Best Upgrades Transatlantic Holdings and Subs ICR’s; Affirms ‘A’ Ratings

A.M. Best Co. has upgraded the issuer credit ratings (ICR) to “a+” from “a” and affirmed the financial strength rating (FSR) of ‘A’ (Excellent) of Transatlantic Reinsurance Company (TransRe), Fair American Insurance and Reinsurance Company (both domiciled in New York, NY) and Trans Re Zurich Reinsurance Company Ltd. (Switzerland). The outlook for the FSR is stable, while the outlook for the ICR has been revised to stable from positive.

Best has also upgraded the ICR to “bbb+” from “bbb” and the debt ratings of Transatlantic Holdings Inc. and has revised its outlook on these ratings to stable from positive.

Concurrently, Best revised the outlook to positive from stable and affirmed the FSR of ‘A’ (Excellent) and ICRs of “a+” of RSUI Indemnity Company and its reinsured subsidiaries, collectively referred to as RSUI Group (RSUI), headquartered in Atlanta.

Best also has affirmed the ICR of “bbb+” and debt ratings of “bbb+” of Alleghany Corporation, headquartered in New York, NY, and assigned a stable outlook.

In addition Best has revised the ICRs outlook to stable from positive and affirmed the FSR of ‘A’ (Excellent) and ICRs of “a” of Capitol Indemnity Corporation, its subsidiary and an affiliate, which operate under a pooling agreement, collectively referred to as Capitol Insurance Group, headquartered in Middleton, Wisconsin. The outlook for the FSR is stable.

At the same time, Best has revised the FSR outlook to positive from stable, the ICR outlook to positive from negative and affirmed the FSR of ‘B++’ (Good) and ICR of “bbb+” of Pacific Compensation Insurance Company, headquartered in Agoura Hills, Calif. Best said the revised outlook is “based on the potential for further explicit support through intercompany reinsurance to Pacific Comp.”

The ICR upgrades for TransRe “recognize the successful completion of the merger with Alleghany and Best’s expectation that being part of Alleghany will enable TransRe to focus on underwriting opportunities and further enhance its excellent market profile,” the report said.
“The company continues to maintain strong capitalization and consistent operating results stemming from its casualty orientation. Operating results have been further complemented by strong investment income.”

Best also indicated that “Transatlantic Holdings’ debt-to-capital ratio remains within the acceptable range for its ratings, while fixed charge coverage rebounded in 2012 to 5.0 times and is expected to be maintained in the near term.”

As a partial offsetting factor Best cited its “concern regarding the current soft pricing conditions in the casualty market from which TransRe derives a substantial portion of its premiums.” However, Best also noted that its “concern regarding pre 2001 reserve adequacy have been markedly reduced as the level of these reserves have declined relative to the company’s total reserve position.

“Potential upward movement on the ratings of TransRe could result from continued consistent operating performance and sustained strong risk-adjusted capitalization. Negative rating actions could occur if TransRe incurs an outsized catastrophic or investment loss relative to its peer group or if its operating performance consistently falls below the market resulting in erosion of its capital base and a decline in its risk-based capitalization.”

Best said the “ratings and revised outlook of RSUI reflect its continued strong capitalization, excellent historical underwriting profitability and the benefits it derives from being part of Alleghany. Partially offsetting these positive rating factors is RSUI’s dependence on reinsurance and exposure to weather-related losses as evidenced by the losses from Superstorm Sandy.

“Potential upward movement in the ratings of RSUI could result from continued superior underwriting results and maintaining a strong risk-adjusted capital position. Downward movement in the ratings could result from a material decline in the organization’s capitalization, negative trends in claim frequency or severity that could materially impair underwriting results, as well as a significant decline in equity capital markets and its impact on RSUI’s investment portfolio and capitalization.

“The ratings of Capitol acknowledge its strong level of capitalization, historically solid underwriting performance and long-standing agency relationships. The revised ICR outlook reflects recent underwriting losses mostly the result of adverse loss reserve development relating to a discontinued program.

“Potential upward movement in the ratings or another revised outlook for Capitol could result from an improvement in its underwriting results back to historical levels and maintaining a strong risk-adjusted capital position. Downward movement in the ratings could result from a material decline in the organization’s capitalization, negative trends in claim frequency or severity that could materially impair underwriting results, a significant decline in equity capital markets and its impact on Capitol’s investment portfolio and capitalization.”

Best said its ratings and outlook on Pacific Comp “acknowledge its supportive capitalization, which has benefited from $105 million in capital contributions from Alleghany since 2007. In 2009, Pacific Comp ceased soliciting new or renewal business on a direct basis in California as management determined that it was unable to write business at rates deemed adequate.

“Pacific Comp now operates as a broker carrier and began writing new business in 2011 in the California workers’ compensation market as conditions improved. The revised outlook reflects the demonstrated support from Alleghany in the form of capital contributions and the potential for additional explicit support through intercompany reinsurance agreements that would protect the balance sheet from adverse loss reserve development and its income statement from unexpected losses on current business.

“Potential upward movement in Pacific Comp’s ratings could result from the finalization and implementation of the proposed reinsurance support from Alleghany and improved operating performance. Downward movement in the ratings could result from a decline in the organization’s capitalization to levels not supportive of its ratings, continued poor underwriting results and an indication of non-support from Alleghany.”

Best’s report also noted that “as of December 31, 2012, Alleghany had $6.4 billion in GAAP equity, $18.3 billion of investments and a total debt-to-capital ratio of 22.7 percent. Furthermore, Alleghany also maintains substantial financial flexibility, having roughly $732 million of marketable securities and cash on its balance sheet that is comprised of $464 million at the parent company, $90 million at Alleghany Insurance Holdings LLC (AIHL) and $178 million at Transatlantic Holdings. AIHL is the intermediate holding company that owns all of Alleghany’s wholly owned operating insurance subsidiaries, outside of Transatlantic Holdings.”

Best summarized the companies affected by its rating actions as follows:
The FSR of ‘A’ (Excellent) and ICRs of “a” have been affirmed for the following members of Capitol Insurance Group:
•Capitol Indemnity Corporation
•Platte River Insurance Company
•Capitol Specialty Insurance Corporation

The FSR of ‘A’ (Excellent) and ICRs of “a+” have been affirmed for the following members of RSUI Group:
•RSUI Indemnity Company
•Landmark American Insurance Company
•Covington Specialty Insurance Company

The following debt rating has been affirmed:
Alleghany Corporation—
— “bbb+” on $299 million 5.625 percent senior unsecured notes, due 2020

The following debt rating has been assigned:
Alleghany Corporation—
— “bbb+” to $400 million 4.95 percent senior unsecured notes, due 2022

The following indicative ratings available under the shelf registration have been affirmed:
Alleghany Corporation—
— “bbb+” on senior unsecured debt

The following debt ratings have been upgraded:
Transatlantic Holdings Inc. —
— to “bbb+”from “bbb” on $667 million 5.75 percent senior unsecured notes, due
2015
— to “bbb+” from “bbb” on $350 million 8 percent senior unsecured notes, due
2039

Source: A.M. Best