13 Insurers See Ratings Updates
MetLife, Travelers and 11 others receive updates.
Ratings Corner, November 20, 2013
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:
Allied World Assurance Co. Holdings AG and its subsidiaries
A.M. Best has upgraded the issuer credit ratings (ICR) to “a+” from “a” and affirmed the financial strength rating (FSR) of A (Excellent) of Allied World Assurance Co. Ltd. (Allied World) and its operating affiliates. The outlook for the ICRs has been revised to stable from positive, while the outlook for the FSR is stable.
A.M. Best also has assigned an FSR of A (Excellent) and an ICR of “a+” to Allied World’s reinsured subsidiary, Vantapro Specialty Insurance Co. The outlook assigned to both ratings is stable.
Concurrently, A.M. Best has upgraded the ICRs to “bbb+” from “bbb” of the ultimate parent, Allied World Assurance Co. Holdings AG (AWH), and its downstream holding company Allied World Assurance Co. Holdings Ltd. (Allied World Holdings Bermuda). A.M. Best also has upgraded the debt ratings to “bbb+” from “bbb” of Allied World Holdings Bermuda. The outlook for these ratings has been revised to stable from positive.
Arrow Reinsurance Co. Ltd.
Moody’s has downgraded to Baa1, from A3, the insurance financial strength (IFS) rating of Arrow Reinsurance Co. Ltd. (Arrow Re), a wholly owned subsidiary of the Goldman Sachs Group Inc. (Goldman Sachs; senior debt at Baa1 Stable). The outlook on the rating is stable.
The rating action follows on Moody’s downgrade of the rating of Arrow Re’s ultimate parent, Goldman Sachs to Baa1 from A3, with stable outlook.
Moody’s Baa1 IFS rating on Arrow Re reflects the benefit of implicit and explicit support provided by its parent, Goldman Sachs. Arrow Re’s standalone credit profile reflects its very strong capitalization relative to its in-force exposures, offset by the opportunistic and sporadic nature of its flow of new business, limited diversification across product lines and counterparties, and uncertain profitability. However, without parental support, Arrow Re’s standalone credit profile is lower than Baa1.
Moody’s has affirmed the Baa2 senior debt rating of Cigna Corp, (Cigna) and the A2 insurance financial strength (IFS) ratings of its operating subsidiaries and changed the outlook to positive from stable following the company’s 2013 third quarter earnings release.
Commenting on the change in Cigna’s outlook to positive, Moody’s stated that Cigna’s financial profile has improved as a result of consistent financial results for the last few years, and in addition, strategic developments have improved the company’s risk profile. Moody’s said that, in particular, Cigna’s financial leverage (adjusted debt to total capital), which has historically been high relative to the company’s rating at around 45 percent, is expected to be managed to below 40 percent over next 12 months.
In addition, the acquisition of HealthSpring in 2012 provided the company with a significant presence in the Medicare Advantage market, adding diversification benefits, and the reinsurance transaction with Berkshire Hathaway Life Insurance Co. of Nebraska eliminated a significant amount of the interest rate and market exposure risk associated with Cigna’s run-off reinsurance operations.
General Electric Capital Corp.
Moody’s affirmed the ratings of General Electric Capital Corp. (GE Capital; A1/Prime-1 stable) after parent GE (Aa3/Prime-1 stable) announced plans to exit GE Capital’s North American retail finance business (Retail Finance) in a multi-step transaction beginning with an IPO of 20 percent of the unit’s shares in 2014.
In Moody’s view, GE’s proposed IPO and eventual exit of Retail Finance does not materially alter GE Capital’s risk profile over the medium term, due to expected neutral effects on the firm’s capital, liquidity and overall franchise strength and diversification. However, in the short term GE Capital will provide transitional support to Retail Finance, resulting in a significant credit risk concentration and exposing GE Capital to the transaction’s execution risks.
During its support of the transaction, GE Capital will relinquish control of Retail Finance and will forgo the benefit of its earnings. Moody’s believes that GE’s ownership and support of GE Capital continues to be a source of ratings strength. GE Capital’s A1 rating includes a three-notch uplift from its baseline credit assessment of baa1 in recognition of GE’s support.
