17 Insurers See Ratings Updates
Allied, Guardian Life, Principal Financial and 14 others receive updates.
Insurance Networking Ratings Corner, November 20, 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:
ACE Ltd. and its subsidiaries
Fitch has affirmed the ratings of ACE Ltd. and its subsidiaries (collectively, ACE). The Rating Outlook is Positive.
The rating actions reflect ACE's continued strong operating performance, balance sheet and financial flexibility, and diverse sources of revenues and earnings. Partially offsetting these positives is the effect of modestly rising accident-year combined ratios, and the effect of continued, significant competition in the company's chosen markets.
Fitch expects that ACE's insurance and reinsurance losses from Hurricane Sandy will be more of an earnings event, rather than a capital event. While the amount of loss is uncertain at this early stage, Fitch anticipates the level to be manageable, given the company's diverse global book of business, strong capitalization and operating performance with below-average catastrophe losses through the first nine months of 2012, and conservative risk management.
Allied World Assurance Co. Holdings AG and its subsidiaries
A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent and the issuer credit ratings (ICR) of “a” of Allied World Assurance Co. Ltd. (Allied World) and its operating affiliates. The outlook for the FSR is stable, while the outlook for the ICRs is positive.
A.M. Best also has affirmed the ICR of “bbb” of the ultimate parent, Allied World Assurance Co. Holdings AG (Switzerland), which unconditionally and irrevocably guarantees both senior debt issuances of Allied World Assurance Co. Holdings Ltd. (Allied World Holdings Bermuda).
In addition, A.M. Best has affirmed the positive outlook of the ICR of “bbb” as well as the debt ratings of “bbb” on $500 million, 7.50 percent senior unsecured notes, due 2016, and on $300 million, 5.5 percent senior unsecured notes, due 2020, of Allied World Holdings Bermuda. The outlook for these ratings is positive.
Fitch expects to assign a 'BBB+' rating to the $300 million, 30-year senior unsecured notes issuance planned by Aon plc (Aon), the ultimate parent company. Fitch also assigned a 'BBB+' Issuer Default Rating (IDR) to Aon. The new notes are fully and unconditionally guaranteed by Aon Corp. (Aon Corp.), and the ratings are based, therefore, on Aon Corp.'s existing 'BBB+' IDR. The net proceeds from this new, senior debt issuance will refinance up to $300 million of Aon Corp.'s existing 8.205%, junior subordinated debt, maturing in 2027.
Additionally, Fitch has affirmed all of Aon's related ratings, including existing senior debt ratings at 'BBB+', and commercial paper rating at 'F2'. The Rating Outlook is Stable. The affirmation reflects Aon's strong competitive position, balance sheet and cash-flow generation, very good financial flexibility, and financial leverage that are within guidelines for the rating category.
Fitch views the proposed debt exchange favorably as the new senior debt likely will be issued at an attractive rate, given current market conditions, and will have a longer-dated maturity, resulting in an improved liquidity profile with reduced refinancing risk. Fitch does not expect material change to pro forma financial leverage, following the debt issuance, since the proceeds will be used to refinance existing subordinated debt, and the related premium to current bondholders will be paid in cash.
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 A.M. Best’s criteria “Rating Members of Insurance Groups” and take into consideration the roles and strategic importance of ASIC and AAIC to Aspen’s overall U.S. strategy. Additionally, the ratings reflect the explicit support provided through the substantial quota share reinsurance of ASIC and AAIC’s net business by their Bermuda-based affiliate, Aspen Bermuda Ltd. (ABL).
Moreover, ABL also provides a guarantee of all of ASIC and AAIC’s third-party reinsurance recoverables. In addition, ASIC’s balance sheet is protected further 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.
Atlas Financial Holdings Inc. and its subsidiaries
A.M. Best has placed under review with negative implications the financial strength rating of B (Fair) and issuer credit ratings (ICR) of “bb” of American Service Insurance Co. Inc. and American Country Insurance Co., subsidiaries of Atlas Financial Holdings Inc. (Atlas). These companies operate under an intercompany reinsurance pooling agreement and are collectively referred to as American Service Pool. A.M. Best also has placed under review with negative implications the ICR of “b-” and the debt rating of “ccc” on $18 million, 4.5 percent preferred shares of Atlas.
