May 22, 2018

A.M. Best Affirms Ratings of Pacific Comp, Other Alleghany Subsidiaries

Oldwick, NJ -(BusinessWire)- A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit rating (ICR) of “aa-“” of RSUI Indemnity Company and its reinsured subsidiaries, collectively referred to as RSUI Group (RSUI) (headquartered in Atlanta, GA). The outlook for all ratings is stable. Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and the ICR of “a” of Capitol Indemnity Corporation and its two subsidiaries, which operate under a pooling agreement, collectively referred to as CapSpecialty Insurance Group (CapSpecialty) (headquartered in Middleton, WI). The outlook for these ratings is stable. (See below for a detailed listing of the companies and ratings.)

A.M. Best also affirmed the FSR of A- (Excellent) and the ICR of “a-” of Pacific Compensation Insurance Company (Pacific Comp) (headquartered in Agoura Hills, CA). The outlook for these ratings remains stable based on the expectation of ongoing and/or further explicit support through intercompany reinsurance and direct capital support. The companies are all indirect, wholly-owned subsidiaries of Alleghany Corporation (Alleghany) (headquartered in New York, NY) [NYSE: Y].

The ratings 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 exposure to weather-related events and relatively high stock leverage in its investment portfolio, which could introduce volatility into operating results in the event of a significant equity market correction.

Potential upward movement in the ratings of RSUI could result from the group continuing to generate superior underwriting results and maintaining a strong risk-adjusted capital position. Downward movement in the ratings could result from a material decline in RSUI’s capitalization, negative trends in claim frequency or severity that significantly impairs underwriting results and a significant decline in equity capital markets that impacts RSUI’s investment portfolio and capitalization.

The ratings of CapSpecialty acknowledge its strong level of capitalization, historically solid underwriting performance and long-standing agency relationships. The outlook reflects the strong capitalization, focused operating strategy on writing small accounts and A.M. Best’s expectation that the group’s discontinued program is fully reserved and that profitability will return to historical levels. The group did not experience any further adverse development in 2014 after significant amounts in 2012 and 2013. Management also strengthened reserves of continuing business in 2013 after a thorough claims and business-line review.

Positive rating actions for CapSpecialty could result from an improvement in underwriting results back to historical levels, and an increase in capitalization through strong earnings and capital gains. Negative rating actions could result from a material decline in the organization’s capitalization, weak underwriting results driven through persistently high loss and/or expense ratios, or a significant decline in equity capital markets that impacts the group’s investment portfolio and capitalization. The companies’ ratings may also be directly impacted by A.M. Best’s perception of the company’s position within the Alleghany organization and Alleghany’s ability and willingness to extend explicit or implicit support to the group.

The ratings of Pacific Comp acknowledge its satisfactory capitalization, which has benefited from $100 million in capital contributions from Alleghany since 2007. Pacific Comp is under new management since December 2012 and has been writing new business since 2011 in a progressively and prospectively better workers’ compensation market in California. The ratings also reflect demonstrated support from Alleghany in the form of capital contributions and additional explicit support through intercompany reinsurance agreements that could protect the balance sheet from adverse loss reserve development and its income statement from unexpected losses on current business.

The company appears to be prudently executing its business plan, seeking to rapidly build economies of scale. Management is focused on fundamental underwriting discipline, causing it to grow a bit more slowly than originally projected. The company continues to build its distribution relationships and to secure business outside the highest loss/litigation regions it has identified in California in order to generate sustainable long-term underwriting profitability.

Potential upward movement in the ratings could occur if the company demonstrates successful execution of its business plan, evidenced by solid loss, expense, combined and operating ratios, leading to stronger capital adequacy. Downward movement in the rating could result from materially or inexplicably higher loss and expense ratios and prospectively weaker risk-adjusted capitalization. In addition, any material changes in the support provided by AIHL Re (as an affiliated standby capital provider) and/or Alleghany could impact the rating of Pacific Comp.

As of Dec. 31, 2014, Alleghany had total assets of $23.5 billion; $7.5 billion in GAAP equity; approximately $19 billion of investments; and a total debt-to-capital ratio of approximately 19%. Furthermore, Alleghany also maintains substantial financial flexibility, having roughly $1,032 million of marketable securities and cash on its balance sheet that is composed of $284 million at the parent company; $538 million at Alleghany Insurance Holdings LLC (AIHL); and $210 million at Transatlantic Holdings, Inc. AIHL is the intermediate holding company that wholly owns all of Alleghany’s operating insurance subsidiaries, other than Transatlantic Holdings, Inc.

The FSR of A+ (Superior) and the ICR of “aa-” have been affirmed for the following members of RSUI Group:

  • RSUI Indemnity Company
  • Landmark American Insurance Company
  • Covington Specialty Insurance Company

The FSR of A (Excellent) and ICR of “a” have been affirmed for the following members of CapSpecialty Insurance Group:

  • Capitol Indemnity Corporation
  • Platte River Insurance Company
  • Capitol Specialty Insurance Corporation

Source: BusinessWire

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