16 Insurers See Ratings Updates
Travelers, Progressive and 14 others receive updates; Aviva and Athene both evaluated following acquisition.
Insurance Networking Ratings Corner, December 25, 2012
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:
Fitch has affirmed the 'A' Insurer Financial Strength (IFS) ratings of Alterra Capital Holdings Ltd.'s (Alterra) insurance subsidiaries. The Rating Outlook is Stable. Additionally, Fitch has placed on Rating Watch Negative Alterra's 'A-' Issuer Default Ratings (IDR) and 'BBB+' senior debt ratings.
Fitch's rating action follows the announcement that Markel Corp. (Markel) intends to acquire Alterra, with the transaction expected to close in the first half of 2013. The affirmation and Stable Outlook on Alterra's 'A' IFS ratings reflects that they are rated the same as Markel's IFS ratings and would likely be affirmed at this level upon closing of the merger. The affirmation also reflects Alterra's solid capitalization, sizable underwriting platform, strong earnings track record, and disciplined and flexible approach to managing risk.
The Rating Watch Negative on Alterra's IDR and debt ratings reflects that, upon the closing of the pending acquisition, Fitch will align Alterra's debt ratings with those of Markel under a consolidated U.S. entity approach. This will result in a one-notch downgrade to Alterra's IDR and debt ratings, based on Fitch's notching guidelines for a U.S. regulatory environment.
Fitch has placed the 'BBB+' Insurer Financial Strength (IFS) rating of Athene Annuity & Life Assurance Co. (Athene) on Rating Watch Negative. The rating action follows the announcement that Athene Holding Ltd. (AHL) will be acquiring the U.S. annuity and life operations (Aviva USA) of Aviva Plc. for $1.55 billion. Following close, Aviva USA's insurance operations will become wholly owned subsidiaries of Athene.
Fitch views this transaction as a transformational event for Athene, due to the large block of the existing business and the significant new business infrastructure Athene will acquire. The transaction is expected to increase Athene's aggregate liabilities to more than $60 billion and, thus, provide greater economies of scale. The combined entities will become the second-largest issuer of fixed-
indexed annuities in the United States.
Offsetting these positives is the financing risk associated with the transaction. Apollo Global Management LLC has agreed to provide up to $100 million of capital support to Athene. However, Athene will need to secure additional capital support prior to close. This could include the issuance of debt or equity, or the use of reinsurance.
Aviva Life and Annuity Co. and its subsidiary
A.M. Best has downgraded the financial strength rating to A- (Excellent) from A (Excellent) and issuer credit ratings (ICR) to “a-” from “a” of Aviva Life and Annuity Co. (ALAC) and its wholly owned subsidiary, Aviva Life and Annuity Co. of New York (ALACNY) (together referred to as Aviva USA). Concurrently, the ratings have been placed under review with negative implications.
Both ALAC and ALACNY are the principal insurance subsidiaries of Aviva USA Corp., which is an indirect, wholly owned subsidiary of Aviva Plc. (Aviva). Aviva is a global diversified financial services company.
The rating actions follow the Dec. 21, 2012, announcement by Aviva that it had agreed to sell Aviva USA Corp. to Athene Holding Ltd. for $1.8 billion. Aviva will receive sales proceeds of $1.55 billion in cash, after the repayment of external debt. Of this, an amount of up to $250 million may be received in the form of an interest-bearing vendor loan, repayable in cash within 12 months of completion. The transaction is expected to close in 2013, subject to regulatory and other customary approvals.
S&P lowered to 'A+' from 'AA-' its financial strength and long-term counterparty ratings on AXA Life Insurance Co. Ltd. The outlook on the financial strength and long-term counterparty ratings is stable. AXA Life Insurance is a Japanese subsidiary of AXA Group, one of the world's largest insurance and financial groups. Under S&P’s group rating methodology for insurance companies, the ratings agency considers AXA Life Insurance as a core subsidiary within AXA Group.
S&P said its downgrades of the core operating entities of AXA Group, including AXA Life Insurance, are based on the view that unfavorable investment market conditions and weak economic prospects are likely to dampen the group's earnings growth prospects, despite its actions to deemphasize capital-consuming products and business lines.
