Fitch Rates Alleghany's Senior Notes 'BBB'

Fri Sep 5, 2014 10:37am EDT

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(The following statement was released by the rating agency) CHICAGO, September 05 (Fitch) Fitch Ratings has assigned a 'BBB' rating to Alleghany Corporation's (Alleghany) $300 million 4.9% senior unsecured debt issuance due 2044. The rating is equivalent to Fitch's ratings on Alleghany's existing senior unsecured notes. A complete list of ratings follows at the end of this release. KEY RATING DRIVERS Alleghany intends to use the net proceeds from the sale of the senior notes to redeem a portion of the $667 million 5.75% senior notes due December 2015 of its subsidiary, Transatlantic Holdings, Inc. (Transatlantic). Alleghany's financial leverage ratio was reasonable for the rating category at 19.8% at June 30, 2014, down slightly from 20.4% at year-end 2013. Operating earnings-based interest coverage was a strong 8.7x in both the first half of 2014 and in 2013. Fitch expects the company to maintain coverage levels of at least 7x. Financial leverage and interest coverage ratios are not expected to change meaningfully given the issuance will be used to replace existing debt. Alleghany maintained a beneficial amount of holding company cash and marketable securities of $1,047 million at June 30, 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. Alleghany posted net earnings of $354 million in the first six months of 2014, compared to $310 million in first-half 2013 and $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 Group, Inc. Total GAAP stockholders' equity of $7.4 billion at June 30, 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. 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 1x 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. 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 has assigned the following rating: Alleghany Corporation --$300 million 4.9% senior debt due Sept. 15, 2044 'BBB'. Fitch currently rates Alleghany as follows: Alleghany Corporation --Issuer default Rating (IDR) 'A-'; --$300 million 5.625% senior notes due Sept. 15, 2020 'BBB'; --$400 million 4.95% senior notes due June 27, 2022 'BBB'. Transatlantic Holdings, Inc. --IDR 'A-'; --$667 million 5.75% senior notes due Dec. 14, 2015 'BBB+'; --$350 million 8.00% senior notes due Nov. 30, 2039 'BBB+'. Transatlantic Reinsurance Company Fair American Insurance and Reinsurance Company --Insurer Financial Strength (IFS) 'A+'. RSUI Indemnity Company Covington Specialty Insurance Company Landmark American Insurance Company --IFS 'A'. The Rating Outlook is Stable Contact: Primary Analyst Brian C. Schneider, CPA, CPCU, ARe Senior Director +1-312-606-2321 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Christopher A. Grimes, CFA Director +1-312-368-3263 Committee Chairperson Donald F. Thorpe, CPA, CFA Senior Director +1-312-606-2353 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. 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 (Sept. 4, 2014). Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S 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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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