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 Subsequently, A.M. Best has withdrawn the ratings in response to company management’s request to be removed from A.M. Best’s interactive rating process.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.
Aviva Plc. subsidiaries
S&P affirmed its 'A-' ratings on Aviva Plc.'s U.S. insurance subsidiaries (Aviva Life and Annuity Co. and Aviva Life & Annuity Co. of New York; collectively referred to as Aviva USA). All of the ratings remain on Credit Watch Developing, where they were placed on Nov. 12, 2012. The ratings and outlooks on Aviva Plc. and its other rated subsidiaries remain unchanged following this announcement.
On Dec. 21, 2012, Aviva Plc. announced its plan to sell Aviva USA to Athene Holding Ltd. (Athene; not rated) for $1.55 billion. The continuation of the CreditWatch Developing placement reflects the level of uncertainty, regarding how Aviva USA's credit profile could change as it is sold and transitioned to its new owner. Subject to regulatory approval, this transaction is expected to close by mid-year 2013. Aviva will retain the North American asset management activities of Aviva Investors that are focused on third parties, as well as Aviva Plc. assets outside of the United States.
Athene is a life insurance holding company focused principally on the retirement market. Its business, through its subsidiaries, is focused primarily on issuing and reinsuring fixed annuities, including fixed-indexed annuities.
S&P revised the rating outlook on China Life Insurance Co. Ltd. to negative from stable. At the same time, S&P affirmed the 'AA-' long-term local currency counterparty credit rating and insurer financial strength rating on the company. The ratings agency also affirmed the 'cnAAA' long-term Greater China regional scale rating on the China-based life insurer.
S&P said it revised the rating outlook to reflect the view that China Life's capitalization may come under further strain during the next two years, following weakened operating performances in 2011 and 2012. The company's capitalization has deteriorated in recent years, due to its continued growth, volatility in the investment markets, and regulatory changes for bancassurance channels. S&P is uncertain about when China Life's operating performance can recover, given potential volatility in the domestic capital markets.
S&P could lower the ratings on China Life if the company's capitalization deteriorates to a level that is no longer commensurate with its stand-alone credit profile of 'a'. Such deterioration could materialize if the company's operating performance continues to weaken during the next two years. The agency also could lower the rating, if it believes the likelihood of extraordinary government support has reduced, which it views as a remote scenario.
OneBeacon Insurance Group Ltd. subsidiaries
Moody's has assigned A2 insurance financial strength (IFS) ratings to OBI National Insurance Co. (OBIN) and Homeland Insurance Co. of Delaware (HODE). OBIN and HODE are affiliates of OneBeacon Insurance Group Ltd. (OneBeacon). The outlook on the ratings is stable. OneBeacon's operating subsidiaries are wholly-owned by OneBeacon U.S. Holdings Inc. (OneBeacon U.S. - senior unsecured Baa2; stable outlook) which, in turn, is wholly-owned by OneBeacon. OneBeacon is an indirect, 75 percent-owned subsidiary of White Mountains Insurance Group Ltd. (White Mountains), with the remaining 25 percent publicly owned.
According to Moody's, OneBeacon's ratings reflect the company's strong underwriting capabilities and good profitability in several low-to-moderate hazard, niche specialty P&C segments, strong producer relationships, and good capitalization. Factors offsetting these strengths include meaningful, though significantly reduced, financial leverage, the company's track record as an active manager of capital, and execution risk associated with entry into new specialty segments.
OBIN and HODE are licensed to write specialty business commencing Oct. 1, 2012, and are wholly owned subsidiaries within the OneBeacon Group that cede 100 percent of their loss reserves and premiums to OneBeacon's lead specialty lines insurer, Atlantic Specialty Insurance Co. (ASIC, A2 IFS) via quota share reinsurance agreement. The ratings are tied directly to OneBeacon's ongoing specialty business led by ASIC.
Peak Reinsurance Co. Ltd.
A.M. Best has assigned a financial strength rating of A- (Excellent) and issuer credit rating of "a-" to Peak Reinsurance Co. Ltd. (Peak Re). The outlook assigned to both ratings is stable.
Peak Re is licensed in Hong Kong as a general reinsurer, with a focus on the Asia Pacific region. With initial capital of $550 million, the company is 85.1 percent owned by Fosun International Ltd. (Fosun) and 14.9 percent owned by International Financial Corp. Fosun is a Hong Kong-listed conglomerate with operations and investments in pharmaceuticals and healthcare, property, steel, mining, retail, services and insurance businesses in Mainland China.
The ratings of Peak Re are based on its sound, risk-adjusted capitalization and its prudent business plan. The assumptions used in the company’s business plan are in line with the average of regional reinsurers. Peak Re’s net underwriting leverage is anticipated to remain below one time during the next five years.
Partially offsetting these positive rating factors are the start-up nature of Peak Re and the challenge it faces to execute its business plan under the increasing competition from both the established reinsurers as well as other new entries within the region.
Moody's has placed the A3 insurance financial strength rating of ProAssurance Indemnity Co. and its rated property/casualty affiliates on review for possible upgrade, as well as the provisional shelf registration ratings of ProAssurance Corp. (provisional senior unsecured of (P)Baa3). The review for upgrade will focus on the group's prospective risk-adjusted capital adequacy, as well as management's integration plan for recently acquired Independent Nevada Doctors Insurance Exchange, and the pending acquisition of Medmarc Insurance Group.
Moody's said ProAssurance continues to demonstrate strong internal capital generation through its underwriting results, while also maintaining a relatively modest degree of operational and financial leverage, all of which are credit positive. The group also has sustained its leadership position in the medical professional liability sector, through a combination of national expansion and selective acquisitions.
According to Moody's, the review is prompted by the company's sustained strong financial fundamentals, including its robust operating profitability and claim-handling discipline, its modest underwriting and operational leverage profile and sound reserve position, as well as a conservative balance sheet, with modest use of financial leverage in the company's capital structure.
Moody's has affirmed the Baa3 guaranteed senior unsecured debt rating of Willis Group Holdings Plc. (together with its subsidiaries, Willis), following the company's announcement of Q4 2012 charges totaling nearly $1 billion. The charges include a goodwill impairment related to Willis's North American unit, and other charges related to a change in its remuneration policy.
The rating affirmation reflects Willis's strong market presence, its stated intention to reduce financial leverage, and the non-cash nature of the Q4 charges. Moody's also assigned a provisional (P)Baa3 guaranteed senior, unsecured rating to Willis's shelf registration. Proceeds from the sale of securities off the shelf will be used for general corporate purposes, including working capital, debt repayment, capital expenditures and possible acquisitions. The rating outlook for Willis is stable.
On Dec. 19, Willis announced a Q4 goodwill impairment charge, estimated at $450 to $500 million (after taxes). The charge, which the company foreshadowed as part of its Q3 earnings announcement, reflects challenges within the North American business, following Willis's 2008 acquisition of Hilb Rogal & Hobbs Co. (HRH). Total goodwill in the North American unit amounted to $1.8 billion as of Sept. 30, 2012.
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