The group's risk-adjusted capital adequacy level, according to S&P’s criteria, and its sensitivity to changing market conditions continue to be weaknesses for the financial strength ratings, although S&P believe earnings retention and recently improving investment market conditions have provided capital adequacy support during the last year.
Cincinnati Financial Corp. and its subsidiaries
A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa-“ for The Cincinnati Insurance Co., The Cincinnati Indemnity Co. and The Cincinnati Casualty Co., collectively referred to as The Cincinnati Insurance Co.s (CIC) standard market property/casualty group. Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and ICR of "a+" of The Cincinnati Life Insurance Co. (Cincinnati Life).
Additionally, A.M. Best has affirmed the ICR of "a-" and debt ratings of CIC and Cincinnati Life's publicly traded parent, Cincinnati Financial Corp. (CINF). The outlook for all ratings is stable.
A.M. Best also has affirmed the FSR of A (Excellent) and ICR of "a" of The Cincinnati Specialty Underwriters Insurance Co. (CSU), a wholly owned, separately rated excess and surplus lines subsidiary of The Cincinnati Insurance Co., the lead property/casualty company. The outlook for CSU remains stable.
Manulife Financial Corp. and its subsidiaries
A.M. Best has affirmed the financial strength ratings (FSR) of A+ (Superior) and issuer credit ratings (ICR) of "aa-" of the life insurance subsidiaries of Manulife Financial Corp. (MFC). Concurrently, A.M. Best has affirmed the ICR of “a-” as well as all existing debt ratings of MFC. The outlook for all ratings is stable.
The rating affirmations reflect Manulife's solid market position in the global markets, continuing progress in de-risking its balance sheet by reducing its exposure to equity and interest rate risks, and its revised product focus on less capital intensive lines of business, while maintaining adequate regulatory risk-adjusted capitalization, despite low interest rate challenges and restructuring of its business platform. MFC also maintains significant scale in its core business lines and has seen growing assets under management.
A.M. Best notes MFC’s proactive risk management platform, including enhanced risk oversight functions. Over the last few years, MFC's various strategic actions have moderated the impact of the macro-economic challenges and equity market volatility on its consolidated risk profile and balance sheet. Key strategic actions have included accelerated macro and dynamic hedging programs, changes in product design and pricing, and the targeting of specific products for growth in its various geographical markets, while reducing the sales of capital intensive products, especially variable annuities in the United States.
Fitch has affirmed the 'A' Insurer Financial Strength (IFS) ratings of Markel Corp.'s seven principal property and casualty insurance subsidiaries. Fitch also has affirmed the following ratings for MKL:
• Issuer Default Rating (IDR) at 'BBB+'
• Senior, unsecured notes at 'BBB'.
The Rating Outlook is Stable. Fitch's rating action follows the announcement that MKL intends to acquire Alterra Capital Holdings Ltd. (Alterra) for about $3 billion.
The affirmation and Stable Outlook reflects that Alterra's IFS ratings are the same as MKL's. The affirmation also reflects Fitch's view of the transaction as improving the business platform of the combined organization, as well as the complementary and disciplined approach to risk management of the two companies. While the acquisition of Alterra creates some execution risk in integrating the two organizations, Fitch expects this risk to be manageable.
Mutual of Omaha Insurance Co. and its subsidiaries
A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa-” of Mutual of Omaha Insurance Co. (Mutual) and its subsidiaries, United of Omaha Life Insurance Co. (United of Omaha), Companion Life Insurance Co. (Companion Life), and United World Life Insurance Co. (United World Life). Concurrently, A.M. Best has affirmed the debt ratings of “a” on the existing $300 million, 6.8 percent surplus note, due 2036; and $300 million, 6.95 percent surplus notes, due 2040, of Mutual. The outlook for all ratings remains negative.
The rating affirmations reflect Mutual of Omaha’s strong absolute and risk-adjusted capitalization, good revenue and earnings growth within most of its core lines, generally favorable investment performance, and moderate use of financial and operating leverage.
The company continues to benefit from its well-diversified product portfolio, multi-platform distribution system and strong brand recognition. Somewhat offsetting these positives are the company’s growing book of Medicare Supplement business, overall exposure to commercial real estate, both in the general account and through affiliated holdings, and its in-force block of interest-sensitive liabilities.
