16 Insurers See Ratings Updates
RGA, WellPoint and 14 others receive updates.
Ratings Corner, September 25, 2013
A.M. Best, Fitch Ratings, Moody’s Investors Service and Standard & Poor’s (S&P’s) released ratings updates. The following are some of the most recent:
Moody's has affirmed the Caa1 insurance financial strength rating (IFS) of Affirmative Insurance Co. (AIC), lead insurance operating subsidiary of Affirmative Insurance Holdings Inc. (Affirmative), following the announcement that Affirmative will sell its retail agency distribution business to Confie Seguros, a national insurance distribution company, for up to $120 million in cash, including $40 million contingent on risk-based capital levels at AIC.
Moody's changed the rating outlook for AIC's insurance financial strength rating to stable from negative, reflecting greater capital available to AIC as a result of the sale, the resolution of a deficiency with a loss reserve requirement under the Illinois Insurance Code, and improvement in underwriting results. The transaction is expected to close within the next 30 days.
The $120 million consideration is composed of $80 million in cash, and $40 million to be released to Affirmative dependent on AIC meeting risk-based capital (RBC) ratio levels over the next six to 24 months. Affirmative expects to pay down the $119 million outstanding balance under its senior credit facility with the $80 million in proceeds ($72 million after transaction expenses), together with a new financing arrangement.
A.M. Best has revised the outlook to negative from stable and affirmed the financial strength rating of A- (Excellent) and issuer credit rating (ICR) of “a-” of AmerInst Insurance Co. Ltd.
Concurrently, A.M. Best has revised the outlook to negative from stable and affirmed the ICR of “bbb-” of AmerInst’s holding company, AmerInst Insurance Group Ltd. (AmerInst Insurance) The ICR for AmerInst Insurance is strictly based on its methodology.
The ratings reflect AmerInst’s strong capitalization, experienced management team and niche expertise in providing professional liability coverage. AmerInst’s long-term contractual relationship with Crum and Forster Insurance Co., its partner in underwriting, marketing and claims, also contributes positively to the ratings. Partially offsetting these positive rating factors are AmerInst's narrow spread of underwriting risk, as well as its inability to meet its new revised business plan, which was forecasted over the past three years.
Aspen Insurance Holdings Ltd. U.S. subsidiaries
A.M. Best has affirmed the financial strength rating of A (Excellent) and issuer credit ratings of “a” of Aspen Specialty Insurance Co. (ASIC) and Aspen American Insurance Co. (AAIC). Both companies are wholly owned subsidiaries of their ultimate parent, Aspen Insurance Holdings Ltd. (Aspen). The outlook for all ratings is stable.
These ratings are based upon ASIC and AAIC’s strategic importance and roles in Aspen’s U.S. business platform. In addition, the ratings also reflect the explicit support provided via the substantial quota share reinsurance of ASIC and AAIC’s net business through their affiliate, Aspen Bermuda Ltd. (ABL).
Moreover, ABL also provides a guarantee for all of ASIC and AAIC’s third-party reinsurance recoverables. Additionally, ASIC’s balance sheet is further protected by an adverse development cover for its outstanding loss reserves as of Dec. 31, 2008. The ratings also acknowledge the implied support of future parental commitment.
A.M. Best Asia-Pacific has affirmed the financial strength rating of B+ (Good) and the issuer credit rating of “bbb-” of Beneficial Insurance Ltd. (BIL). The outlook for both ratings is stable. The rating affirmations reflect BIL's adequate capitalization and the favorable growth of its core business.
On a risk-adjusted basis, BIL continues to demonstrate adequate capitalization to support its net required capital, as evaluated by Best's Capital Adequacy Ratio (BCAR). Although illiquid assets represent a high percentage of its total investments, underwriting leverage is conservative, and the operation has no major exposure to volatile lines. Hence, BIL's overall capitalization is deemed adequate to support its overall underwriting and asset risks.
Since fiscal year 2009, premium revenue and policies covered for BIL's pet insurance business have compounded by 39 percent and 30 percent, respectively. While overhead costs comprise 96% of total operating expenses, as the company continues to grow, the underwriting results are expected to benefit from a lower expense ratio.
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.
A.M. Best has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of Mapfre Panama, S.A. (ASSA). The outlook for both ratings is stable.
