Fitch Affirms Alleghany's Ratings; Outlook Stable
CHICAGO -- March 4, 2013
Fitch Ratings has affirmed the ratings of Alleghany Corporation (Alleghany) as
--Issuer Default Rating (IDR) at 'A-';
--Senior debt at 'BBB'.
Fitch has also affirmed the ratings of Alleghany's wholly owned subsidiary
Transatlantic Holdings, Inc. (Transatlantic) as follows:
--IDR at 'A-';
--Senior debt at 'BBB+'.
In addition, Fitch has affirmed the 'A+' Insurer Financial Strength (IFS)
rating of Transatlantic's property/casualty reinsurance subsidiaries and the
'A' IFS rating of RSUI Group, Inc.'s (RSUI) property/casualty insurance
subsidiaries. The Rating Outlook is Stable. A complete list of ratings is
provided at the end of this release.
KEY RATING DRIVERS
Fitch's affirmation of Alleghany's ratings reflects the company's conservative
capitalization, reasonable financial leverage, sizable cash position and
favorable financial flexibility. The ratings also reflect operating challenges
in the highly competitive, property/casualty (re)insurance market, integration
risk from the acquisition of Transatlantic and potential exposure to adverse
reserve development on sizable casualty reserves.
Alleghany posted net earnings of $702 million in 2012, significantly improved
from $143 million for 2011. The increase was due to a one-time gain on the
bargain purchase of Transatlantic and the added operating earnings generated
by Transatlantic following the completion of the merger on March 6, 2012,
partially offset by the amortization of intangible assets related to the
Alleghany reported a 2012 consolidated combined ratio of 94.1%, which included
approximately 12 points for catastrophe losses, primarily from $412 million of
Hurricane Sandy losses ($251 million for Transatlantic and $161 million for
RSUI). This compares with a combined ratio of 93.4% for full-year 2011, which
included 9.9 points for catastrophe losses.
Fitch believes that Alleghany utilizes a reasonable amount of operating
leverage comparable to (re)insurer peers, with net premiums written to total
shareholders' equity of about 0.6x in 2012, which included almost 10 months of
Transatlantic premiums from the acquisition date. Favorably, Alleghany's total
GAAP stockholders' equity grew by approximately $3.5 billion in 2012 to $6.4
billion at Dec. 31, 2012, due to the merger with Transatlantic.
Alleghany's financial leverage ratio (adjusted for unrealized net gains on
fixed-income investments) was 22.8% at Dec. 31, 2012, which Fitch considers
reasonable for the rating category. This level is up from 9.5% at Dec. 31,
2011, reflecting an additional $1.1 billion (fair value) of debt from the
Transatlantic acquisition and $400 million of senior notes issued by Alleghany
in June 2012.
Alleghany maintains a beneficial amount of holding company cash and marketable
securities of $732 million at Dec. 31, 2012. Fitch believes that this resource
provides the company an additional favorable cushion in meeting potential
operating subsidiary company cash flow shortages and liquidity to service its
Fitch views Alleghany's exposure to potential adverse development as being
higher than the exposures of companies that focus more on property business
because the duration on casualty reserves is comparatively long. However,
Fitch notes that this risk appears to have been conservatively managed,
supported by the fact that Alleghany's loss reserves have consistently
developed favorably, with the company posting favorable GAAP net loss reserve
development in each calendar year from 2004-2012, totaling 2.5% of net
Key rating triggers that could result in a downgrade include significant
adverse loss reserve development; movement to materially below-average
underwriting or operating performance; sizable deterioration in insurance
subsidiary capitalization that caused net written premiums-to-equity ratio to
exceed 1.0x, financial leverage maintained above 25%; run-rate operating
earnings-based interest and preferred dividend coverage of less than 7x;
significant acquisitions that reduce the company's financial flexibility; and
a substantial decline in the holding company's cash position.
Key rating triggers that could lead to an upgrade over the long term include
continued favorable underwriting results in line with higher rated
property/casualty (re)insurer peers; material improvement in key financial
metrics (e.g. net premiums written to equity) to more overcapitalized levels;
and enhanced competitive positioning while maintaining strong profitability
with low earnings volatility. In addition, the ratings of RSUI could be
upgraded over time should Fitch consider the ratings core relative to the
ratings of Transatlantic.
Fitch affirms the following ratings with a Stable Outlook:
--IDR at 'A-';
--$300 million 5.625% senior notes due Sept. 15, 2020 at 'BBB';
--$400 million 4.95% senior notes due June 27, 2022 at 'BBB'.
Transatlantic Holdings, Inc.
--IDR at 'A-';
--$667 million 5.75% senior notes due Dec. 14, 2015 at 'BBB+';
--$350 million 8.00% senior notes due Nov. 30, 2039 at 'BBB+'.
Transatlantic Reinsurance Company
Fair American Insurance and Reinsurance Company
--IFS at 'A+'.
RSUI Indemnity Company
Covington Specialty Insurance Company
Landmark American Insurance Company
--IFS at 'A'.
Additional information is available at 'www.fitchratings.com'. The issuer did
not participate in the rating process, or provide additional information,
beyond the issuer's available public disclosure. The ratings above were
unsolicited and have been provided by Fitch as a service to investors.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Jan. 11, 2013).
Applicable Criteria and Related Research
Insurance Rating Methodology -- Amended
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
Brian C. Schneider, CPA, CPCU, ARe, +1-312-606-2321
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
James B. Auden, CFA, +1-312-368-3146
Julie Burke, CPA, CFA, +1-312-368-3158
Brian Bertsch, +1-212-908-0549
Press spacebar to pause and continue. Press esc to stop.