Fitch Affirms Alleghany and Subsidiaries; Outlook Stable

CHICAGO--()--Fitch Ratings has affirmed the ratings of Alleghany Corporation (Alleghany) as follows:

--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, as well as potential exposure to adverse reserve development on sizable casualty reserves.

The ratings also reflect Fitch's negative sector outlook on global reinsurance. The current stressful reinsurance market conditions, with record capitalization levels of traditional reinsurers and the growing capacity provided by alternative capital providers, are promoting weaker pricing and more generous terms and conditions. This is leading to consolidation in the reinsurance sector as companies aim to enhance their relative competitive position.

Alleghany posted net earnings of $679 million in 2014, compared to $628 million for full year 2013. These favorable results are driven by solid underwriting performance in both its reinsurance and insurance segments, with manageable catastrophe losses and favorable loss reserve development at Transatlantic and RSUI.

Alleghany reported a consolidated combined ratio of 88.8% in 2014, which included 2.2 points for catastrophe losses and 4.9 points of favorable reserve development, improved from 90.1% for 2013, which included 3.6 points for catastrophe losses and 4.8 points of favorable reserve development. Alleghany continues to report reasonable underlying run-rate accident year combined ratios normalized for average catastrophes in the mid-90s.

Fitch believes that Alleghany utilizes a reasonable amount of operating leverage comparable to (re)insurer peers, with net premiums written to statutory surplus in 2014 of approximately 0.63x for the reinsurance operations and 0.67x for the insurance operations. Total GAAP stockholders' equity of $7.5 billion at Dec. 31, 2014 is up from $6.9 billion at Dec. 31, 2013, as favorable net income and an increase in unrealized investment gains was partially offset by share repurchases.

Alleghany's financial leverage ratio was reasonable for the rating category at 19.4% as of Dec. 31, 2014, down slightly from 20.4% at Dec. 31, 2013. Operating earnings-based interest coverage was a strong 9x in 2014 and 8.7x in 2013, following 2x in 2012 as operating earnings improved with manageable catastrophe losses and favorable earnings contributions from Transatlantic. Fitch expects Alleghany to maintain coverage levels of at least 7x.

Alleghany maintained a beneficial amount of holding company cash and marketable securities of $1 billion at Dec. 31, 2014. 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 debt.

RATING SENSITIVITIES

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 subsidiary capitalization that caused net written premiums-to-surplus to exceed 1.0x for reinsurance operations and 1.2x for insurance operations; 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.

The key rating trigger that could result in an upgrade to Alleghany's debt ratings includes a continued reduction in Transatlantic's outstanding senior notes, as Alleghany's senior debt is subordinated to that of Transatlantic.

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 (P/C) (re)insurer peers and enhanced competitive positioning into a larger market position and size/scale while maintaining strong profitability with low earnings volatility. In addition, the ratings of its subsidiary, RSUI, could be upgraded should Fitch consider the ratings core relative to Transatlantic and apply a single group rating.

Fitch affirms the following ratings with a Stable Outlook:

Alleghany Corporation

--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';

--$300 million 4.9% senior debt due Sept. 15, 2044 at 'BBB'.

Transatlantic Holdings, Inc.

--IDR at 'A-';

--$367 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'.

The Rating Outlook is Stable

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.

Applicable Criteria and Related Research:

--Insurance Rating Methodology (September 4, 2014).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=981962

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Contacts

Fitch Ratings
Primary Analyst:
Brian C. Schneider, CPA, CPCU, ARe, +1-312-606-2321
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Christopher A. Grimes, CFA, +1-312-368-3263
Director
or
Committee Chairperson:
Donald F. Thorpe, CPA, CFA, +1-312-606-2353
Senior Director
or
Alyssa Castelli, +1-212-908-0540
Media Relations, New York
alyssa.castelli@fitchratings.com
or
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Brian C. Schneider, CPA, CPCU, ARe, +1-312-606-2321
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Christopher A. Grimes, CFA, +1-312-368-3263
Director
or
Committee Chairperson:
Donald F. Thorpe, CPA, CFA, +1-312-606-2353
Senior Director
or
Alyssa Castelli, +1-212-908-0540
Media Relations, New York
alyssa.castelli@fitchratings.com
or
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com