A.M. Best, Moody’s Investors Service and Standard & Poor's announced ratings updates. The following are some of the most recent:
Moody's downgrades the Insurance Financial Strength Rating for AXA Sun Life plc and Sun Life Assurance Society plc (collectively “AXA UK Life") to A2 from A1.
Moody's says the downgrade of AXA UK Life's ratings follows the completion of the change of control of the part of the AXA UK businesses sold to Resolution Ltd. The previous A1 rating reflected the stand-alone rating for the entire business of AXA in the U.K. Conversely, the revised A2 rating reflects Moody's view of the AXA UK Life business sold to Resolution, which corresponds to c. 60 percent of AXA UK Life's new business volumes in terms of APE.
These actions conclude the review for possible downgrade initiated on June 24, 2010. These ratings now carry a stable outlook.
Moody's affirms the A3 Insurance Financial Strength Rating (IFSR) for Friends Provident Life & Pensions Ltd. (FPLP) and the Baa3 subordinated debt of Friends Provident Group plc. (“Friends Provident”) with a positive outlook.
Conversely, the revised A2 rating reflects Moody's view of the enlarged combined operation of Friends Provident, which corresponds to c. 60 percent of AXA UK Life's new business volumes in terms of APE.
Moody’s says it views the market position of the combined group, to be renamed as Friends Life in the first part of 2011, as improving considerably, relative to FPLP's historic position, particularly in the life, pension and protection lines. The agency expects overall cash generation to improve, especially in the AXA UK Life business. It also expects the group's capital position to be and remain at a good level, as a result of Resolution's best endeavors to satisfy the regulatory conditions relating to the quality and quantity of capital. More negatively, the underlying performance of the U.K. life business remains one of the weaknesses for the group given the low new business margins, in particular, for the group pension product, one of the major lines sold by the group. Moody's also will continue to monitor Resolution's future acquisition activity, in particular the extent to which any franchise-enhancing acquisitions for Friends Life are offset by any associated financing strains on the Friends Life group as a whole, in terms of capitalization, leverage and fixed-charge coverage.
Everest Re Group Ltd. and its reinsurance and insurance affiliates
A.M. Best Co. says the ratings of Everest Re Group Ltd. and its reinsurance and insurance affiliates, along with all debt ratings, are unchanged following the recent announcement by Everest Re’s board of directors that they has asked Joseph Taranto to reconsider his decision to retire and to remain as chairman and CEO of Everest Re.
Taranto’s decided to remain in his current position, and Ralph E. Jones III, COO, who was to become the new CEO effective Jan. 1, 2011, resigned from Everest Re on Oct. 7.
A.M Best expects that the current Everest Re business and operating strategies will remain unaffected.
Standard & Poor's Ratings Services says Everest Re Group Ltd., its intermediary holding company, Everest Reinsurance Holdings Inc. (both rated A-/Stable/--), and the company's core operating subsidiaries (all rated A+/Stable/--) were unaffected by Jones’ resignation. Nevertheless, the S&P notes the void created by Jones' sudden departure, given his previous role at the company and his 30-plus years of industry experience.
A.M. Best Europe affirms the financial strength rating of A+ and the issuer credit rating of “aa-” of HSB Engineering Insurance Limited (HSBEIL). The outlook for both ratings remains stable.
HSBEIL is expected to continue to benefit from excellent consolidated risk-adjusted capitalization during 2010. The ratings also factor HSBEIL’s strategic importance to its parent, The Hartford Steam Boiler Inspection and Insurance Co. (HSB), as the HSB group’s principal source of geographical diversification. In addition, HSBEIL receives explicit support from HSB in the form of reinsurance protection.
ILM Group and its subsidiaries
A.M. Best Co. revises the outlook to negative from stable and affirmed the financial strength rating of B++ and issuer credit ratings of “bbb” of ILM Group (ILM) and its subsidiaries, which include Indiana Lumbermens Mutual Insurance Co., Lone Star National Insurance Co. and National Building Material Assurance Co., all located in Indianapolis.
The negative outlook reflects ILM’s weak underwriting results in recent years, and A.M. Best’s expectations for continued operating losses over the near term, as ILM faces ongoing market challenges. While ILM’s risk-adjusted capitalization supports its current ratings, challenging market conditions, lackluster underwriting results and deteriorating macroeconomic conditions have adversely impacted the group’s operating performance in recent years.
Munich Reinsurance Co. and its subsidiaries
A.M. Best Co. affirms the financial strength rating (FSR) of A+ and issuer credit ratings (ICR) of “aa-” of Munich Reinsurance Co. and its subsidiaries. Concurrently, A.M. Best affirms the debt ratings of “a+” on GBP 300 million 7.625% subordinated bonds, EUR 1.5 billion fixed/floating rate undated subordinated bonds and EUR 3 billion 6.75% subordinated Eurobonds issued by Munich Re. The outlook for these ratings is stable.
