Fitch Ratings and S&P reacted to the announcement that MetLife Inc. has closed on its agreement with AIG to acquire American Life Insurance Co. (ALICO) in a transaction valued at over $15 billion.
Fitch upgraded to 'AA-' from 'A+' the insurer financial strength rating assigned to ALICO. At the same time, Fitch affirmed all existing ratings assigned to MetLife Inc. and its subsidiaries. The rating outlook is stable. The rating upgrade is based on ALICO's strong stand-alone credit profile and the application of Fitch's group rating methodology. Fitch considers ALICO to be a core subsidiary of MetLife and an integral and key part of MetLife's international expansion strategy and has a well-established track record of success in its chosen markets.
The affirmation of MetLife's ratings reflects Fitch's view that the longer-term strategic and financial benefits of the proposed acquisition of ALICO largely offset near-term concerns regarding transaction financing and integration. MetLife's ratings continue to reflect the company's strong balance sheet fundamentals, excellent financial flexibility, and market leading competitive positions in several major insurance product lines and markets in the United States, the rating agency says. MetLife's stable outlook reflects, in part, Fitch's view that the company's exposure to future investment losses under Fitch's base case loss scenario is manageable in the context of the company's statutory capital and projected operating earnings. Fitch notes that investment losses realized in the first half of 2010 have declined significantly relative to prior year, consistent with industry peers.
S&P revised its outlook on ALICO to positive from negative and affirmed its 'A+' counterparty credit and financial strength ratings on ALICO. The ratings on MetLife and its operating subsidiaries are unchanged by this event. S&P affirmed the MetLife ratings upon completion of the company's debt and equity issuance to external investors, which raised the capital required to fund this acquisition. The outlook on the MetLife companies remains negative.
The rating agency says ALICO has a strong stand-alone credit profile is a strategically important subsidiary to the MetLife group. ALICO will play a critical role in MetLife’s pursuit of international growth and a shift in its business mix toward more lower-risk products, S&P says. In addition, ALICO has formidable market positions in Japan and Eastern European countries and will complement MetLife’s current international footprint while leveraging ALICO’s strength of global diversification.
The positive outlook on ALICO reflects S&P’s view that upon successful progress of integration, it would view ALICO as core to the MetLife organization over the next 12-18 months and would align the ratings with the MetLife group ratings to reflect the core status. The negative outlook on MetLife and its core operating subsidiaries reflects uncertainty regarding the operational and integration risks associated with the acquisition of ALICO as well as the need to build operating company capital up to 'AA' levels, S&P says. The outlook also reflects the need for enhanced international risk controls within MetLife's enterprise risk management framework.
S&P announced that its ratings on Bermuda-based AXIS Capital Holdings Ltd. (A-/stable/--) and its operating subsidiaries are not affected by the announcement of the appointment of Albert Benchimol as CFO effective Jan. 17, 2011. Benchimol served as EVP and CFO of PartnerRe Ltd. (A/Negative/--) from 2000 through October 2010. His retirement from PartnerRe will be effective Dec. 31, 2010. He will replace David Greenfield, who is leaving the company on Nov. 30, 2010, to pursue other interests. S&P doesn't believe this management change is a concern given Benchimol's extensive industry experience and strong track record, along with AXIS's strong executive management team.
A.M. Best Co. affirmed the financial strength rating of A- (excellent) and issuer credit ratings of “a-” of Employers Insurance Group (EMPLOYERS) and its four property/casualty pooling members: Employers Insurance Company of Nevada, Employers Compensation Insurance Company, Employers Preferred Insurance Company and Employers Assurance Company. Concurrently, A.M. Best affirmed the issuer credit ratings of “bbb-” of EMPLOYERS’ parent holding company, Employers Holdings Inc. (EHI). The outlook for all ratings is stable.
The affirmation of the ratings reflects EMPLOYERS’ solid capitalization, strong operating performance and management’s market expertise and disciplined operating strategy, A.M. Best says. The group’s favorable operating performance is a function of its strict underwriting guidelines, conservative investment policy and prudent capital management. Furthermore, the ratings acknowledge the enhanced market profile that has resulted from the group’s geographic diversification strategy, which has mitigated the business profile risks of being focused on a select number of workers’ compensation markets. EMPLOYERS also benefits from the financial flexibility provided by EHI.
A.M. Best and Moody’s reacted to the announcement that Fairfax and First Mercury have entered into a merger agreement pursuant to which Fairfax will acquire all of the outstanding shares of First Mercury common stock. First Mercury stockholders will receive $16.50 per share in cash, representing an aggregate transaction value of approximately $294 million.
A.M. Best placed under review with positive implications the financial strength rating of A- (excellent) and issuer credit ratings of “a-” of First Mercury Group (First Mercury) and its members. Concurrently, A.M. Best placed under review with positive implications the issuer credit ratings of “bbb-” of First Mercury’s parent holding company, First Mercury Financial Corp.
The under review status with positive implications reflects the perceived benefit to First Mercury of being ultimately owned by Fairfax, which offers the group greater financial flexibility and resources.
A.M. Best plans to resolve the under review status upon the completion of the transaction, which is expected in the first quarter of 2011, subject to shareholder and regulatory approval.
Moody's affirmed the Ba2 long-term issuer rating of First Mercury Financial Corp. and the Baa2 insurance financial strength rating of First Mercury Insurance Co. The outlook for the ratings has been changed to positive from negative given the anticipated benefits from being part of a larger, more diversified group. The transaction is expected to close in the first quarter of 2011, subject to customary conditions, including approval by First Mercury's stockholders and regulatory approvals.