The ratings reflect Mapfre Panama’s solid capitalization, consistent overall earnings, generally favorable underwriting performance and local market expertise. Mapfre Panama operates as a composite insurer of life and non-life business and remains one of the three largest domestic insurance companies in Panama.
The company’s favorable underwriting results and investment income have resulted in consistent overall earnings, which have led to organic surplus growth in recent years. This has enabled Mapfre Panama to continue to enhance its surplus position and maintain more than adequate risk-adjusted capitalization for its current business profile. In addition, as a subsidiary of MAPFRE S.A., Mapfre Panama benefits from group synergies, as well as access to MAPFRE S.A.’s considerable global resources, including financial, operational and intellectual expertise, complementing its already well-established local market proficiencies.
S&P affirmed its 'B-' rating on MGIC Investment Corp. (MTG) and its 'B' rating on operating subsidiaries Mortgage Guaranty Insurance Corp. and MGIC Indemnity Co. (collectively, MGIC). At the same time, S&P revised the outlook on MGIC to positive from stable (the outlook on MTG remains stable).
In March 2013, MTG raised $1.15 billion in capital, then contributed $800 million of those funds to stabilize MGIC's capital base, reducing the chances of a regulatory takeover. S&P said that, while it expects MTG may report operating losses of $300 million to $400 million over the next two years, these will remain manageable due to MGIC's replenished capital base.
Nonetheless, there is still a risk that MGIC may experience higher operating losses than S&P expects. MTG reported a net loss for the first half of 2013 of $60.6 million (including a nominal profit of $12 million in the second quarter) versus a net loss of $293.4 million for the same period in 2012.
Minnesota Life Insurance Co.
Fitch has affirmed at 'AA-' the Insurer Financial Strength (IFS) ratings of Minnesota Life Insurance Co. (Minnesota Life) and its subsidiary, Securian Life Insurance Co. Fitch also has affirmed the rating on Minnesota Life's surplus notes at 'A'. The Rating Outlook has been revised to Positive.
The rating actions reflect Fitch's view that Minnesota Life's operating results continue to improve, while its balance sheet fundamentals remain extremely strong.
Minnesota Life's operating earnings have steadily improved following the financial crisis. Through the first half of 2013, earnings benefited from better than expected interest margins and expense management, which more than offset unfavorable mortality experience, primarily in the group line. The mortality experience remains within expectations. The company's operating return on assets was .9 percent in the first half of 2013 compared to .93 percent for the full year 2012. Realized investment losses remain modest. Minnesota Life's ability to service debt is extremely strong, with GAAP-based coverage of 29x and statutory interest coverage in excess of 20x.
A.M. Best has assigned a financial strength rating of A (Excellent) and an issuer credit rating of “a+” to NCMIC Risk Retention Group Inc. (NCMIC RRG). The outlook assigned to both ratings is stable.
The rating actions reflect NCMIC RRG’s role within the National Chiropractic Mutual Holding Co. (NCMHC), the benefits derived from its affiliation with NCMIC Insurance Co. (NIC) and its well-recognized brand, as well as the implied and explicit financial support provided by NIC via 90 percentquota share reinsurance, which was previously provided to NCMIC RRG effective Jan. 1, 2013. Both NCMIC RRG and NIC are affiliated with National Chiropractic Mutual Holding Co. (NCMHC).
NCMIC RRG was formed in 2013 to provide coverage, limits, policy attributes and rates substantially similar to those provided by NIC for chiropractors in selected jurisdictions where rate stability has been difficult for NCMHC to secure for its members. NCMIC RRG commenced operations by providing coverage for Florida policyholders formerly written by NIC beginning in January 2013, and will start providing similar coverage for New York policyholders in January 2014. Through contract arrangement with NCMHC, policyholders of NCMIC RRG enjoy the same service, support and benefits of mutuality as they would as members of NCMHC.
S&P affirmed its 'BBB+' long-term counterparty credit rating on Old Republic International Corp. (ORI) and revised the outlook to stable from negative. S&P says 'A+/Stable/--' ratings on the rated members of ORI's General Insurance Group of companies (ORG) are unchanged at this time.
