9 Insurers See Ratings Updates
Aviva, Willis Group and 7 others receive updates.
Insurance Networking Ratings Corner, January 2, 2013
A.M. Best, Standard & Poor’s (S&P’s) and Moody’s Investors Service released ratings updates. The following are some of the most recent:
A.M. Best has downgraded the financial strength rating to D (Poor) from B (Fair) and issuer credit ratings to “c” from “bb” of Ability Reinsurance (Bermuda) Ltd. and Ability Insurance Co. (AIC), collectively referred to as Ability Re. Subsequently, A.M. Best has withdrawn the ratings in response to company management’s request to be removed from A.M. Best’s interactive rating process.
The downgrade reflects A.M. Best’s perspective on the continued poor financial flexibility of AIC, after its significant statutory losses incurred year to date through Sept. 30, 2012. Given the ongoing uncertainty regarding pending litigation and the material decline in the absolute capitalization of AIC, A.M. Best considers its financial flexibility to be very limited, which is reflected in recent rating actions.
The weakness in its operating results continues to reflect reserve strengthening on AIC’s long-term care (LTC) insurance block, despite rate increases during the last few years, and ongoing litigation costs. A.M. Best notes that the company’s ability to explore strategic solutions may be less viable, particularly in the event of potential reserve increases. Many LTC insurers and reinsurers are facing these increases, given low interest rates, lower than priced for lapse rates and higher claims costs.
S&P raised its long-term counterparty credit rating on Amerigroup Corp. (AGP) to 'A-' from 'BB+'. At the same time, S&P removed the rating from CreditWatch with positive implications, where it was placed on July 9, 2012. The outlook is stable.
S&P said that its four-notch upgrade of AGP following its acquisition by WellPoint Inc. is based on the designation of AGP as a core entity within WellPoint Inc. Based on S&P’s group rating methodology, the ratings agency allows for more than three notches of rating support for core entities. AGP now will operate as wholly owned intermediate holding company under WellPoint Inc. AGP's group of health plans collectively supports the enterprise strategy, and the acquisition of AGP is in line with WellPoint's strategy to increase its market presence in the Medicaid segment. WellPoint has a significant existing presence in the Medicaid segment.
Moody's upgraded AGP’s senior unsecured debt rating to Baa2 from Ba2, and the insurance financial strength (IFS) ratings of its operating subsidiaries to A2 from Baa2, following the announcement that WellPoint Inc. (A2 for IFS, stable outlook) had completed its acquisition of AGP and that AGP had become a wholly-owned subsidiary of WellPoint. The outlook on these ratings is stable. In the same rating action, Moody's has withdrawn the Ba2 corporate family rating at AGP, as well as the provisional ratings on AGP's multiple seniority shelf, which has been terminated.
This rating action concludes the review initiated on July 9, 2012, when WellPoint announced that it had entered into a definitive agreement to acquire AGP.
Moody's has downgraded the insurance financial strength (IFS) rating of Aviva Life and Annuity Co. (Aviva Life) to Baa2 from Baa1 and the long-term issuer rating of its intermediate U.S. holding company, Aviva USA Corp., to Ba2 from Ba1. The outlook is negative. The rating action follows the announcement by ultimate parent Aviva Plc. (Aviva, A3 subordinated debt rating, negative outlook) that it has agreed to sell Aviva Life and affiliates (together Aviva USA) to Athene Holding Ltd. (Athene, unrated), an insurance group affiliated with alternative investment manager Apollo Global Management LLC, in a transaction valued at $1.8 billion. The transaction is expected to close in 2013 and is subject to customary closing conditions, including regulatory approval.
Moody's said that the downgrade of Aviva Life was driven by the rating agency's expectation that the business and financial profile of the company will weaken under Athene's ownership, compared to the company's current credit profile as a subsidiary of Aviva.
Given Athene's very rapid growth in the fixed-annuity business during the last three years through acquisitions and reinsurance transactions, Moody's believes Aviva Life's business will become more concentrated in fixed annuities with less emphasis on life insurance products, prompting less product diversification at the company. Of particular concern to the rating agency is the rapid growth of fixed annuities in the current low-interest rate environment.
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