Transatlantic Reinsurance Company got handed its second downgrade in one day yesterday, when Moody's Investors Service lowered the insurance financial strength rating to Aa3 from Aa2 late yesterday, citing catastrophe exposure and other factors.
Earlier in the day, Standard & Poor's had said it was also lowering the financial strength ratings of Transatlantic Reinsurance Co. and its wholly-owned subsidiaries==to "double-A-minus" from "double-A"==citing the fact that the reinsurer was not very different from other "double-A-minus" companies.
Moody's said the ratings outlook for Transatlantic Re, the principal operating subsidiary of Transatlantic Holdings, Inc., is now stable.
Transatlantic Holdings, a publicly traded holding company that is approximately 60 percent-owned by American International Group, Moody's said.
Moody's said that current rating action concludes a review for possible downgrade that was initiated on Mar. 31, in connection with rating actions taken on AIG.
On May 2, 2005 Moody's lowered the long-term ratings of AIG (to senior debt Aa2) and a number of its subsidiaries, including that of Transatlantic Re, and the company's financial strength rating remained on review for possible downgrade.
According to Moody's, the rating downgrade is based on a combination of factors that include:
o A revised view of Transatlantic Re's stand-alone or intrinsic financial strength in light of key operating and earning trends in recent years.
o A diminished level of enhancement to Transatlantic Re's stand-alone credit profile as a result of the now lower rating profile for its controlling shareholder, AIG.
o Significant underwriting losses sustained from recent hurricanes, which for the company amounted to approximately $445 million on a pre-tax basis, or $292 million on an after-tax basis, in the first nine months of 2005.
Expanding on its rationale in a written announcement, Moody's said Transatlantic Re's Aa3 insurance financial strength rating reflects the company's intrinsic financial and franchise strength.
But while Transatlantic's operations were historically characterized by a commitment to underwriting profitability and controls, Moody's noted that the company has in recent years==like many ceding clients and reinsurance industry peers==been exposed to volatile underwriting results, especially in long-tailed casualty lines and more recently in catastrophe-exposed property lines.
With respect to Transatlantic Re's affiliation with AIG, Moody's said it continues to believe that AIG's majority ownership and oversight are supportive of the reinsurer's credit profile. But, the lowering of AIG's ratings and the narrowed spread between its ratings and Transatlantic Re's stand-alone rating has resulted in a diminished degree of benefit to Transatlantic Re's rating profile.
Listing some positive factors for Transatlantic, Moody's said it remains one of the leading international broker-market reinsurers, with expertise in numerous specialty classes of business and a balanced mix of U.S.-based and international businesses.
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