10 Insurers See Ratings Updates
AIG sees ratings update ahead of decision over lawsuit against the federal government; Allstate, Allianz and several others also receive updates.
Insurance Networking Ratings Corner, January 8, 2013
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:
Allianz Global Corporate & Specialty Resseguros Brasil S.A.
S&P assigned its 'A-' financial strength and issuer credit ratings on the global scale and 'brAAA' rating on the national scale to Allianz Global Corporate & Specialty Resseguros Brasil S.A. (AGCS Re Brazil). The outlook on all ratings is stable.
The ratings on AGCS Re Brazil are based on the support from its indirect parent, Allianz Global Corporate & Specialty AG (AGCS AG; AA/Negative/--), the strong level of capitalization that will support growth, the management expertise, the company's previous experience in the Brazilian market as an admitted reinsurer, and the favorable prospects for the Brazilian insurance and reinsurance market. Offsetting factors include AGCS Re Brazil's expected small scale and size in the first couple of years of operations, and its start-up condition and the uncertainties this implies.
AGCS Re Brazil is the Brazilian subsidiary of AGCS AG. Allianz Risk Transfer AG (AA-/Negative/--), a 100 percent subsidiary of AGCS AG, holds 99.99 percent of AGCS Re Brazil, indirectly, through a non-operating Brazilian holding company, and AGCS AG holds the remaining share. The company's ultimate parent is Allianz SE (AA/Negative/A-1+). Under S&P’s group methodology, AGCS Re Brazil is considered highly strategic to its parent, mostly due to its global growth strategy. The Brazilian subsidiary will become a regional hub for South America, a region that is expected to represent a significant share of AGCS's growth markets.
S&P assigned its 'BBB' debt rating to Allstate Corp.'s junior subordinated debentures up to $1 billion, maturing in 2053. S&P expects the debentures to qualify for intermediate content treatment under the criteria for hybrid securities, based on a review of preliminary documentation.
The company intends to use the net proceeds from this issue for general corporate reasons, including share repurchases. Adjusted debt and financial leverage as of Sept. 30, 2012, were conservative at 23.2 percent and 26.6 percent, respectively. Fixed-charge coverage is very strong, improving to 10.3x during the first nine months of 2012, from 2.7x in full-year 2011. On a pro-forma basis, S&P expects financial leverage to be near 30 percent, and fixed-charge coverage to be near 9x for 2012 and 2013.
Moody's has assigned a Baa1(hyb) subordinated debt rating to Allstate’s (senior debt at A3, negative) $500 million issuance of 40-year, 5.10 percent, fixed-to-floating rate debentures. The debenture is a drawdown from a shelf registration filed on April 30, 2012. Proceeds from the offering are expected to be used, primarily, to fund the company's recently announced $1 billion share repurchase program, which is expected to be completed by Dec. 31, 2013, as well as for general corporate purposes. The outlook on the debt rating is negative.
A.M. Best has assigned a debt rating of “bbb+” to the 40-year, $500 million, 5.10 percent fixed-to-floating subordinated debentures recently issued by Allstate. The assigned outlook is stable. All existing ratings of Allstate and its subsidiaries are unchanged.
The assigned rating recognizes Allstate Insurance Group’s solid, risk-adjusted capitalization, generally favorable operating performance and significant market presence. The rating also is indicative of A.M. Best’s view of the group’s near-term earnings prospects, when considering its strong overall business profile as the second-largest personal lines writer in the United States. As of Q3 2012, Allcorp’s debt-to-capital and debt-to-tangible capital ratios were 25.4 percent and 26.7 percent, respectively, and the company continues to maintain a fixed-interest coverage ratio that is supportive of its ratings.
American International Group Inc.
A.M. Best has withdrawn the financial strength rating of A (Excellent) and issuer credit ratings of “a” of six domestic life insurance subsidiaries of American International Group Inc. (AIG): SunAmerica Annuity and Life Assurance Co. (SALAC), SunAmerica Life Insurance Co. (SLIC), Western National Life Insurance Co. (WNLIC), American General Assurance Co. (AGLA), American General Life and Accident Insurance Co. (AGLAIC) and American General Life Insurance Co. of Delaware (AGLICDE).
Effective Dec. 31, 2012, the aforementioned companies merged with and into American General Life Insurance Co. (AGLIC), AIG’s lead U.S. life insurance company. These transactions are part of AIG’s ongoing strategy to streamline its insurance company structure into fewer operating companies in order to maximize efficiency. As a result of the mergers, SALAC, SLIC, WNLIC, AGLA, AGLAIC and AGLICDE policyholders have become policyholders of AGLIC.
Endurance Specialty Insurance Ltd.
Fitch has affirmed the ratings of Endurance Specialty Holdings Ltd. (ENH) and its reinsurance operating subsidiaries, including the Issuer Default Rating (IDR) for ENH at 'A-', and the Insurer Financial Strength (IFS) rating of Endurance Specialty Insurance Ltd. at 'A'. The Rating Outlook is Stable.
Fitch's rationale for the affirmation of ENH's ratings reflects the company's favorable earnings and interest coverage, moderate financial leverage, and high-quality and liquid investment portfolio. The ratings also reflect the inherent earnings volatility derived from the company's catastrophe exposure, potential uncertainty in the company's loss reserve estimates for long-tail business lines, and anticipated challenges in the overall competitive – but generally improving – property/casualty market rate environment.
