12 Insurers See Ratings Updates
October 23, 2013 by Jennifer Morrell
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:
nhe affirmations reflect Aegon’s continued capital strength – with a significant amount of cash held at the holding company level – and higher underlying earnings in H113. Aegon’s ratings continue to reflect its strong franchise and wide range of products and distribution channels. It is a leading player in its main markets – the United States, the Netherlands and the United Kingdom – with top 10 positions in most of its chosen market segments. The ratings also reflect Aegon’s measured risk appetite and its focus on cost control.
Offsetting this is moderate operating profitability, with earnings remaining under pressure in Aegon’s main markets. However, Fitch expects profitability to gradually improve as Aegon continues to move to the less-volatile fee-based business and focuses on core operations, scales back non-core operations and improves operating efficiency. In addition, Aegon has significant exposure to variable annuities with minimum benefit guarantees and above-average credit risk in the United States.
American Safety Insurance Holdings Ltd. subsidiaries
A.M. Best has removed from under review with developing implications and affirmed the financial strength ratings of A (Excellent) and issuer credit ratings (ICR) of “a” of American Safety Casualty Insurance Co. (ASCIC) and its wholly owned subsidiary, American Safety Indemnity Co. (ASIC). Both companies are subsidiaries of American Safety Insurance Holdings Ltd. (American Safety). The outlook assigned to all ratings is stable.
Concurrently, A.M. Best has withdrawn the ICR of “bbb” of American Safety, given its change in status to an intermediate holding company of Fairfax Financial Holdings Ltd. (Fairfax).
The rating actions on ASCIC and ASIC reflect each company’s solid, risk-adjusted capital positions and follows the close of the purchase of American Safety by Fairfax. Fairfax provides ASCIC and ASIC with a stronger support structure mainly through enhanced financial flexibility and operating environments. Fairfax plans to combine the business written by these entities with its specialty insurance platforms during the next year.
Fitch has affirmed all of Aon Plc.’s (Aon) ratings, including the Issuer Default Rating (IDR) and senior debt ratings at ‘BBB+’, and the commercial paper ratings at ‘F2’. The rating outlook is stable.
The affirmation reflects Aon’s strong competitive position, balance sheet and cash flow generation, very good financial flexibility, and financial leverage that are within guidelines for the rating category.
At June 30, 2013, financial leverage as measured by debt to total capital, equity credit adjusted, was 34.8 percent; and, annualized debt-to-EBITDA was roughly 2x, representing improvement over historical results that included additional debt from the Hewitt Associates (Hewitt) acquisition Leverage is currently at levels that Fitch views as solid for the rating category. Fitch expects both ratios to remain stable with modest improvement going forward.
AVIVA Plc. and its subsidiaries
A.M. Best Europe has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a+” of the insurance subsidiaries of AVIVA Plc. (AVIVA). Additionally, A.M. Best has affirmed the ICR of “a-” of AVIVA and the ICRs of all debt securities. The outlook for the FSR remains stable and the outlook for the ICRs remains negative.
Concurrently, A.M. Best has affirmed all ratings of Aviva Insurance Co. of Canada and its affiliates.
The main rating drivers for the negative outlook on AVIVA’s ICR are the high debt leverage, the volatility of financial results and the significant senior managerial changes in this transitional period for the group. The main drivers for the rating affirmations are AVIVA’s strong risk-adjusted capitalization, improving financial performance and more focused business profile.
AXA Insurance Ltd. subsidiary
Moody’s has affirmed the A3 insurance financial strength rating (IFSR) of AXA Insurance Ltd. and changed the outlook to stable from negative on this rating. AXA Insurance Ltd. is the Irish P&C operation of the AXA Group. All the other ratings of the AXA Group are unaffected by this rating action.
The rating action follows Moody’s change in the outlook on the Ba1 government bond rating of Ireland to stable from negative.
On Sept. 20, 2013, Moody’s changed the outlook on the Ba1 government bond rating of Ireland to stable from negative, reflecting (1) progress being achieved in restoring the government’s financial solvency, as reflected by the resumption of growth, and (2) Ireland’s diminished susceptibility to a renewed loss of access to financial markets and the substantial improvement in its liquidity position.
Berkshire Hathaway Finance Corp.
Fitch has assigned ‘A+’ ratings to the $950 million of senior, unsecured notes issued by Berkshire Hathaway Finance Corp. (BHFC). The notes are guaranteed by Berkshire Hathaway Inc. The ‘A+’ ratings are equivalent to Fitch’s ratings on BHFC’s outstanding senior, unsecured notes that are guaranteed by BRK.
The issuance of senior, unsecured notes consisted of the following: $400 million, 0.95% coupon, maturing in 2016; and $550 million, 2.9 percent coupon, maturing in 2020. Proceeds from the senior notes are to be used to redeem notes maturing this month.
