Aflac, Munich Re and 14 Others See Ratings Updates
Tokio Marine regains stability; PartnerRe, Tower Group, Validus and several others also receive updates.
Insurance Networking Ratings Corner, February 14, 2012
A.M. Best, Fitch Ratings, Moody’s Investors Service and Standard & Poor’s (S&P’s) released ratings updates. The following are some of the most recent:
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A.M. Best has assigned debt ratings of “a-” to the forthcoming senior unsecured notes of Aflac Inc. (Aflac). The securities will be issued in two tranches: $400 million, 2.65 percent senior unsecured notes, due 2017; and $350 million, 4 percent senior unsecured notes, due 2022. The outlook assigned to both ratings is stable. Aflac’s existing issuer credit and debt ratings are unchanged.
Proceeds from the issuance will be used to repay $347 million aggregate principal amount of the 1.87 percent Samurai notes, due June 2012. The balance of the proceeds will be used for general corporate purposes, including capital contributions to its subsidiaries, if necessary. Aflac’s overall financial leverage is expected to drop back below 25 percent, following the repayment of the Samurai notes, while interest coverage should remain in the high teens, driven by the company’s strong operating earnings profile. Both ratios are well within A.M. Best’s guidelines for its current rating level.
Moody's has assigned an A3 (stable outlook) debt rating to the about $750 million of fixed-rate senior unsecured notes, maturing in two tranches, 2017 and 2022, to be issued by Aflac (senior debt at A3; stable outlook). The proceeds of the notes are expected to be used to repay Aflac's 1.87 percent Samurai notes, coming due in June 2012 (about $347 million), and for general corporate purposes, including potential capital contributions to subsidiaries. The notes are a drawdown from a shelf registration filed in May 2009.
Moody's said that, although the refinancing of the June 2012 debt maturity with the proceeds of the issuance eliminates near-term refinancing risks, the incremental debt (about $400 million) increases Aflac's adjusted financial leverage modestly to about 24 percent. Going forward, Moody's anticipates that the company will maintain adjusted financial leverage between 25 percent and 30 percent.
S&P assigned its 'A-' senior unsecured debt rating to Aflac's $750 million issue of senior unsecured debt consisting of $400 million, due in 2017, and $350 million, due in 2022. Aflac will use proceeds from the issue to prefund about $350 million of Samurai notes, coming due in June 2012, for possible capital contributions to insurance subsidiaries, and for general corporate purposes.
As of Dec. 31, 2011, S&P estimates that Aflac's financial leverage (including pension and lease obligations) was about 24 percent. With this issue, leverage will temporarily increase to around 27 percent, and the rating agency expects it to fall back to less than 25 percent by year-end 2012. In the longer term, S&P expects Aflac to maintain financial leverage in the 20 percent to 25 percent range, and for fixed-charge coverage (including operating lease payments) to be around 20 times.
A.M. Best has revised the outlook to negative from stable and affirmed the financial strength rating of A (Excellent) and issuer credit ratings of “a” of Concord Group Insurance Pool (Concord) and its member companies, Concord General Mutual Insurance Co., Green Mountain Insurance Co. Inc., State Mutual Insurance Co., Sunapee Mutual Fire Insurance Co. and Vermont Accident Insurance Co. Inc.
The revised outlook reflects Concord’s continued unprofitable underwriting results, particularly evident in 2011, as its geographic concentration of property risks in four New England states exposes the company to frequent weather-related events. Nevertheless, Concord continues to maintain a strong risk-adjusted capital position, due to its modest underwriting leverage and the mitigation of its catastrophe-weather exposure from a severity perspective through the use of a comprehensive reinsurance program. Concord’s established presence in New England enables it to be one of the leading writers of personal lines insurance in that region. During several years, management continuously implemented underwriting, pricing and coastal mitigation strategies designed to improve its underwriting profitability.
Further downward rating movement could occur, if Concord continues to produce unprofitable results.
CNO Financial Group Inc. and its subsidiaries
Fitch has upgraded the ratings assigned to CNO Financial Group Inc. (CNO Financial) and its core insurance subsidiaries. The ratings on CNO Financial's senior secured debt issue and Conseco Life Insurance Co. remain unchanged. The rating outlook is stable.
The rating action reflects CNO Financial's improved capital position, earnings profile, and financial flexibility.
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