A.M. Best Co. has revised the outlook to positive from stable and
affirmed the issuer credit ratings (ICR) of "a" of Transatlantic
Reinsurance Company (Transatlantic), Fair American Insurance and
Reinsurance Company (both domiciled in New York, NY) and Trans Re
Zurich Reinsurance Company Ltd. (Switzerland). A.M. Best also has
affirmed the financial strength ratings (FSR) of A (Excellent) of
Transatlantic and its members. The outlook for the FSRs is stable.
Concurrently, A.M. Best has revised the outlook to positive from stable
and affirmed the ICR of "bbb" and debt ratings of "bbb" on $750 million
5.75% senior unsecured notes due 2015 and the $350 million 8% senior
unsecured notes due 2039 of the parent holding company; Transatlantic
Holdings Inc. (New York, NY) (NYSE: TRH).
The rating affirmations reflect Transatlantic's strong capitalization
and excellent business profile. Although 2011 operating results were
affected by the multiple worldwide catastrophes resulting in a combined
ratio of 113.9% for the year, Transatlantic's five-year average
operating performance is still in line with its peer group. As a
casualty oriented writer, Transatlantic has a history of consistent
operating results complemented by strong investment income.
Transatlantic maintains a formalized risk management framework that
recognizes risk categories and allocates ownership of each category.
Furthermore, the company maintains an economic capital model, which is
used to analyze various risk scenarios and as a guide for developing
The positive outlook on Transatlantic's ICRs reflects A M Best's
acknowledgement of the company's improved risk-based capitalization and
expectation that current risk-based capitalization levels will be
Transatlantic's debt-to-capital ratio is expected to remain in the high
teens as capital is anticipated to be enhanced by strong earnings. Fixed
charge coverage is expected to rebound in 2012 and register in the seven
to eight times range.
Partially offsetting these positive attributes are A.M. Best's concerns
regarding the current soft pricing conditions in the casualty market
from which Transatlantic derives a substantial portion of its premiums
as well as the reserve adequacy of pre 2001 casualty oriented business.
A.M. Best's concern regarding pre 2001 reserve adequacy is mitigated by
the declining percentage of these reserves relative to the company's
Positive rating actions could occur if Transatlantic's long-term
profitability results in consistently strong risk-adjusted capital
levels. Negative rating actions could occur if Transatlantic experiences
outsized catastrophe or investment losses relative to its peer group or
if capital erosion due to operating performance exceeds A.M. Best's
The methodology used in determining these ratings is Best's Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best's rating process and contains the different rating criteria
employed in the rating process. Key criteria utilized include:
"Understanding BCAR for Property/Casualty Insurers"; "Rating Members of
Insurance Groups"; "Catastrophe Analysis in A.M. Best Ratings"; "Risk
Management and the Rating Process for Insurance Companies";
"Understanding Universal BCAR"; and "A.M. Best's Ratings & the Treatment
of Debt." Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most
authoritative insurance rating and information source. For more
information, visit www.ambest.com.
Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.