Moody's has placed the credit ratings of Allied World Assurance Co. Holdings AG and its subsidiaries on review for possible downgrade. Fairfax Financial Holdings Ltd., which agreed to acquire the company in a $4.9 billion cash-and-stock deal, has a lower Moody's rating than Allied World.

The deal also requires Allied World to pay shareholders dividends totaling about $450 million, which will reduce its capital somewhat, Moody's wrote. Allied World's ratings could be downgraded once the transaction is complete, Moody's said. A termination of the deal would likely result in a confirmation of the company's current "Baa1" senior debt rating and the A2 insurance financial strength rating of its insurance subsidiaries.

"However, Allied World would be part of a larger, more diversified organization with significant holding company liquidity," the rating agency noted.

The A2 insurance financial strength ratings of Allied World Assurance Co. Ltd., Allied World Assurance Co. (U.S.) Inc., Allied World National Assurance Co. and Allied World Insurance Co. were placed under review.

Fitch and S&P Global Ratings have also said Allied World and its subsidiaries could be downgraded as a result of the proposed merger.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.