The rating actions follow disclosure of a definitive agreement, under which Atlas will acquire all of the issued and outstanding shares of Camelot Services Inc. and its wholly owned subsidiary, Gateway Insurance Co. (Gateway). The negative implications reflect the inherent risk associated with integrating Gateway’s ongoing business into American Service Pool’s existing infrastructure, while overseeing the run off of Gateway’s non-core lines, and the increase in financial leverage at Atlas as a result of funding the transaction, in part, with the issuance of preferred stock.
These risks are mitigated, somewhat, by Atlas' recent experience running off similar books of business as well as Gateway’s current owner fully reinsuring all of Gateway’s workers’ compensation-related risk, and providing additional adverse development protection as set out in the definitive purchase agreement.
S&P lowered its counterparty credit and financial strength ratings on Aviva Plc.'s U.S. insurance subsidiaries (Aviva Life and Annuity Co., and Aviva Life and Annuity Co. of New York; collectively referred to as Aviva USA) to 'A-' from 'A'.
At the same time, S&P placed the ratings on Aviva USA on CreditWatch Developing to reflect the uncertainty regarding the future ownership of Aviva USA, and the ratings agency’s understanding of Aviva Plc.'s statement that a change in ownership could occur in the short term.
Based on Aviva Plc.'s Nov. 8 announcement that the U.S. operations were being tendered for sale, S&P has removed the one notch of implied parental support to its published ratings on Aviva USA and lowered its ratings on Aviva USA by one notch. S&P said its published ratings now reflect only the stand-alone credit profile of the U.S. operations.
AXA General Insurance
A.M. Best has withdrawn the financial strength rating of A (Excellent) and issuer credit rating of “a+” of AXA General Insurance (AXA General). These rating actions follow the amalgamation of AXA General into its affiliated company, Novex Insurance Co., on April 23, 2012, by the parent, Intact Financial Corp.
A.M. Best has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit rating (ICR) of “a-” of Crusader Insurance Co. (Crusader). Additionally, A.M. Best has affirmed the ICR of “bbb-” of Crusader’s parent company, Unico American Corp. (Unico). The outlook for all ratings is stable.
The rating actions reflect Crusader’s excellent level of risk-adjusted capitalization and profitable financial performance, coupled with its solid knowledge of the California market. Furthermore, the ratings acknowledge the financial flexibility afforded Crusader via Unico.
Offsetting these strengths is Crusader’s geographic concentration of risk. As a single-state writer in California, Crusader remains subject to competitive market pressures and the state’s legislative and regulatory environment. In addition, Crusader’s concentration of property risks exposes the company’s surplus to natural and man-made catastrophes, namely fire following earthquake, although Crusader’s reinsurance program reduces net exposure to a reasonable level.
Family Heritage Life Insurance Co. of America
A.M. Best has upgraded the financial strength rating (FSR) to A (Excellent) from B++ (Good) and issuer credit rating (ICR) to “a” from “bbb+” of Family Heritage Life Insurance Co. of America (Family Heritage). The ratings have been removed from under review with positive implications and assigned a stable outlook.
Family Heritage’s ratings were placed under review, following the announcement that it had signed a definitive agreement to be acquired by Torchmark Corp. (Torchmark). The transaction closed on Nov. 1, 2012.
The rating upgrades reflect the financial strength of the Torchmark organization as well as A.M. Best’s expectations of continued strong stand-alone capitalization and favorable trends in sales and earnings for Family Heritage. As a result of the acquisition, Torchmark gains access to Family Heritage’s 1,200 captive agents and roughly 239,000 policies in force. A.M. Best notes that the acquisition provides Torchmark with the ability to expand its supplemental health business segment with a higher margin, return of premium product feature.
Fitch has affirmed the 'A-' Insurer Financial Strength (IFS) ratings of Genworth Life Insurance Co., Genworth Life and Annuity Insurance Co. and Genworth Life Insurance Co. of New York (collectively, Genworth Life). Fitch has also affirmed the 'A-' long-term ratings on the Genworth Global Funding Trusts. The Rating Outlook is Negative.
