TEXT-Fitch rates Alleghany Corp senior deb 'BBB'

Thu Sep 6, 2012 1:39pm EDT

Sept 6 - Fitch Ratings has assigned ratings to Alleghany Corporation 
(Alleghany) as follows:

--Issuer Default Rating (IDR) at 'A-';
--Senior debt at 'BBB'.

Fitch has also assigned ratings to Transatlantic Holdings, Inc. (Transatlantic)
as follows:

--IDR at 'A-';
--Senior debt at 'BBB+'.

In addition, Fitch has assigned an 'A+' Insurer Financial Strength (IFS) rating
to Transatlantic's property/casualty reinsurance subsidiaries and an 'A' IFS
rating to RSUI Group, Inc.'s (RSUI) property/casualty insurance subsidiaries. A
full rating list is shown below. The Rating Outlook is Stable.

Fitch's rating rationale for the assignment 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 with the recent acquisition of Transatlantic and
potential exposure to adverse reserve development on sizable casualty reserves.

Alleghany's recent acquisition of Transatlantic has significantly transformed
the company from a modest, somewhat narrow focused property/casualty specialty
insurance company into a sizable, more diversified property/casualty specialty
(re)insurance entity. Fitch considers Transatlantic to have a favorable
competitive position, as a leading global property/casualty reinsurer with a
liability focus. Alleghany's position in specialty insurance is more modest, led
by RSUI.

Fitch believes that Alleghany utilizes a reasonable amount of operating leverage
comparable to (re)insurer peers, with net premiums written to total
shareholders' equity expected at about 0.8x in 2012, including a full year of
Transatlantic premiums. Favorably, Alleghany's total GAAP stockholders' equity
grew by over $3.3 billion in the first half of 2012 to $6.3 billion at June 30,
2012, due to the merger with Transatlantic.

Alleghany's financial leverage ratio (adjusted for unrealized net gains on
fixed-income investments) was 22.9% at June 30, 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.

Operating earnings-based interest coverage (excluding net realized capital
gains/losses, other than temporary impairment losses and gain on bargain
purchase) was consistently at mid-single digit levels in recent periods as
interest expense has increased with additional debt and operating earnings have
been challenged by higher catastrophe losses, weaker investment results and
higher corporate administration expenses related to the merger. Going forward,
annual interest expense requirements for Alleghany are anticipated to be just
over $100 million, with Fitch expecting the company to maintain coverage levels
of at least 7x.

Alleghany maintains a beneficial amount of holding company cash and marketable
securities of $914 million at June 30, 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
debt.

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.

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 assigns 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'.
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 ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Sept. 22, 2011).

Applicable Criteria and Related Research:
Insurance Rating Methodology
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