13 Insurers See Ratings Updates
Berkshire Hathaway, Munich Re and 11 others receive updates.
Insurance Networking Ratings Corner, February 26, 2013
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:
American Financial Group Inc. and its subsidiaries
A.M. Best has affirmed the issuer credit rating (ICR) of “bbb+” and all debt ratings of American Financial Group Inc. (AFG). Concurrently, A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and ICRs of “a+” of Great American Insurance Co. and its pooling affiliates (collectively referred to as Great American Insurance Co.s or Great American). The outlook for the ratings of AFG and Great American is positive.
In addition, A.M. Best has affirmed the FSR of A+ (Superior) and ICRs of “aa” of the property/casualty members of American Empire Surplus Lines Pool (American Empire). A.M. Best also has affirmed the FSR of A (Excellent) and ICRs of “a” of the members of the Republic Indemnity Insurance Pool (Republic Indemnity). The outlook for the ratings of American Empire and Republic Indemnity is stable.
In addition, A.M. Best has upgraded the FSR to A+ (Superior) from A (Excellent) and the ICRs to “aa-” from “a+” of the property/casualty members of the Mid-Continent Group (Mid-Continent). The outlook has been revised to stable from positive.
Fitch has affirmed Arch Capital Group Ltd.'s (ACGL) Issuer Default Rating (IDR) at 'A' and the ratings on ACGL's senior, unsecured notes and preferred shares at 'A-' and 'BBB', respectively. Additionally, Fitch has affirmed the Insurer Financial Strength (IFS) ratings of ACGL's various subsidiaries at 'A+'. The Rating Outlook is Stable.
Fitch's affirmation of ACGL's ratings reflects the company's consistently strong run rate profitability, low financial leverage, strong interest and preferred dividend coverage, and well-managed reserve risk. The ratings also reflect potential volatility from large, catastrophe-related events; potential adverse development, due to the relatively large proportion of its reserves derived from longer duration casualty lines of business; and anticipated challenges in the overall competitive, but generally improving, property/casualty market rate environment.
ACGL's recent announcement that it expects to enter the U.S. mortgage insurance market through the acquisition of CMG Mortgage Insurance Co. and the operating platform of PMI Mortgage Insurance Co. represents an opportunity for an additional diversified source of earnings, as the company currently writes European Union-based mortgage insurance.
Moody's is maintaining the current ratings of Berkshire Hathaway Inc. (long-term issuer rating Aa2, stable outlook), following the company's announcement that it will purchase $12.12 billion of common and preferred equity to be issued by a new holding company formed to acquire H.J. Heinz Co. (senior unsecured debt Baa2, review for downgrade). The Heinz acquisition is valued at $28 billion and will be funded by equity investments from Berkshire and global investment firm 3G Capital, along with debt financing committed by J.P. Morgan and Wells Fargo.
Moody’s said the Heinz transaction fits Berkshire's pattern of making large individual investments. Such concentrated investments represent a credit risk for Berkshire, although the risk is tempered by the company's large capital base, its significant cash on hand, and its strong and diversified earnings.
For the Heinz acquisition, Berkshire's investment will consist of $4.12 billion of common stock, $8 billion of preferred stock and a number of warrants, all to be issued by the acquisition holding company. The preferred stock will pay or accrue a 9 percent dividend and will be redeemable at the request of the acquisition holding company or Berkshire, in certain circumstances.
A.M. Best has revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit rating (ICR) of “a-” of Best Meridian Insurance Co. (BMIC). Concurrently, A.M. Best has affirmed the FSR of B++ (Good) and ICR of “bbb+” of Best Meridian International Insurance Co. SPC (BMIIC). The outlook for these ratings is stable.
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