Nationwide Mutual Insurance Co.
Fitch has affirmed the Insurer Financial Strength (IFS) ratings of Nationwide Mutual Insurance Co. (NMIC) and its related intercompany pool members (collectively, Nationwide Mutual), as well as Nationwide Life Insurance Co. (NLIC), at 'A'. In addition, Fitch has affirmed the ratings on NMIC's outstanding surplus notes at 'BBB'.
Fitch also has affirmed the following ratings of Nationwide Financial Services Inc. (NFS):
• Issuer Default Rating (IDR) at 'BBB+'
• Senior, unsecured notes at 'BBB'
• Trust preferred securities at 'BB+'.
The Rating Outlook is Stable for all ratings. The rating affirmation reflects Nationwide Mutual's strong competitive position in personal lines insurance, and a more moderate position in commercial lines insurance, which was enhanced by the merger with Harleysville Mutual Insurance Co. (Harleysville) in 2012.
Fitch has affirmed the 'AAA' Insurer Financial Strength (IFS) ratings of The Northwestern Mutual Life Insurance Co. (NM) and Northwestern Long Term Care Insurance Co. (NLTC), collectively referred to as Northwestern. Fitch also affirms NM's 'AA+' Issuer Default Rating (IDR) and 'AA' surplus note rating. The Rating Outlook is Stable.
Fitch's ratings reflect Northwestern's very strong competitive position in the U.S. individual life insurance market, exceptionally strong balance sheet fundamentals, and stable earnings profile. Fitch considers Northwestern's key competitive advantages to include its successful distribution system, large and stable block of traditional life insurance, and focus on expense control.
Northwestern's extremely strong balance sheet fundamentals reflect the company's very strong risk-based capital position, modest financial leverage, excellent liquidity, and relatively low-risk liability profile. Total adjusted statutory capital (TAC) increased to $22.2 billion or 7 percent at Sept. 30, 2012, due to strong positive statutory operating earnings, and positive contributions from both net unrealized and realized investment gains. Fitch estimates Northwestern's risk-based capital was about 506 percent at Sept. 30, 2012. NM had surplus notes to TAC of about 7.9 percent and a total financial commitment ratio (TFC) of less than 0.2 times (x) at Sept. 30, 2012.
The Progressive Corp. and its subsidiaries
A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa” of the members of Progressive Agency Pool, Progressive Direct Pool and Progressive Commercial Auto Group (collectively known as Progressive). A.M. Best also has affirmed the FSR of A (Excellent) and ICR of “a+” of National Continental Insurance Co. Additionally, A.M. Best has affirmed the ICR of “a” and all debt ratings of the parent holding company, The Progressive Corp. The outlook for all ratings is stable.
The ratings reflect Progressive’s favorable capitalization, strong operating performance and sustainable competitive advantages. Progressive’s capitalization has benefited from consistently favorable underwriting results and a rebound in its investment portfolio, since the market downturn of 2008-2009.
Progressive continues to benefit from an innovative management team, brand name recognition, a multiple channel distribution platform, and innovative underwriting and claims handling technology. In addition, Progressive’s direct operations have continued to witness favorable growth, reflective of improved brand recognition.
Moody's has affirmed the Baa3 senior debt rating of State Auto Financial Corp. (State Auto) and the A3 insurance financial strength ratings of members of the State Automobile Mutual Group. Moody's changed the outlook to negative from stable, following continued weak underwriting profitability and execution risk associated with the company's earnings diversification strategy.
According to Moody's, the negative outlook reflects State Auto's weak profitability, which has been driven by ongoing weather-related losses in the company's homeowners' line, high combined ratios across commercial and specialty business segments, and a Q3 2012 reserve charge, related to the run-off of a commercial automobile program.
While State Auto is taking steps to improve results such as implementing rate increases, tightening underwriting standards, and exiting or reducing business in certain lines and states, profitability continues to be below Moody's expectations. Further, the company is experiencing sizable growth in its specialty business segment, which carries execution risk.
