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.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. Partially offsetting these positive attributes is A.M. Best’s concern regarding the current soft pricing conditions in the casualty market from which TransRe derives a substantial portion of its premiums. A.M. Best’s 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. 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.The ratings of 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. 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%. 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.
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
- RSUI Indemnity Company
- Landmark American Insurance Company
- Covington Specialty Insurance Company