Harmony General Insurance Co. Ltd.
A.M. Best has affirmed the financial strength rating of B+ (Good) and issuer credit rating of “bbb-” of Harmony General Insurance Co. Ltd. (Harmony). The outlook for both ratings is stable.
The ratings reflect Harmony’s solid risk-adjusted capitalization, overall earnings in recent years and conservative reinsurance program. Harmony is owned by ABH Holdings Ltd., a privately owned holding company.
Overall earnings in recent years have enabled Harmony to enhance its capitalization, and it continues to maintain solid risk-adjusted capitalization for its current business profile. Despite operating in a region that has historically been less prone to catastrophic events, Harmony maintains a very conservative reinsurance program, which limits its exposure to natural disasters.
Marsh & McLennan Cos.
S&P has raised its corporate credit rating on Marsh & McLennan Cos. (MMC) to ‘BBB+’ from ‘BBB’. At the same time, S&P raised its rating on MMC’s senior unsecured debt to ‘BBB+’ from ‘BBB’. The outlook is stable.
S&P said the upgrade reflects MMC’s continued trajectory of improved operating performance over the past year, which has contributed to the belief that the company can sustain a business and financial profile commensurate with a higher rating.
Since S&P revised the outlook to positive after MMC reported its first-quarter 2013 results, the company has continued to perform well. For the first nine months of 2013, MMC reported consolidated organic revenue growth of 3 percent, because the company’s global and product diversification mitigated ongoing economic weakness in some of its markets. Its bottom-line operating results also continue to trend favorably, fostered by improved operational efficiencies and operating leverage.
A.M. Best has assigned a debt rating of “a-” to the recently issued $1 billion, 4.875% senior unsecured notes, due Nov. 13, 2043, of MetLife Inc. (MetLife). The outlook assigned is stable.
The proceeds from the debt offering will be utilized for general corporate purposes, which may include the repayment in whole, or in part, of $1.35 billion of outstanding senior notes, due in 2014, upon their maturities. A.M. Best notes that MetLife’s overall financial leverage is expected to remain below 30%, while interest coverage is expected to remain above five times. Both measures are within A.M. Best’s guidelines for MetLife’s current rating level.
The rating recognizes MetLife’s diverse business mix, prominent market position and brand recognition in several business lines, favorable operating results and significant operating scale. MetLife continues to report solid operating earnings while maintaining adequate risk-adjusted capital ratios in 2012 and into 2013.
Platinum Underwriters Holding Ltd.
Fitch has affirmed the ratings of Platinum Underwriters Holding Ltd. (PTP) and subsidiaries as follows:
Senior unsecured notes at ‘BBB+’Insurer Financial Strength (IFS) rating at ‘A’Issuer Default Rating (IDR) at ‘A-.’
The rating outlook is stable. The affirmations reflect Platinum’s history of solid capitalization, moderate financial and operating leverage, and high-quality and liquid investment portfolio, as well as a materially reduced exposure to United States and international catastrophe losses.
The company reported a 62.3 percent calendar year combined ratio in the first nine months of 2013, improved from 75.2 in the prior-year period. These results are in line with the strong performance that Platinum has reported over the long term, with significant favorable prior year reserve development, including reserve releases from prior year catastrophe events such as Superstorm Sandy and the Tohoku earthquake in Japan.
Fitch has affirmed Prudential Plc.’s (Prudential) Long-term Issuer Default Rating (IDR) at ‘A+’ and senior unsecured debt at ‘A’. The agency has also affirmed Prudential Assurance Co. Ltd.’s (PAC) Insurer Financial Strength (IFS) rating at ‘AA’. At the same time, Fitch has affirmed Prudential’s U.S. subsidiaries Jackson National Life Insurance Co. and Jackson National Life Insurance Co. of New York’s (collectively, JNL) IFS ratings at ‘AA’. The Outlooks on the group’s Long-term IDRs and IFS ratings are Stable.
The affirmation reflects Prudential’s continued strong and resilient capital position, operational scale and strong business position in each of its key markets, the United Kingdom, the United States and Asia. Prudential has strong cash generation and a strategy focused on high-margin products with short pay-back periods and a profitable asset management business. Prudential’s ratings also benefit from the group’s strong geographical diversification across the United Kingdom, United States and 12 countries in Asia.