The agency affirms the ICR and senior debt ratings of “bbb+” of Munich Re America Corp. The outlook for these ratings is positive.
A.M. Best considers Munich Re’s risk management program to be strong. Along with a formal risk management structure, the company dedicates a significant level of personnel to monitor risk in all operating segments throughout the world.
The FSR of A+ and ICRs of “aa-” have been affirmed for Munich Reinsurance Co. and its following core subsidiaries: Munich Reinsurance America Inc., American Alternative Insurance Corp., The Princeton Excess & Surplus Lines Insurance Co., Great Lakes Reinsurance PLC, New Reinsurance Co., Munich Reinsurance Company of Canada, Temple Insurance Co., and Munich American Reassurance Co.
The FSR of A+ and ICR of “aa-” have been withdrawn, and an NR-5 (Not Formally Followed) has been assigned to the FSR and an “nr” to the ICR of Munich Re America Corporation Group.
The following debt ratings have been affirmed:
Munich Reinsurance Co.: “a+” on GBP300 million 7.625% subordinated bonds due 2028, “a+” on EUR 1.5 billion fixed/floating rate undated subordinated bonds, and “a+” on EUR 3 billion 6.75% subordinated Eurobonds, due 2023.
Munich Re America Corp.: “bbb+” on USD 500 million 7.45% senior unsecured notes, due 2026.
Moody's assigns an A2 debt rating, with a negative outlook, to the proposed issuance of about $300 million in fixed-rate surplus notes, due 2040, to be issued by Mutual of Omaha Insurance Co. (Mutual of Omaha, insurance financial strength (IFS) at Aa3, negative outlook). The negative outlook reflects the outlook on Mutual of Omaha.
Moody's says the A2 surplus note rating of Mutual of Omaha reflects Mutual of Omaha's solid position in supplying life insurance and fixed annuity products to the mass market, and a leading position in the Medicare-supplement market, as well as its excellent capitalization and good-quality investment portfolio. It is Moody's standard rating practice to notch surplus notes two grades lower than the operating company's IFS rating. The negative outlook on Mutual of Omaha reflects Moody's increased credit loss expectations from Mutual of Omaha Bank's significant commercial real estate-related portfolio.
The agency says Mutual of Omaha's financial flexibility will weaken somewhat from the note issuance, earnings coverage in particular (to under 5x – low, relative to Aa peers). This negative impact is partially offset by the initial boost to regulatory capital. However, Moody's notes that given Mutual of Omaha's historically modest earnings capacity and the potential strain on the bank's capital from credit losses in its investment portfolio, any further increase in the company's outstanding debt would place negative pressure on the company's ratings.
S&P says it revised its outlook on Mutual of Omaha Insurance Co. to negative from stable, and assigned its “A” rating to Mutual of Omaha's surplus notes issuance .
As calculated by S&P's capital model, on a pro forma basis (including the surplus note proceeds) as of June 30, 2010, Mutual of Omaha had a capital deficiency at the “AA” level. S&P projects that the deficiency will continue through 2010 and 2011, although it’s expected that Mutual of Omaha will have a capital deficiency at the “AA” level through 2011, and it will maintain a redundancy at the “A” level during this period. S&P says that by the end of 2012, the company will generate and retain a sufficient level of statutory earnings to return the company's capitalization to being redundant at the “AA” level.
S&P expects that Mutual of Omaha will maintain a capital deficiency at the 'AA' level through 2010 and 2011. However, we also expect that the company will maintain a redundancy at the 'A' level through this time period and then return to a 'AA' level redundancy by the end of 2012. Financial leverage will not likely exceed 25%, and fixed-charge coverage should remain at least 5.0x. If the company fails to meet any of these expectations, we will likely lower the ratings one notch.
A.M. Best Co. revises the outlook to negative from stable and affirms the financial strength rating of B+ and issuer credit rating of “bbb-” of Northwest GF Mutual Insurance Co.
Northwest GF Mutual Insurance Co.’s outlook is revised to negative, due to its continued poor underwriting results in 2010 and following poor underwriting performance in 2008 and 2009, which led to the company to post-operating losses in each of those years. The ongoing negative underwriting performance derives primarily from frequent weather-related losses, which continue to hinder the company’s capital position.
