A.M. Best Upgrades Ratings of Alleghany Corporation’s RSUI Indemnity Company and Its Subsidiaries

A.M. Best has upgraded the financial strength rating (FSR) to A+ (Superior) from A (Excellent) and the issuer credit rating (ICR) to “aa-” from “a+” of RSUI Indemnity Company and its reinsured subsidiaries, Landmark American Insurance Company and Covington Specialty Insurance Company, collectively referred to as the RSUI Group (RSUI) (headquartered in Atlanta, GA). The outlook for the ratings has been revised to stable from positive.

Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and the ICRs of “a” of Capitol Indemnity Corporation and its two subsidiaries, Platte River Insurance Company and Capitol Specialty Insurance Corporation, which operate under a pooling agreement, collectively referred to as Capitol Insurance Group (Capitol) (headquartered in Middleton, WI). The outlook for these ratings is stable.

A.M. Best also has 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 is stable based on A.M. Best’s expectation of further explicit support through intercompany reinsurance or direct capital support. All companies are indirect, wholly-owned subsidiaries of Alleghany Corporation (Alleghany) (headquartered in New York, NY) (NYSE:Y).

The upgrading of RSUI’s ratings reflects its continued strong capitalization, excellent historical underwriting profitability and the benefits it derives from being part of Alleghany. Partially offsetting these positive rating factors are RSUI’s dependence on reinsurance and exposure to weather-related events as evidenced by the losses from Superstorm Sandy.

Further potential upward movement on RSUI’s ratings could result from continued superior underwriting results and maintenance of a strong risk-adjusted capital position. Downward movement on the ratings could result from a material decline in the organization’s capitalization, negative trends in claim frequency or severity that could materially impair underwriting results, as well as a significant decline in equity capital markets and its impact on RSUI’s investment portfolio and capitalization.

The ratings for Capitol acknowledge its strong level of capitalization, historically solid underwriting performance and long-standing agency relationships. The ICR outlook reflects recent underwriting losses, mostly the result of adverse loss reserve development relating to a discontinued program.

Potential upward movement on the ratings and/or a revised outlook for Capitol could result from improvement in its underwriting results returning to historical levels while maintaining a strong risk-adjusted capital position. Downward movement on the ratings could result from a material decline in the organization’s capitalization, potentially significant negative trends in claim frequency or severity that could materially impair underwriting results, and a significant decline in equity capital.

The ratings for Pacific Comp recognize its supportive capitalization, which has benefited from $105 million in capital contributions from Alleghany since 2007. Pacific Comp has been 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 reflect the demonstrated support from Alleghany in the form of capital contributions and the potential for 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.

Potential upward movement on Pacific Comp’s ratings could result from the finalization and implementation of longer-term capital relief alternatives to support growth and positive operating performance trends. Downward movement on the ratings could result from a decline in the organization’s capitalization to levels not supportive of the ratings, a return to poor underwriting results and an indication of non-support from Alleghany.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

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