11 Insurers See Ratings Updates
Rating agencies review CNO financial Group in light of closing $725 million secured credit facility; Blue Cross (Asia-pacific) Infinity Premier Insurance, Ironshore and others also receive updates.
Insurance Networking Ratings Corner, October 9, 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:
Blue Cross (Asia-Pacific) Insurance Ltd.
A.M. Best has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of Blue Cross (Asia-Pacific) Insurance Ltd. The outlook for both ratings is stable.
The rating affirmations reflect Blue Cross’ solid solvency level and capitalization. The statutory solvency ratio and risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), remains strong and supportive of the current ratings. The high retention of operating profit from the general insurance portfolio and the reduced risk exposure from the legacy life insurance portfolio will be the main contributors to the company maintaining its adequate capital buffer in the future.
Blue Cross also has a stable market presence in the local accident and health insurance industry. The balanced premium mix from the direct, agent and broker channels has contributed to the consistent increase in the individual and group medical insurance business. The robust premium income growth has resulted in a favorable trend in the company’s expense ratio.
Fitch has assigned a 'BB' rating to CNO Financial Group Inc.'s (CNO Financial) recently closed $725 million, senior secured credit facility. The newly rated credit facility is part of the holding company recapitalization plan that CNO Financial announced on Sept. 4, 2012. The size of the credit facility and certain other securities in the recapitalization plan has increased since the original plan was announced. Fitch estimates the financial leverage ratio under the new plan will increase to about 22% on a pro forma basis from 16.7% at June 30, 2012.
The credit facility consists of a $250 million, four-year term loan facility; a $425 million, six-year term loan facility; and a $50 million, three-year unfunded revolving loan. Covenants are similar to those in the previous bank facility, except certain terms and minimum covenant levels have been changed to reflect the evolution of the company's financial profile.
Key rating triggers that could lead to an upgrade include:
• Continued generation of stable earnings free of significant special charges
• Expansion of cushion versus existing covenant requirements or refinancing of the senior secured notes, to create a debt profile consistent with peer life insurance companies
• Maintaining increased GAAP interest coverage ratio and NAIC risk-based capital (RBC) above 6x and 350%, respectively.
Infinity Premier Insurance Co.
S&P withdrew its 'A' long-term counterparty credit and financial strength ratings on Infinity Premier Insurance Co., which is a subsidiary of Infinity Insurance Co. and member of Infinity Property and Casualty Group (collectively, Infinity). S&P is withdrawing this rating, due to completion of the sale of this subsidiary to NationsBuilders Insurance Services Inc.
Infinity Premier Insurance Co. was an inactive shell company that had no direct writings as of June 30, 2012. The company had $632,539 net writings, due to its 0.1% participation in Infinity's intercompany reinsurance pooling agreement. (Infinity Insurance Co., the lead entity in the pool, now will have 98.9% participation.)
As of June 30, 2012, Infinity Premier Insurance Co. held about $199,671 of direct loss and loss-adjustment expense reserves. Following the transaction, Infinity will cover these policy-holder liabilities. Specifically, a reinsurance agreement will be in place, such that all policy-holder liabilities stemming from the pre-closing business Infinity Premier Insurance Co. wrote, will be ceded back to Infinity Insurance Co. Infinity will continue to provide policy and claims-administration services for these liabilities.
Moody's has affirmed the Baa1 insurance financial strength ratings of Ironshore Inc.'s (Ironshore) principal operating subsidiaries and the Baa3 senior unsecured debt rating of Ironshore Holdings (U.S.) Inc. The outlook for the ratings is stable.
According to Moody's, Ironshore's ratings are based on the group's good capitalization, high-quality investment portfolio, moderate operational and financial leverage, and its increasing market presence in the U.S. and European specialty insurance markets.
These strengths are tempered by the company's relatively small scale, compared to many of its competitors in the specialty insurance sector; rapid premium growth during the last several years, following the firm's shift toward a more diversified specialty casualty-focused business mix, which can lead to attendant risks; the underwriting volatility and pricing uncertainty inherent in many of the company's chosen lines of business, which include high-excess liability and catastrophe-exposed property coverages; and a challenging operating environment with widespread rate softening among most casualty segments in recent years. In Moody's opinion, it could take a number of years before loss reserves have seasoned in some of Ironshore's liability lines.
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