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Fitch has affirmed and withdrawn the Issuer Default Rating (IDR) of Ameriprise Financial Inc. (AMP) at 'A', senior unsecured debt rating at 'A-', and the Insurer Financial Strength (IFS)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.
China Life has maintained a leading position in the Chinese life insurance market, with a share of 32.4 percent of total premiums in H112. It continues to focus on ensuring steady growth of new business value. New business value increased 2.5 percent year-on-year in H112, as resilient contribution from more profitable, regular-premium products mitigated a decline in single-premium policy sales amid tightened bank assurance regulations.
Fitch says Harbinger Group Inc.'s (HRG) 'B' Issuer Default Rating (IDR) is unaffected by HRG's recent announcement that it will establish an oil and gas joint venture with EXCO Resources (EXCO). HRG will acquire a 75 percent limited partnership interest and a 50 percent general partnership interest in the joint venture, while EXCO will acquire a 25 percent and 50 percent interest, respectively. Under the terms of the transaction HRG will provide $373 million in cash toward the purchase of properties for the joint venture.
Fitch views the transaction as in line with HRG's primary strategy to deploy its existing parent company cash and short-term investments to acquire and grow attractive businesses that generate sustainable free cash flow. The joint venture is expected to start distributing sustainable free cash flow to the partners shortly after the transaction is completed. HRG believes the transaction is expected to close in early-2013.
The initial effect on covenant tests, related to HRG's senior secured debt and preferred shares, is expected to be minimal.
S&P affirmed its 'BBB-' long-term counterparty credit rating on HealthSpring Inc., and then withdrew the rating. HealthSpring Inc., a Medicare-focused health plan, was acquired by Cigna Corp., a diversified health care services company, on Jan. 31, 2012. HealthSpring Inc. continues to exist as an intermediate holding company within the Cigna Corp. organization.
Prior to the rating withdrawal, S&P had a positive outlook on HealthSpring. This was based on S&P’s view that HealthSpring, which the ratings agency deems as a "strategically important" entity within the Cigna Corp. organization, was evolving toward "core" group status. Designation of core group status would have resulted in an upgrade.
A.M. Best has commented that the financial strength, issuer credit and debt ratings of Humana Inc. (Humana) and its insurance and health maintenance organization (HMO) subsidiaries remain unchanged. The outlook for all ratings is stable.
This comment follows the announcement that Humana has entered into a definitive agreement to acquire Metropolitan Health Networks (Metropolitan), a medical services organization that provides and coordinates medical care for about 87,500 Medicare Advantage, Medicaid and other beneficiaries, primarily in Florida, utilizing a primary care-centric business model. Metropolitan’s integrated care delivery systems include 35 state-of-the-art primary care medical centers and a robust network of affiliated physicians serving mainly Humana members. The transaction is valued at about $850 million, and Humana expects to finance the transaction with a combination of cash and debt.
The transaction provides Humana with business diversification as well as access to care for its members. Additionally, it may allow Humana to expand the Metropolitan model to other geographic regions.
A.M. Best has assigned a debt rating of “bbb” to $275 million of 4.6 percent senior unsecured notes, due November 2022, to be issued by OneBeacon U.S. Holdings Inc. (OBUS). The notes are issued with the unconditional guarantee of OBUS’ indirect parent, OneBeacon Insurance Group Ltd. (OBIG).
Proceeds from the offering will be used to redeem OBUS’ outstanding 5.875 percent senior notes, due May 2013. Financial leverage and coverage measures will remain within A.M. Best’s guidelines for the assigned rating.
The Oriental Insurance Co. Ltd.
A.M. Best has affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb+” of The Oriental Insurance Co. Ltd. (Oriental). The outlook for both ratings is stable. The ratings reflect Oriental’s strong risk-adjusted capitalization and improving trend in its underwriting performance.
Oriental recorded a reported surplus of INR 99 billion as at March 31, 2012, which dropped by about 3% over the previous year’s INR 103 billion. Oriental’s risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), also slightly weakened in fiscal year 2011 to 2012, predominantly as a result of an increase in the company’s insurance premiums and insurance liabilities higher than the growth in reported surplus. During the near-to-medium term, A.M. Best expects that the growth of Oriental’s capital and surplus will be supported by the company’s improving underwriting performance and consistent investment income. A.M. Best believes that Oriental's capitalization is adequate for its current rating level.
Oriental’s management is committed to improving its underwriting performance. Oriental has revised pricing for its motor and fire business to improve profitability. Profitable segments in the company’s motor and health business have been identified, while strategies in unprofitable segments have been revised through tighter underwriting controls and non-renewal of business with unviable pricing. Oriental also coordinates with other Public Sector Undertakings (PSU) insurers in controlling claim costs of health business through standardization of charges in identified hospital networks.
Moody's has withdrawn the ratings on the following:
• Syncora Holdings Ltd. – C (hyb) (Pref. Stock Non-cumulative (Foreign) Shares)
• Syncora Guarantee Inc. – Ca (IFSR), Under Review for Upgrade
• Syncora Guarantee (U.K.) Ltd. – Ca (IFSR), Developing Outlook
• Twin Reefs Pass-Through Trust – C (hyb) (Contingent Capital Securities)
Moody's has withdrawn the rating, because it believes it has insufficient or otherwise inadequate information to support the maintenance of the rating. Syncora Holdings Ltd. is a holding company whose primary operating subsidiary, Syncora Guarantee Inc., provides credit enhancement and protection products to the public finance and structured finance markets. Syncora Guarantee has not written new business since 2008.
United India Insurance Co. Ltd.
A.M. Best has revised the outlook to positive from stable and affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb+” of United India Insurance Co. Ltd. (United India). The ratings reflect United India’s solid risk-adjusted capitalization, improved underwriting performance and strong business profile in the Indian non-life insurance market.
United India’s risk-based capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), remained solid in fiscal year 2011 to 2012, despite the lower capital and surplus balance attributed to the deteriorating local investment market. The company’s capitalization level is expected to be adequate to support its forecasted business growth in the near term.
Underwriting performance has improved in fiscal year 2011 to 2012, as evidenced by the lower loss ratio and expense ratio in the year. A substantial premium rate increase in motor third-party liability insurance helped to bring down the loss ratio of the motor line. Better claim experience also has been observed in the other major portfolio—health—after United India took various initiatives in claims management. The expense ratio also came down in fiscal year 2011 to 2012, with higher employee productivity and a larger premium base. Overall, the company’s combined ratio was lowered by 16.5 percent, from its peak of 133.4 percent in fiscal year 2010 to 2011.
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