Fitch’s ratings on BRK are supported by extremely strong capitalization and market position of its insurance subsidiaries, solid operating performance with good diversification across business lines, and excellent financial flexibility and liquidity.
Fitch has affirmed the ‘AA’ Insurer Financial Strength (IFS) ratings of Factory Mutual Insurance Co. (Factory Mutual) and its affiliates (collectively FM Global). The rating outlook is stable.
The ratings continue to reflect FM Global’s strong capital position and long-term underwriting profitability, competitive advantages derived from the company’s engineering expertise and global presence in specialty commercial property insurance markets, as well as benefits drawn from the company’s mutual company status. Partially offsetting these positives is the effect of year-to-year capital volatility derived from the company’s underwriting activities and long-held common equity investment allocation.
FM Global’s underwriting results in the first eight months of 2013 were significantly improved during the prior-year period as the company reported a combined ratio on a GAAP basis of 64.2 percent in the first eight months of 2013, compared with 84 percent in 2012.
Moody’s has withdrawn the P-2 short-term insurance financial strength (IFS) ratings of Genworth Life Insurance Co. (GLIC) and Genworth Life and Annuity Insurance Co. (GLAIC). The A3/stable outlook long-term IFS ratings for GLIC and GLAIC are unaffected.
GLIC and GLAIC are life insurance subsidiaries of Genworth Financial Inc. (Baa3 senior unsecured debt rating, stable). Genworth, headquartered in Richmond, Va., reported total assets of $108 billion and shareholders’ equity (including accumulated other comprehensive income and excluding minority interest) of $14.7 billion, as of June 30, 2013.
Fitch has withdrawn the ‘F2’ Short-Term Rating on ING U.S. Inc.’s (ING U.S.) commercial paper program. ING U.S. formally terminated its U.S. commercial paper program, effective Oct. 3, 2013.
Fitch has withdrawn the following rating:
ING U.S. Inc.
Commercial paper guaranteed by ING Verzekeringen N.V. ‘F2′.
Moody’s has withdrawn the Prime-2 program rating for commercial paper issuances of ING U.S. Inc. (ING US), guaranteed by ING Versekeringen, N.V. (senior unsecured at (P)Baa2, developing outlook) – a co-issuer under the program and a wholly-owned subsidiary of ING Groep N.V. (senior debt at A3, negative outlook).
Moody’s said the rating withdrawal was due to ING US’ termination of the commercial paper program on Oct. 3, 2013. The last commercial paper notes issued under the program matured in April 2013.
Nationwide Mutual Insurance Group
Fitch has affirmed and withdrawn the Insurer Financial Strength (IFS) ratings of Nationwide Mutual Insurance Co. (NMIC) and its related intercompany pool members (collectively, Nationwide), and Nationwide Life Insurance Co. (NLIC), at ‘A’.
Fitch also has affirmed and withdrawn 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+’.
At the time of the ratings withdrawal, the Rating Outlook was Stable for the affirmed ratings. Fitch has decided to discontinue the ratings, which are uncompensated. The affirmation reflects Nationwide’s strong competitive position in personal lines insurance, and a more moderate position in commercial lines insurance.
Old Republic International Corp.
Moody’s has affirmed the debt rating of Old Republic International Corp. (Baa3 senior unsecured debt) and the insurance financial strength (IFS) ratings of the lead operating subsidiaries of Old Republic General and Old Republic Title at A2 and changed the outlook on the ratings to stable from negative. The IFS ratings of the group’s PMA subsidiaries were affirmed at A3 with a stable outlook.
Moody’s said the change in outlook to stable from negative is based on stabilizing performance at Republic Mortgage Insurance Co. (RMIC, unrated), the group’s run off mortgage insurer, which in turn reduces the risk that a regulatory intervention could trigger an acceleration of the group’s holding company debt.
RMIC is currently operating under a plan, approved by its regulator, that defers a portion of its claims, thereby avoiding a possible liquidity shortfall stemming from the front loaded nature of claims relative to premiums.
Fitch affirmed the ratings of Validus Holdings Ltd. (Validus). These rating actions include Validus’ senior unsecured debt rating, which was affirmed at ‘BBB+’ and the Insurer Financial Strength (IFS) rating of Validus Reinsurance Ltd. (Validus Re), which was affirmed at ‘A’. The rating outlook is stable.
The ratings affirmation reflects Validus’ continued solid operating performance and internal capital generation since its inception in late-2005. Validus reported $254 million of net earnings in the first half of 2013, driven by a strong combined ratio of 69.7 percent, which benefited from the absence of large catastrophe events during the period.
Barring any unusually large catastrophe events in the fourth quarter of 2013, Fitch expects Validus’ full-year results for 2013 to reflect very strong underwriting profits and solid overall profitability that will continue to be partially dampened by suppressed investment income, due to the continued low-interest-rate environment.
For more ratings activity, visit our Ratings Corner.