At end-1H13, the group’s regulatory solvency ratio was 230% and its United Kingdom with-profits fund had working capital of GBP7.8bn. The group’s U.S. operations have a strong regulatory risk-based-capital ratio (end-2012: 423 percent). In the United Kingdom, it also maintains a large credit default reserve (end-1H13: GBP2.0bn).
QBE Insurance Group Ltd. U.S. subsidiaries
A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a+” of the pooled and reinsured members of QBE North America Insurance Group (QBENA Group). These companies are key operating subsidiaries of QBE Insurance Group Ltd. (QBE) (Australia), the non-operating holding company of the QBE group of companies. The outlook for the FSR is stable, while the outlook for the ICRs is negative.
All QBENA Group members are important to the expansion of QBE’s operations in the United States. QBENA Group is a significant contributor to the worldwide operations of QBE, one of the largest global insurance organizations, representing about 36 percent of QBE’s global business.
Royal & Sun Alliance Insurance Plc.
S&P lowered to ‘A’ from ‘A+’ its financial strength and issuer credit ratings on Royal & Sun Alliance Insurance Plc. (RSA) and its core operating entities. S&P also placed all credit ratings on CreditWatch with negative implications.
Last week, RSA twice lowered its earnings guidance, due to the impact of weather-related losses, issues identified in RSA’s Irish claims and finance functions, and adverse bodily injury trends in Ireland. As a result, S&P has lowered the ratings, because RSA was unlikely to meet the previous expectations of capital strengthening.
S&P revised its capital and earnings assessment to lower adequate from upper adequate, which, in turn, weakened the financial risk profile to lower adequate. Combined with a very strong assessment of RSA’s business risk profile, this produces an ‘a-‘ anchor. S&P’s capital and earnings assessment remains dependent on RSA continuing to strengthen capital adequacy through management actions and retained earnings through 2015.
Travelers Insurance Co. Ltd.
A.M. Best Europe has affirmed the financial strength rating of A (Excellent) and issuer credit rating of “a+” of Travelers Insurance Co. Ltd. (TICL). The outlook for both ratings is stable.
The ratings of TICL reflect the full support provided by St. Paul Fire and Marine Insurance Co. (SPFM) in the form of an explicit guarantee covering all of TICL’s liabilities arising from its underwriting activities. SPFM is a subsidiary of TICL’s ultimate parent, The Travelers Cos. Inc. (Travelers). The ratings also reflect TICL’s strong stand-alone risk-adjusted capitalization and solid business profile. Offsetting these strengths is the company’s weak underwriting performance.
TICL is expected to maintain risk-adjusted capitalization at a strong level, underpinned by a large capital base. Shareholders’ funds are expected to deteriorate in 2013 from the GBP 575 million reported in the previous year. Nonetheless, the substantial margins incorporated within TICL’s risk-adjusted capitalization are expected to support future growth plans and provide a cushion against unexpected loss exposure.
Virginia Surety Co. Inc.
A.M. Best has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of Virginia Surety Co. Inc. (Virginia Surety). The outlook for both ratings has been revised to stable from positive.
The rating affirmations for Virginia Surety reflect its favorable earnings prospects, supportive capitalization and leadership position in the extended warranty market. Virginia Surety also benefits from its extensive database, broad administrative capabilities and ability to integrate its products and services across its broad client distribution channel. The ratings also take into consideration the unlimited guarantee and indemnification provided by National Indemnity Co. for the run off of all non-warranty business written prior to the 2006 acquisition of The Warranty Group Inc. and its subsidiary, Virginia Surety, by the current owner, Onex Corp.
These positive rating factors are offset by the substantial dividends paid to The Warranty Group Inc. over the last few years, its long-term ownership uncertainty under Onex Corp. and the inherent credit risk associated with ceding a significant portion of its business to non-rated unauthorized captive reinsurers.
Kevin Wrege, Esq.
Founder & President
Pulse Issues & Advocacy LLC
4410 Massachusetts Ave., NW, #150
Washington, DC 20016