The rating action reflects Fitch's view that Genworth Life's statutory capital position remains strong. Also reflected in the rating affirmation is that its holding company liquidity profile has improved, and investment losses have tapered off and remain within the levels previously forecasted by Fitch. Recent earnings also generally have been in line with rating expectations.
Genworth Life's statutory capital position has benefited during the last year from the sale of its Medicare supplement business. Also bolstering its position are favorable taxes and positive statutory income, and the completion of a life block transaction that closed in Q1 2012. Genworth Life plans to complete a second life transaction in Q4 2012, which is expected to generate in excess of $100 million of after-tax capital benefits.
Guardian Life Insurance Co. of America and its subsidiaries
A.M. Best has affirmed the financial strength rating (FSR) of A++ (Superior) and issuer credit ratings (ICR) of “aa+” of Guardian Life Insurance Co. of America (Guardian Life) and its subsidiaries, Guardian Insurance & Annuity Co. Inc. and Berkshire Life Insurance Co. of America (together referred to as Guardian). Concurrently, A.M. Best has affirmed the debt rating of “aa-” on the $400 million, 7.375% surplus note, due Sept. 30, 2039, of Guardian Life.
Additionally, A.M. Best has affirmed the FSR of A (Excellent) and ICRs of “a” of Family Service Life Insurance Co., Sentinel American Life Insurance Co. and Park Avenue Life Insurance Co. A.M. Best also has affirmed the FSR of A (Excellent) and ICR of “a+” of First Commonwealth Insurance Co. These companies also are subsidiaries of Guardian Life. The outlook for all ratings is stable.
The ratings of Guardian reflect its superior capitalization and positive premium trends generated from its core individual, group and asset-based business segments, despite continued challenging economic conditions. Guardian's consistent earnings and diversified business mix provide a stable stream of earnings and cash flow. Additionally, Guardian has executed a number of de-risking initiatives to counteract the low-interest-rate environment; it maintains an active credit risk management program and continues to focus on strengthening its distribution channels.
Markel Corp. and its subsidiaries
A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of "a+" of the members of the Markel North America Insurance Group (Markel). Concurrently, A.M. Best has affirmed the FSR of B++ (Good) and ICR of “bbb+” of FirstComp Insurance Co. (FirstComp). Additionally, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of “a-” of Deerfield Insurance Co. (Deerfield), as well as the ICR of “bbb+” and all debt ratings of the publicly traded parent, Markel Corp. (MKL). The outlook for all ratings is stable.
The rating affirmations of Markel recognize its well-established market position as one of the leading excess and surplus lines organizations in the United States, its sustained operating profitability and solid risk-adjusted capitalization. Additionally, these ratings acknowledge Markel's excellent operating cash flow, adequate liquidity, and the financial flexibility afforded by MKL.
While Markel continues to benefit from its long-standing reputation among U.S. wholesalers and retailers, Markel's recent underwriting performance continues to be adversely affected by prevailing soft market conditions as well as increased expenses. Markel has long maintained underwriting leverage higher than the average of the surplus lines composite.
OneBeacon Insurance Group Ltd. subsidiaries
Fitch has assigned an 'A' Insurer Financial Strength (IFS) rating to OneBeacon Insurance Group Ltd.'s (OneBeacon; 75 percent ownership by White Mountains) new operating company insurance subsidiaries, OBI National Insurance Co. (OBIN) and Homeland Insurance Co. of Delaware (HODE). The Rating Outlook is Stable. All other ratings of OneBeacon and its subsidiaries are not affected by this action.
Fitch's rating action reflects the assignment of OneBeacon's group IFS rating to OBIN and HODE as core insurance affiliates. These recently established insurance entities were formed to write OneBeacon's ongoing business and will cede 100% to Atlantic Specialty Insurance Co., the group's primary ongoing insurance entity, through a quota share reinsurance agreement. This restructuring of business entities is being completed as part of the expected sale of OneBeacon's runoff business companies to Armour Group Holdings Ltd. (Armour).
Principal Financial Group Inc.
Fitch has assigned an 'A-' rating to Principal Financial Group Inc.'s (PFG) proposed issuance of about $800 million of senior, unsecured notes. PFG's long-term Issuer Default Rating is unaffected by this rating action.
