A.M. Best Co. announced that it has affirmed the financial strength rating of “A++” (Superior) and assigned a negative outlook to the reinsurance subsidiaries of Transatlantic Holdings, Inc. American International Group holds a majority of the company’s shares.
The ratings apply to Transatlantic Reinsurance Company and Putnam Reinsurance Company, both of New York, which operate under a pooling agreement, and Transatlantic’s European subsidiary, Swiss-based Trans Re Zurich.
“The rating reflects the group’s excellent level of capitalization, historically strong operating performance, which consistently outperforms many of its reinsurance peers, and leadership position in the global reinsurance broker market,” said Best. “As of September 2003, the group maintained $2.3 billion of stockholders’ equity and does not carry any debt obligations. Additionally, the group benefits from its long-standing strategic relationship with its majority owner, American International Group, Inc. which beneficially owns 60% of the group and accounts for approximately 15% to 20% of the group’s business. AIG’s chairman, Maurice Greenberg, also serves as chairman of the board of Transatlantic.”
Best noted that an offsetting factor was the deterioration in the group’s risk-adjusted capital position over the past two years. “This deterioration is attributable to the group’s elevated operating leverage due in part to significant reserve strengthening actions taken over the past two years, as well as the group’s growth in net written premiums, much of which is driven by rate increases,” said Best. It added that it “does not expect the group’s risk-adjusted capital position to materially improve in 2004, given that much of its earnings will be necessary to support the group’s premium growth and the associated increase in its carried loss reserves.”
Best added that it believes the group is “extremely well-positioned to participate in the current favorable reinsurance market,” but warned that the “negative outlook reflects A.M. Best’s concern that the group’s near-term profitability could be tempered by additional reserve strengthening actions stemming from business underwritten during the late 1990s into 2000. Despite the benefit Transatlantic receives from its affiliation with AIG, a further decline in the group’s risk-adjusted capital position may result in its financial strength rating being downgraded.”
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