ENH announced an initial net loss estimate from Hurricane Sandy of $160 million pre-tax, with about $125 million from the company's reinsurance segment and the remainder from the insurance segment. Fitch considers this level to be manageable, given the company's strong capitalization (net loss represents about 6 percent of shareholders' equity at Sept. 30, 2012), although the loss estimate is still subject to significant uncertainty.
A.M. Best has placed under review with positive implications the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of First Nonprofit Insurance Co. (FNIC).
The under-review status follows the announcement that FNIC has entered into a definitive agreement, under which it will become part of the AmTrust Financial Services Inc. group. As part of the transaction, FNIC's parent, Mutual Insurers Holding Co., will be demutualized and converted into a stock holding company, which will continue to own FNIC. The positive implications reflect the expected benefits to be derived by being part of a much larger organization with access to additional financial and managerial resources.
The transaction is expected to close during the first half of 2013 and is subject to regulatory and policyholder approval.
Fubon Financial Holding Co. Ltd.
Moody's has affirmed the Baa1 issuer rating of Fubon Financial Holding Co. Ltd. (Fubon Financial) with a stable outlook. At the same time, Moody's has affirmed the A2 deposit and C- bank financial strength ratings (baseline credit assessment of baa2) of Taipei Fubon Commercial Bank Co. Ltd. (Taipei Fubon Bank) with a stable outlook.
This follows Fubon Financial and Taipei Fubon Bank's announcement of the proposed acquisition of First Sino Bank. Specifically, Taipei Fubon Bank will acquire 51 percent and Fubon Financial will acquire the other 29 percent.
Total consideration of the transaction is RMB6.45 billion (TWD30.6 billion), which includes a capital injection of RMB0.8 billion to First Sino Bank. In addition to internal cash resources, Fubon Financial will issue new shares of TWD20 to TWD25 billion to pay for the transaction, of which about TWD10 to TWD15 billion will be injected into Taipei Fubon Bank. The transaction is subject to regulatory approvals of Taiwan's Financial Supervisory Commission, Investment Commission of the Ministry of Economic Affairs and the China Banking Regulatory Commission. It is expected to close in Q2 2013.
Hannover Life Reassurance Ltd.
A.M. Best Europe has withdrawn the financial strength rating of A+ (Superior) and issuer credit rating of “aa-” of Hannover Life Reassurance (U.K.) Ltd. (Hannover Life UK), following its conversion into a branch of its parent company, Hannover Rueckversicherung AG. The rationale for the conversion is to improve Hannover Life U.K.’s capital efficiency and to enhance its service offering to clients.
Lakeside Re III Ltd.
S&P assigned its 'B+(sf)' rating to the $270 million, variable rate principal at risk notes, due 2016, issued by Lakeside Re III Ltd. The notes cover losses in the Canadian provinces of Alberta, British Columbia, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, and Quebec, as well as the U.S. states of Arkansas, California, Illinois, Indiana, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Ohio, Oregon, Tennessee, Washington, and Wisconsin, from earthquake and ensuing damage caused by related earth shake, fire, sprinkler leakage, volcanic disturbance or eruption, tsunami, and flooding due to dam or levee ruptures on an annual aggregate basis.
S&P said the rating is based on the lowest of the following: the rating on the catastrophe risk ('B+'); the rating on the assets in the collateral account ('AAAm'); and the rating on the ceding insurer ('AA-').-
Fitch has affirmed the ratings of RenaissanceRe Holdings Ltd. and its subsidiaries, including the Issuer Default Rating (IDR) for RNR at 'A', and the Insurer Financial Strength (IFS) rating of Renaissance Reinsurance Ltd. at 'A+'. The Rating Outlook is Stable.
Fitch's rationale for the affirmation of RNR's ratings reflects the company's continued strong leadership position in the property catastrophe reinsurance market, RNR's reasonable operating and financial leverage, and overall high-quality and liquid portfolio of fixed-income and short-term investments. The ratings also reflect the competitive, but improved, property catastrophe market rate environment, volatile underwriting results, and potential volatility from the company's alternative investments.
RNR announced an initial estimated net negative impact from Hurricane Sandy of $130 million on Q4 2012 results of operations. Fitch considers this level to be manageable, given the company's solid capitalization (representing about 3 percent of shareholders' equity at Sept. 30, 2012), although the loss estimate is still subject to significant uncertainty.
S&P assigned its 'B-' debt and '3' recovery ratings (indicating the expectation for meaningful [50 percent to 70 percent] recovery of principal in the event of a default) to USI Inc.'s (B-/Stable/--) senior-secured facilities consisting of a $1.025 billion term loan, due 2019, and $150 million revolving credit facility (undrawn at closing), due 2017. S&P also assigned its 'CCC' debt and '6' recovery ratings (indicating the expectation for negligible [0 percent to 10 percent] recovery of principal in the event of a default) to the company's $630 million, senior unsecured notes, due 2021.
S&P said it assigned these final ratings following USI Inc.'s announcement that it has closed and funded the transaction for its senior-secured credit facilities and senior notes issuance, and the agency received final documentation. USI Inc. issued this debt in conjunction with its $2.3 billion leveraged buyout by Onex Corp. Prior to this, the ratings on these facilities were preliminary.
At the same time, S&P is withdrawing the counterparty credit rating on USI Holdings Corp., the issuer of debt before the refinancing, as this debt has been repaid.
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