Fitch placed the ratings of PFG and its insurance operating subsidiaries on Rating Watch Negative on Oct. 9, 2012, following the company's announcement that it would acquire AFP Cuprum S.A. (Cuprum), a Chilean pension manager, for consideration of about $1.5 billion. The Rating Watch reflects Fitch's view that financing of the transaction will bring PFG's financial leverage and coverage to levels near previously articulated downgrade triggers. The notes being rated are being issued to fund this acquisition.
The notes are guaranteed by PFG's intermediate holding company, Principal Financial Services Inc., of which the organization's primary operating companies are wholly owned subsidiaries. This includes Principal Life Insurance Co., PFG's largest insurance operating subsidiary and the source of the vast majority of the overall organization's operating cash flow.
A.M. Best has assigned a debt rating of “bbb” to the recently issued $1.5 billion, 5.625% fixed-to-floating rate junior subordinated notes, maturing June 15, 2043, of Prudential Financial Inc. (PFI). The assigned outlook is stable. The financial strength, issuer credit and existing debt ratings of PFI and its domestic life/health insurance companies are unchanged.
The assigned rating reflects the notes’ deeply subordinated status within PFI’s capital structure. Specifically, these securities will rank junior to PFI’s existing and future senior indebtedness and pari passu with PFI’s existing junior subordinated notes.
A.M. Best notes that the newly issued, junior subordinated notes mirror the key terms of the company’s most recent issuance. Similarly, these notes differ from the other existing junior subordinated debt, in that PFI may redeem the new notes on or after June 15, 2023, or at any time within 90 days after the occurrence of a “tax event,” a “rating agency event” or a “regulatory capital event.” The net proceeds of the hybrid offering are expected to be used for general corporate purposes, including the redemption of PFI’s outstanding retail medium-term notes.
S&P revised its outlook on global multiline insurer QBE Insurance Group Ltd. (rated 'A'), the group's core operating entities (rated 'A+'), and the group's other rated subsidiaries (rated 'A') to negative from stable. All ratings have been affirmed.
The revision of the outlooks reflects S&P’s expectation that, based on QBE group's market update information, the group's capital position will continue to be deficient at the 'A' category at the end of 2012. This deficiency is below the ratings agency’s expectations of a return to redundancy at the 'A' level, based on S&P's risk based-capital model, which the agency articulated in its July 2012 outlook statement.
A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a+” of the pooled and reinsured members of QBE North America Insurance Group (QBENA Group). These companies are key operating subsidiaries of QBE Insurance Group Ltd. (QBE), the non-operating holding company of the QBE group of companies. The outlook for all ICRs has been revised to negative from stable. The outlook for all FSRs remains stable.
The revised outlook follows the publication on Nov. 12, 2012, of QBE’s market update on its 2012 forecast results. A preliminary estimate of losses from Hurricane Sandy of between $350 million and $450 million, as well as an increase in projected prior-year reserve strengthening for the full year to $380 million, has led the QBE group to revise its projected insurance profit margin for 2012 to 8% from 12%. As a result, the previously anticipated recovery in consolidated, risk-adjusted capitalization to a strong level, following deterioration in 2011, is not expected to materialize by year-end 2012.
A.M. Best has affirmed the financial strength rating of A- (Excellent) and issuer credit ratings of “a-” of Torus Specialty Insurance Co. (Torus Specialty) and Torus National Insurance Co. (Torus National). Both are wholly owned subsidiaries of their ultimate parent, Torus Insurance Holdings Ltd. (Torus). The outlook for all ratings is stable.
These ratings are based upon A.M. Best’s criteria “Rating Members of Insurance Groups” and take into consideration the roles and strategic importance of Torus Specialty and Torus National to Torus’ overall U.S. strategy. In addition, the ratings reflect the explicit support provided through substantial quota share reinsurance of Torus Specialty and Torus National’s net business by their U.K-based affiliate, Torus Insurance (UK) Ltd. (Torus UK). Furthermore, Torus UK provides aggregate stop-loss protection to Torus Specialty and Torus National. The ratings also acknowledge the implied support of future parental commitment.
Since the majority of its business is ceded to its U.K. affiliate, Torus Specialty and Torus National continue to maintain strong stand-alone capitalization, which is largely driven by their low net underwriting leverage.
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