S&P Lowers Transatlantic Re’s Outlook

December 20, 2006

Standard & Poor’s Ratings Services has revised its outlook on Transatlantic Holdings Inc. (TRH) and its operating subsidiaries – Putnam Reinsurance Co., Trans Re Zurich, and Transatlantic Reinsurance Co. – to negative from stable. S&P also affirmed its “A-” counterparty credit rating on TRH and its “AA-” counterparty credit and financial strength ratings on the operating subsidiaries, collectively referred to as Transatlantic.

“We revised the outlook because Transatlantic’s operating performance has produced lower returns in recent years than would be expected at the ‘AA’ rating level,” explained S&P credit analyst Laline Carvalho.

S&P noted: “The group’s results in 2001-2005 were significantly affected by large catastrophe losses in 2001, 2004, and 2005 as well as loss-reserve development related to business underwritten in the late 1990s. However, Transatlantic’s results in 2005 were fairly reasonable within the context of unprecedented catastrophe losses experienced by the global reinsurance industry, with the group being one of the few reinsurers that managed to report a modest profit ($38 million) for the year.

“Partially reflecting a mild catastrophe year and lower reserve additions for prior years, Transatlantic’s year-to-date operating results (i.e., net income) through Sept. 30, 2006, are at a nine-month record high, and the company is expected to report strong operating performance for full-year 2006.”

S&P also pointed out that in addition to lower-than-expected historical operating performance, it “believes that stronger enterprise risk management (ERM) capabilities would typically be expected within the context of the complexity of Transatlantic’s businesses and the current rating level.”

“However,” the” bulletin continued, “concerns with Standard & Poor’s assessment of an adequate ERM for Transatlantic are mitigated by the fact that the company benefits from a very experienced and mature senior management team and staff, a flat organizational structure, and the group’s strategy to approach the market opportunistically but keeping within a set of core lines of business for which the group has developed significant expertise over time.

“The ratings are based on the group’s very strong business franchise, strong underwriting culture, conservative investment strategy, very strong financial flexibility, and very strong capital adequacy.

“These strengths are partially offset by lower-than-expected operating performance in recent years, adequate risk management, and–to a lesser degree–a potentially volatile business profile given its opportunistic business strategy. Transatlantic’s ability to report strong operating results over the medium term as well as the success of planned improvements to the group’s ERM capabilities are important factors that would contribute to a revision back to a stable outlook.

“Alternatively, if Transatlantic’s operating results remain below Standard & Poor’s expectations, the group could be reviewed for a potential downgrade. As of Sept. 30, 2006, Transatlantic was the fifth-largest U.S. reinsurer reporting to the Reinsurance Assoc. of America based on gross premiums written, and the company was the 11th largest reinsurer worldwide based on 2005 net reinsurance premiums written. The group is fairly well diversified geographically and by line of business, offering a broad range of traditional and specialty property/casualty reinsurance products in the U.S. and a variety of international markets.”

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