in 2006.”

However, S&P cautioned that the expected 2006 premium growth is based on substantially improved premium rates, “with the group’s exposures expected to remain flat or decline.”

S&P didn’t mention it, but AIG owns 59.3 percent of the shares of Transatlantic Holdings the parent company of Transatlantic Re. “As of June 30, 2004, Transatlantic was the fourth-largest U.S. reinsurer based on year-to-date gross premium volume,” said S&P. It was also ranked as the 11th largest on a global basis. With the acquisition of GE Insurance Solutions by Swiss Re (See IJ Website Nov. 18), it would become the 3rd largest U.S. reinsurer, and the 10th largest globally.

S&P said: “The group is fairly well diversified geographically and by line of business, offering a broad range of traditional and specialty property/casualty reinsurance products in the U.S. and a variety of international markets.”

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