AIG, CIGNA and Eight Others See Ratings Updates
WellPoint also among those receiving updates.
Insurance Networking Ratings Corner, January 3, 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:
American International Group Inc.
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S&P assigned its 'A-' senior unsecured debt rating to American International Group Inc.'s (AIG) senior unsecured notes, issued as part of its offer to exchange new senior notes for outstanding junior subordinated debentures. The senior note issuances comprise, in total, about $2.5 billion, whereas the amount of junior subordinated notes retired totaled nearly $3.9 billion.
On a pro-forma basis, the exchange of senior notes for a larger amount of hybrid securities, which received equity credit under S&P’s criteria for hybrid securities, increases debt leverage, somewhat. AIG's overall financial leverage and fixed-charge coverage metrics improve modestly following the exchange, but not enough to affect the current ratings. The exchange conforms to the terms of an existing replacement capital covenant, so the remaining hybrid securities continue to receive equity treatment.
Arch Mortgage Insurance Co. Ltd.
S&P assigned its 'A+' financial strength and counterparty credit ratings to Arch Mortgage Insurance Co. Ltd. (Arch MI). The outlook is stable.
S&P said the ratings on Arch MI reflect the newly established 90% quota share reinsurance treaty entered with its parent, Arch Reinsurance Ltd. (Arch Re). Consistent with S&P's insurance criteria, an affiliate of a core group member becomes core itself, if the affiliate is the beneficiary of a 90% to 100% reinsurance treaty and possesses other key attributes of the parent under the agency’s group methodology criteria. Similar to Arch Re, Arch MI shares the same brand name as its ultimate parent, Arch Capital Group Ltd., and it depends on the group for operational, financial, accounting and actuarial resources, as well as investment management support. As such, S&P has equalized the ratings and outlook on Arch MI with those of Arch Re.
The quota share reinsurance agreement is structured to include all business written after Dec. 1, 2011 (currently, there is no business on the books). The agreement also provides for run-off protection, in the event that the treaty is terminated. Run-off protection means that, if the business is ceded or retroceded while the treaty was in force, it will remain covered until the underlying contract is terminated. Under the agreement, run-off protection also is provided, in the event of a change in control of Arch MI.
CIGNA Life Insurance New Zealand Ltd.
A.M. Best has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of CIGNA Life Insurance New Zealand Ltd. (CLINZ). The outlook for both ratings is stable.
The affirmation of the ratings reflects CLINZ’s strong, risk-adjusted capitalization, continued profitability and market leadership in the credit insurance segment. The ratings also consider the company’s progress in building up new business lines and its initiatives to strengthen its direct distribution.
Higher net profits and earnings retention helped CLINZ to increase its absolute capital in fiscal year 2010. The company’s capital and surplus increased by 13 percent to NZD 104 million, while underwriting risk remained relatively stable. Net premium leverage remained low during the year, and CLINZ’s risk-adjusted capitalization remains strong.
Clarendon National Insurance Co. and its subsidiaries
A.M. Best has downgraded the financial strength rating to B+ (Good) from A- (Excellent) and issuer credit ratings to “bbb-” from “a-” of Clarendon National Insurance Co. and its subsidiaries (together referred to as Clarendon). All ratings have been removed from under review with negative implications and assigned a negative outlook. Concurrently, A.M Best has withdrawn the ratings, due to the decision of Enstar Group Ltd. (Enstar), Clarendon’s ultimate parent, not to participate in A.M. Best’s interactive rating process.
The rating action follows the completion of the sale of all the operating companies of Clarendon Insurance Group Inc. to Enstar. Enstar specializes in the acquisition and management of insurance and reinsurance companies that are in run-off, including the management of their run-off portfolios. Clarendon’s operations have been focused on running off its remaining liabilities since December 2005.
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