11 Insurers See Ratings Updates
Aetna, AVIVA USA and several others receive updates.
Insurance Networking Ratings Corner, November 13, 2012
A.M. Best, Fitch Ratings, Standard & Poor’s (S&P’s) and Moody’s Investors Service released ratings updates. The following are some of the most recent:
A.M. Best has assigned debt ratings of “bbb+” to $2 billion of senior, unsecured notes recently issued in three tranches by Aetna Inc. The ratings have been placed under review with negative implications, consistent with the under review status of the existing ratings of Aetna and its insurance subsidiaries.
The proceeds from the securities will be used to finance a portion of the purchase price of the acquisition of Coventry Health Care Inc. Although Aetna’s pro forma financial leverage – as well as its goodwill and intangibles to equity ratio – will be somewhat higher than similarly rated peers, A.M. Best views favorably the low cost of capital and the laddering of maturities within Aetna’s capital structure. Additionally, the issuance is consistent with A.M. Best’s expectations, with respect to Aetna’s capital structure incorporating the financing for the previously announced $7.3 billion (approximate) acquisition of Coventry.
The Coventry acquisition is expected to close mid-2013, subject to state and federal regulatory approvals and other customary closing conditions. Aetna’s ratings are anticipated to remain under review, pending the completion of the transaction and A.M. Best’s continuing discussions with management. However, A.M. Best will continue to monitor Aetna’s operating performance, risk-adjusted capitalization at the operating companies and its capital structure to ensure financial and operating metrics remain within A.M. Best’s expectations.
Fitch has affirmed and withdrawn the Issuer Default Rating (IDR) of Ameriprise Financial Inc. (AMP) at 'A', senior unsecured debt rating at 'A-', and the Insurer Financial Strength (IFS) ratings of its primary life insurance subsidiaries at 'AA-'. The Rating Outlook was Stable, prior to the withdrawal.
The rating affirmation reflects AMP's very strong balance sheet fundamentals, good profitability, and favorable market positions, characterized by significant scale and a strong competitive stance with a leading position among financial planning firms in the United States and a Top 10 position as an annuity writer.
The statutory capitalization of AMP's primary life insurance operating companies, RiverSource Life Insurance Co. and RiverSource Life Insurance Co. of New York, remains supportive of the rating, with a combined NAIC risk-based capital (RBC) estimated at 514 percent at Sept. 30, 2012.
Aviva USA Life Insurance Group
Moody's announced that the ratings of Aviva Life and Annuity (Aviva Life, A1 insurance financial strength) and its U.S. affiliates (combined, Aviva USA or Aviva USA Life Insurance Group) remain on review for downgrade, following the announcement by ultimate parent Aviva Plc. (Aviva, A3 subordinated debt rating, negative outlook) that it is in discussions with a number of parties about the potential sale of its U.S. operations. These ratings have been on review for downgrade since June 27, 2012, prompted by the parent company's strategic review of all of its business segments.
Moody's said that Aviva Life's A1 IFS rating incorporates three notches of uplift—at the upper end of the typical range for financial institutions—from its stand-alone credit profile, based on strong implicit support from its U.K.-based parent, Aviva Plc. The three notches of uplift historically have reflected demonstrated significant financial support by the parent, since the purchase of Aviva USA Life Insurance Group in 2006.
The rating agency commented that Aviva's announcement of sale discussions has added further uncertainty as to the future ownership of Aviva USA, as well as the extent of expected financial support going forward, if a sale does not occur. Moody’s said Aviva Plc. purchased Aviva Life in 2006 for its growth potential, and grew its primary businesses, fixed-indexed annuities and life insurance, rapidly.
China Life Insurance Co. Ltd.
Fitch has affirmed China Life Insurance Co. Ltd.'s (China Life) Insurer Financial Strength (IFS) Rating at 'A+'. The Outlook is Stable.
The rating reflects China Life's well-established franchise, strong distribution capability, and sound, risk-based capitalization. The rating also factors in implicit capital and policy support from the Ministry of Finance, in light of the state's majority ownership, the insurer's large policyholder base and its significant role in the country's financial system. These strengths are, however, moderated by the insurer's volatile earnings performance, risk concentration in China and keen competition.
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