Sun Life Financial Inc. subsidiaries
S&P has lowered its ratings on Sun Life Assurance Co. of Canada (SLUS) and Sun Life Insurance & Annuity Co. of New York to 'BBB' from 'BBB+'. At the same time, S&P revised the outlook to developing from stable. The ratings agency’s ratings and outlooks on SLF and its other subsidiaries are unaffected by this action.
On Dec. 17, 2012, SLF announced its plan to sell its subsidiaries, SLUS and SLNY, to Delaware Life Holdings for $1.35 billion. The transaction is expected to close by mid-year 2013. S&P said the rating downgrade reflects the view of the company's financial strength on a stand-alone basis. S&P believes SLUS and SLNY have acceptable capitalization and a modest competitive position and business profile, stemming from their closed block of life and annuity businesses.
Fitch has placed the 'A-' Insurer Financial Strength (IFS) ratings of Sun Life Financial Inc.'s U.S. life insurance subsidiaries on Rating Watch Negative. The rating action follows SLF's announcement that it reached a definitive agreement to sell Sun Life Assurance Co. of Canada (U.S.) and Sun Life Insurance & Annuity Co. of New York to Delaware Life Holdings, a company owned by shareholders of Guggenheim Partners.
The sale will represent a complete transfer of U.S. variable annuity risk for SLF, since this business is contained in a separate legal entity. Other businesses being sold include fixed-annuity and fixed-indexed annuity products, corporate and bank-owned life insurance products and variable life insurance products.
Fitch has affirmed its ratings on The Travelers Co.s Inc., as follows:
• Issuer Default Rating (IDR) at 'A+'
• Senior, unsecured notes at 'A'
• Subordinated notes at 'BBB+'
• Insurer financial strength (IFS) on insurance company subsidiaries at 'AA'.
The Rating Outlooks are Stable. TRV's ratings continue to be founded on its strong competitive position as a Top 5 U.S. property/casualty insurer with a history of solid earnings and prudently structured balance sheet. TRV's losses from Superstorm Sandy were manageable, and Fitch expects it to report improved earnings for full-year 2012 relative to 2011. Fitch continues to monitor TRV's investment concentration in municipal bonds.
TRV's market share is nearly 5 percent of the property/casualty industry measured by net written premium. The company offers a wide range of insurance products to both the commercial and personal lines markets, frequently occupying a top-tier position among independent insurance agencies.
Fitch has affirmed the 'BBB-' Issuer Default Ratings (IDRs) of Willis Group Holdings Plc. (Willis), Willis North America Inc. (WNA), and Trinity Acquisition Ltd. The Rating Outlook is Stable.
The rating affirmations reflect Fitch's expectation that projected ranges for two key credit ratios will remain at levels that are manageable for an insurance broker, while consolidated pre-tax profit margins remain near recent levels in the low-20s in terms of percentage.
Fitch expects that Willis' reported debt-to-EBITDA ratio gradually will return to levels near 2.5 times (x) after climbing to about 3.2x in 2011, due to non-recurring expenses related to Willis' most recent operational review. This key credit metric has decreased meaningfully in 2012 as operational review costs abate, and related expense savings benefit earnings. Fitch anticipates that Willis' full-year 2012 debt-to-EBITDA will be about 2.75x or lower.
XLIT Ltd. and its subsidiaries
Fitch has affirmed the ratings of XLIT Ltd. (XL, a subsidiary of XL Group Plc.) and its property/casualty (re)insurance subsidiaries, including the Issuer Default Rating (IDR) for XL at 'BBB+', and the Insurer Financial Strength (IFS) rating of its core operating companies at 'A'. The Rating Outlook is Stable.
Fitch's rationale for the affirmation of XL's ratings reflects the company's solid capitalization, reasonable financial leverage and stable competitive position. The ratings also reflect anticipated challenges in the overall competitive, but generally improving, property/casualty market rate environment, recent earnings volatility, and the potential drag from the remaining runoff life business.
XL recently announced that it expects to incur estimated net losses of $350 million pre-tax from Hurricane Sandy. Fitch considers this level to be manageable, given the company's strong capitalization (net loss represents about 3 percent of shareholders' equity at Sept. 30, 2012), although the loss estimate is still subject to significant uncertainty.
For more information on related topics, visit the following channels: