Moody’s has placed its ratings for Alleghany Corporation under review for upgrade following the announcement that Berkshire Hathaway will acquire all outstanding Alleghany shares for approximately $11.6 billion in cash.
The rating agency is considering an upgrade for the Baa1 senior debt rating of Alleghany, as will as for the the A1 insurance financial strength (IFS) rating of its reinsurance subsidiary, TransRe, and the A2 IFS ratings of RSUI Indemnity Company and Landmark American Insurance Company (collectively, RSUI).
Moody’s said the review for upgrade of Alleghany’s ratings will focus on the company’s prospective business strategy and capital adequacy as well as the level of implicit and explicit support it receives from Berkshire.
Under the terms of the acquisition, Alleghany will continue to operate as an independent subsidiary of Berkshire.
However, its expected that Alleghany’s overall credit profile will benefit from being part of a much larger, diversified organization, with substantial capital resources and financial flexibility.
Rating agency AM Best similarly issued commentary yesterday agreeing that Alleghany will likely benefit from Berkshire’s financial resources and flexibility, although it added no immediate changes were expected for Alleghany’s credit ratings.
Moody’s explained that Alleghany’s current ratings reflect the group’s “strong competitive position as a leading global reinsurer in the broker-market and in the primary US excess and surplus markets, well diversified product lines, strong capital adequacy, conservative financial leverage and very good holding company liquidity.”
However, it stipulated that these strengths are tempered by the group’s “significant exposure to natural and manmade catastrophes as well as potential reserve volatility given its sizable presence in medium to long-tail casualty lines and earnings volatility from catastrophe losses.”
Nevertheless, ratings could experience an upgrade if the transaction with Berkshire proceeds and Alleghany maintains strong capitalisation, analysts said.
The transaction is currently expected to close in the fourth quarter of 2022, pending regulatory approvals and other customary closing conditions.