S&P said it believes the risk of an acceleration of ORI's outstanding indenture - and the resulting potential negative impact on ORI - has abated. Late in 2012, the Department of Insurance of North Carolina approved RMIC's plan for a voluntary run-off through 2021. As well, the operating losses from the mortgage insurance segment have declined significantly to the point where RMIC may not be considered a significant subsidiary beyond the next one to two years, which would preclude the possibility of an acceleration.
ORI's 3.75 percent 2018 senior convertible note indentures contain a clause whereby the outstanding balances may be accelerated if a significant subsidiary (as defined by Rule 1-02 of Regulation S-X) is adjudicated bankrupt or insolvent, or a petition seeking a reorganization or rehabilitation is approved. Under this definition, Republic Mortgage Insurance Co. (RMIC), a member of ORI's mortgage guaranty segment, is currently considered a significant subsidiary.
S&P assigned its 'A-' senior debt rating to Reinsurance Group of America Inc.'s (RGA) proposed issuance of up to $400 million of senior unsecured notes, due 2023.
The proposed notes are rated in line with the counterparty credit rating on RGA. Including the proposed issue, RGA's financial leverage will be about 33 percent, and its run-rate generally accepted accounting principles fixed-charge coverage will be more than 6x, after excluding the one-time after-tax charges of $184 million that it incurred in second-quarter 2013 on its Australian disability operations, which S&P previously said do not affect the ratings
Moody's has assigned a Baa1 senior debt rating to RGA's (senior debt at Baa1/stable) $400 million issuance of 4.7 percent, 10-year, fixed-rate debentures. The debentures are a drawdown from a shelf registration filed in August 2011. Proceeds are expected to be used for general corporate purposes. The outlook on the debt is stable. Moody's said pro forma for the debt issuance, the company's financial leverage is around 27 percent (including AOCI), which is at the upper end of the expected range for the ratings.
A.M. Best has assigned a debt rating of “a-” to the newly issued $400 million, 4.7 percent senior unsecured notes, due 2023, of RGA. The assigned outlook is stable. RGA’s existing financial strength, issuer credit and debt ratings are unchanged.
The proceeds from the debt offering will be used for general corporate purposes, and the notes will rank senior to RGA’s existing subordinated and junior subordinated debentures. A.M. Best notes that RGA’s adjusted financial leverage and adjusted interest coverage remain within A.M. Best’s guidelines for RGA’s current rating level (after adjusting for one-time charges associated with higher than expected Australia claims in the second quarter of 2013).
Moody's has affirmed the ratings of Validus Holdings Ltd. (senior debt Baa2; NYSE: VR) and its principal operating subsidiary Validus Reinsurance Ltd. (insurance financial strength A3). The rating outlook has been changed to positive from stable.
Moody's A3 insurance financial strength rating for Validus Reinsurance Ltd. reflects its status as one of the largest catastrophe reinsurers in Bermuda, profitable track record, good capital adequacy and profitable diversification from its Talbot Lloyd's franchise. These strengths are tempered by the inherent volatility of the catastrophe reinsurance business, relatively short time in existence (began operations in 2006), difficult-to-quantify exposures in certain classes of business, and an appetite for acquisitions that has led to successful mergers, but has also made it difficult to pinpoint the direction of the company.
Moody's Baa2 senior debt rating for the parent company is based on its very manageable debt leverage and the expectation of ample credit support from the operations, subject to regulatory dividend restrictions.
Fitch has affirmed its ratings on WellPoint Inc. (WLP), including the 'BBB+' ratings on the company's senior unsecured notes and the 'AA-' Insurer Financial Strength (IFS) ratings assigned to various WellPoint insurance company subsidiaries. The Rating Outlook for WLP and its subsidiaries remains Negative.
Under Fitch's Insurance Rating Methodology, WellPoint Inc.'s (WLP) market position and size/scale characteristics are considered “large,” reflecting the company's leading market share in 14 states and significant scale benefits and operating efficiencies derived from its 36 million membership base and estimated $70 billion in annual revenues. Fitch believes that WLP's strong competitive position is directly linked to the company's right to use the Blue Cross and/or Blue Shield names and marks in 14 states.
WLP consistently produces large amounts of absolute earnings and strong and stable EBITDA-based revenue margins and net returns on average capital (ROAC) that are consistent with Fitch's guidelines for the company's current ratings.
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