16 Insurers See Ratings Updates
Ratings Corner, September 25, 2013
Fitch has upgraded CNA Financial Corp.'s (CNA) Issuer Default Rating (IDR) to 'BBB+' from 'BBB' and its senior unsecured debt to 'BBB' from 'BBB-'. Also, Fitch has upgraded the Insurer Financial Strength (IFS) ratings of CNA's property/casualty insurance subsidiaries to 'A' from 'A-'. The Rating Outlook for all ratings is Stable.
Fitch's rationale for the upgrade reflects steady improvements in capitalization, stable earnings, and overall good reserve quality, all of which improve Fitch's confidence that CNA's financial performance will maintain the stability demonstrated over the past five years. The ratings also reflect anticipated challenges in a competitive property/casualty market rate environment, the potential for adverse reserve development and deterioration in runoff operations.
CNA reported a first-half 2013 GAAP calendar year combined ratio of 101.5 percent an improvement over year-end 2012's 105 percent, but above a five-year average of 98.7 percent. Excluding the impact of reserve development, CNA reported a GAAP accident-year combined ratio of 102.5 percent for first half of 2013, an improvement from the prior year of 108.3 percent and below a five-year average of 105 percent.
Fitch has affirmed the ratings assigned to CNO Financial Group Inc.'s (CNO Financial) insurance subsidiaries and debt issues. The Rating Outlook is Stable. The affirmation of all ratings reflects Fitch's view that the company's balance sheet fundamentals and operating performance through the first half of 2013 remain in line with expectations.
The Stable Outlook is driven by Fitch's expectations of continued sustainable solid core operating and investment performance for 2013. Fitch believes that the pressure on profitability and capital driven by an extended low-interest-rate scenario and future investment losses is manageable in the context of the company's capital position and improved financial flexibility.
CNO Financial's pre-tax operating earnings for the first six months of 2013 increased 20.5 percent to $182 million, versus the same period for 2012. Pre-tax operating earnings are adjusted for the impact of losses on extinguishment of debt, changes in its deferred tax valuation allowance, equity in earnings of certain non-strategic investments, earning attributable to non-controlling interests and the fair value of embedded derivatives. Net income declined to $89 million for the first six months of 2013, from $125 million for the prior-year period, negatively affected by $64 million loss on extinguishment of debt. Investment related performance is steady, and credit related impairments have been minimal in 2013.
A.M. Best has affirmed the financial strength ratings (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” of the members of the Donegal Insurance Group (Donegal Group), as well as Michigan Insurance Co. (MICO). In addition, A.M. Best has affirmed the ICR of “bbb” of the publicly traded holding company, Donegal Group Inc. The outlook for all ratings is stable.
The affirmation of the ratings of the Donegal Group members is based on supportive risk-adjusted capitalization, sound balance sheet liquidity, generally positive earnings and good business profile, which includes geographic and product line diversification, effective use of technology in the independent agency distribution channel and a history of successful expansion through strategic acquisitions and affiliations.
Although the individual members within the Donegal Group play a specific role in the organization’s overall business plan and their operating performances may vary, each contributes favorably to the group’s risk-adjusted capitalization. In addition, each of the members support the corporate business strategy and benefit from shared senior management, intercompany reinsurance and the added financial flexibility of Donegal Group Inc. to raise capital through debt or equity offerings during favorable investment markets.
A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of ‘”aa” of Factory Mutual Insurance Co. and its subsidiaries, Appalachian Insurance Co. and Affiliated FM Insurance Co. The outlook for all ratings is stable. All companies are members of FM Global Group.
The ratings reflect FM Global Group members’ excellent level of risk-adjusted capitalization, historically strong operating performance, the benefits gained from its innovative loss prevention process and approach to property conservation, as well as its market leadership position in the commercial property market.
These positive rating factors are partially offset by FM Global Group’s significant exposure and susceptibility to natural and man-made catastrophes. Furthermore, the group maintains elevated common stock leverage, which while manageable, adds some volatility to its overall earnings and balance sheet.
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