The proposed merger of Allied World Assurance and Transatlantic Re has prompted a mixed response from the main rating agencies.

Standard & Poor’s (S&P) has put Allied World’s A financial strength ratings on credit watch with positive implications, and said that it would expect to raise the ratings by one notch if the merger goes through.

S&P has left Transatlantic’s financial strength ratings unchanged, but has put the company’s BBB+ counterparty credit rating on credit watch positive.

Moody’s largely followed S&P’s approach, putting Allied World’s ratings on review for a possible upgrade but simply affirming Transatlantic’s. It rates Transatlantic’s financial strength A1 and Allied World’s A2.

AM Best, on the other hand, left both sets of ratings untouched. “The ratings of Allied World and Transatlantic will continue to be actively monitored throughout the transaction period, and the ratings of the merged entity will be reviewed once the transaction is completed and AM Best has completed its analysis,” the agency said in a statement. AM Best gives both entities a financial strength rating of A.

Fitch has not yet commented on the proposed merger.

The rating agencies were broadly positive about the merger, which would create a combined insurance/reinsurance entity with $7bn in shareholders’ equity. “The merged entity is expected to enjoy an enhanced business profile that will likely inure benefits in the form of an improved competitive position,” AM Best said. “The merged entity should also benefit from broader distribution channels, broader product diversity and the benefits of a significant global presence.”

However, S&P said it had left Transatlantic’s ratings untouched because, despite the strengths of the merger, "it remains to be seen whether the combined entity will be able to outperform its peers."

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