First Mercury's ratings reflect the company's established position in providing general liability insurance for the security industry, its modest catastrophe exposure, good profit margins in its core business, and commission and fee income from certain subsidiaries, Moody’s says.
A.M. Best Co. upgraded the financial strength rating to B++ (good) from B+ (good) and issuer credit ratings to “bbb” from “bbb-” of First Net Insurance Co. (First Net). The outlook for both ratings has been revised to stable from positive.
These rating actions acknowledge First Net’s management and ultimate parent’s continued commitment in strengthening the company’s risk-based capitalization, A.M. Best says. In addition to operating support through distribution and backroom services, the parent company, Moylan’s Insurance Underwriters Inc. (MIU), infused $500,000 into First Net in 2009 to support the company’s ongoing business growth.
Moody's Investors Service has assigned a Baa2 long-term issuer rating for Lancashire Holdings Limited and A3 insurance financial strength ratings for its operating subsidiaries, Lancashire Insurance Company Limited (LICL) and Lancashire Insurance Company (UK) Limited (LUK). The ratings carry a stable outlook.
The A3 insurance financial strength rating of LICL is based on inception-to-date outperformance, a clear emphasis on underwriting and good capitalization. From 2006-2009, operating return on average equity was 22.2% (ex realized and unrealized investment gains/losses and AOCI), which puts Lancashire near the top of the Class of 2005/2006 Bermuda startups (public and private) and well placed among London market peers.
A.M. Best commented that the financial strength rating of A (excellent) and issuer credit ratings of “a” of Nevada General Insurance Co. (NGIC) are unchanged following the announcement of Mutual of Enumclaw Insurance Co.’s (MOE) signing of a definitive agreement to purchase 100% of the stock of Chicago-Vegas Holdings Limited Partnership (CVHLP), which owns 100% of the stock of NGIC.
NGIC is a non-standard personal automobile writer in Nevada, New Mexico and Arizona and will become a wholly owned subsidiary of MOE. As such, it is anticipated that the management of NGIC will continue to operate the company as it has in the past and maintain its trend of favorable operating profitability and strong risk-adjusted capitalization. Accordingly, A.M. Best does not anticipate any revision in the ratings as a result of this transaction.
A.M. Best and S&P has assigned ratings to the $500 million 3.9% 10-year senior unsecured notes and $750 million 5.35% 30-year senior unsecured notes of The Travelers Cos. Inc. They expect the net proceeds from the offerings to be used to fund the consummation of a tender offer for any or all of Travelers’ $1.0 billion subordinated debentures, due 2067. Proceeds from the offerings also may be used to pay a portion of outstanding debt as it matures over the next few years.
A.M. Best assigned a debt rating of “a” to the notes. The rating agency says at September 30, 2010, Travelers’ debt-to-total capital was 18.6%, down slightly from 19.2% at year-end 2009. A.M. Best expects Travelers’ debt-to-total capital to be approximately 22% following the close of the transactions, which is well within A.M. Best’s guidelines for the assigned rating level. In addition, Travelers’ holding company liquidity is significant with $2.82 billion of liquid funds at September 30, 2010.
S&P assigned its 'A-' rating to the notes. The rating reflects Travelers' very strong market position, disciplined underwriting, and very strong capital strength and excellent enterprise risk management framework and practices, S&P says.
Fitch Ratings affirmed the ratings of UnitedHealth Group Inc., and has taken a number of rating actions on UnitedHealth's insurance operating subsidiaries, including the assignment of ratings to two insurance operating subsidiaries and the withdrawal of numerous IFS ratings. The rating outlook on UnitedHealth Group remains negative.
All rated insurance operating subsidiaries are considered core under Fitch's approach to rating insurance groups, and will carry the group rating of 'AA-'. For several insurance operating subsidiaries, application of core status results in an upgrade from 'A+'. In addition, Fitch is withdrawing its insurer financial strength ratings on 35 of UnitedHealth's insurance operating subsidiaries. The withdrawal of the ratings listed below does not imply that Fitch believes UnitedHealth is reducing its focus on or exiting the markets covered by the affected operating companies. The rationale for Fitch's decision to withdraw the ratings of these specific insurance operating subsidiaries is that these companies are no longer considered by Fitch to be relevant to the agency's coverage.
The action follows a review of UnitedHealth's operating performance through the first three quarters of 2010, and considers Fitch's expectations for the company's performance for the remainder of 2010 and 2011.
UnitedHealth has continued to produce solid, the rating agency says, albeit modestly lower operating margins and cash flow, despite unfavorable economic conditions and considerable capital market turmoil over the past two years. Fitch's ratings on UnitedHealth reflect the inherent strength and diversity of the company's operations, good balance sheet fundamentals, very strong earnings track record and excellent cash flow. UnitedHealth has a balanced mix of risk-based and fee-based businesses, which have contributed significantly to the stability of the company's financial performance. In addition, a material amount of unregulated cash flow is generated by businesses outside of its more traditional health insurance lines.
Moody's affirmed the ratings of USI Holdings Corp. (USI -- corporate family rating of B3) based on the company's favorable market position and business diversification, offset by its elevated financial leverage and limited fixed charge coverage. The rating outlook is stable, reflecting Moody's expectation that USI will generate sufficient free cash flow to maintain its financial flexibility over the next several quarters.
USI's credit strengths, according to the rating agency, include its top-10 market position among U.S. insurance brokers, its good balance of property/casualty insurance and employee benefits business, and its ability to cross-sell various products to strengthen client relationships. These strengths are tempered by the company's high financial leverage and by the headwinds of soft pricing in commercial P&C insurance and a sluggish U.S. economy, Moody’s says.