Popular Life Re
A.M. Best Co. upgrades the issuer credit rating to “bb+” from “bb” and affirms the financial strength rating of B of Popular Life Re. The outlook for both ratings is revised to stable from negative. Popular Life Re is a life reinsurance subsidiary of Popular Inc., a publicly traded bank holding company based in Puerto Rico.
The rating upgrade of the ICR reflects Popular Life Re’s continued statutory operating earnings in recent years, and the maintenance of solid capitalization ratios. While premium volume declined in recent years, reflecting the downturn in the Puerto Rican economy, the company’s business volume has stabilized. A.M. Best believes premium volume will increase, should the local economy continue to improve and if loan origination activity increases.
A.M. Best believes Popular Life Re is an important subsidiary, as it represents an extension of Popular Inc.’s well-established insurance agency business, which operates under the brand “Popular Insurance.”
While A.M. Best believes the financial condition of Popular Life Re is secure, its ratings reflect the continued weak financial condition of Popular Inc., although some improvements in liquidity and capital are noted. The organization continues to work through loan delinquencies at each of its banks, and nonperforming assets are still increasing. Though losses have lessened, Popular Inc. has not yet regained profitability. A.M. Best expects that economic stresses experienced in Puerto Rico will pressure the pace of improvement over the near-to-intermediate term.
S&P affirms its “A+” long-term counterparty credit and insurer financial strength ratings on Swiss Reinsurance Co. Ltd. and its core operating entities. At the same time, the “A-“ long-term counterparty credit ratings on Swiss Re's three intermediate holding companies in the United States, and the “A-1” short-term counterparty credit ratings, where applicable, were affirmed. S&P revised the outlooks on all of these ratings to positive from stable.
The outlook revision reflects S&P’s view that Swiss Re's financial strength has recovered considerably, due to the speed and effectiveness of its de-risking process and the resilience of its franchise. To an extent, S&P believes that public sentiment toward Swiss Re in the reinsurance and capital markets also has recovered, along with its financial strength. S&P also believes volatility will remain a weakness in Swiss Re's credit profile, due to the prevailing level of financial risk, and that which is permissible in future within Swiss Re's risk limits.
The ratings are supported by S&P’s view of Swiss Re's very strong competitive position, very strong capitalization, and strong underlying operating performance. Swiss Re is constrained by the still-high financial risk exposure and limits, and the fact that, in our view, Swiss Re has yet to rebuild its financial flexibility.
S&P sees limited need for external capital; however, says Swiss Re is more credit-sensitive than peers, since its business model relies on its active use of the capital markets for financing, to hedge risk, and for commercial reasons. Swiss Re has not yet retrieved its reputation among investors, in S&P’s view, who are likely to remain cautious until earnings stabilize, the CPCI is redeemed, and the legacy business is further de-risked.
The positive outlook reflects S&P’s opinion that the ratings may be raised over the rating horizon. S&P also says it could raise the ratings if Swiss Re's financial profile further improves as the residual exposure in the discontinued portfolios is further reduced and the CPCI is redeemed, and provided Swiss Re does not further utilize its financial risk limits. S&P believes this will contribute to greater earnings stability and investor confidence, and make Swiss Re's future capital management strategy more predictable. S&P would not make any upgrade contingent on Swiss Re operating with capital in excess of the target level for the rating, but expects the group's capitalization to be resilient to asset-driven volatility without falling below the “AA” level. S&P does not expect material changes to the asset allocation strategy over the rating horizon.
The Hartford Steam Boiler Group and its members
A.M. Best Co. affirms the financial strength rating (FSR) of A+ and issuer credit ratings (ICR) of “aa-” of The Hartford Steam Boiler Group and its members (together known as HSB Group). The outlook for all ratings is stable.
HSB Group was acquired by Munich Reinsurance Co. in 2009. Munich Re’s ownership of HSB Group has provided access to new markets in continental Europe and refocused the U.S. business on HSB Group’s core equipment breakdown coverage.
A.M. Best considers HSB Group’s risk management program to be strong as risk management is incorporated into each operating segment of the group. HSB Group maintains a market-leading equipment breakdown database system, in addition to performing onsite inspections and risk evaluations of insured equipment and properties. These risk evaluations are used to reduce customer losses and improve underwriting results.
The FSR of A+ and ICRs of “aa-” are affirmed for The Hartford Steam Boiler Group and its following members: The Hartford Steam Boiler Inspection and Insurance Co., The Boiler Inspection and Insurance Company of Canada, The Hartford Steam Boiler Inspection and Insurance Company of Connecticut, and HSB Engineering Insurance Limited.
A.M. Best Co. places the financial strength rating (FSR) of C++ and issuer credit rating (ICR) of “b+” of Unity Mutual Life Insurance Co. under review with positive implications.
The rating actions are based on the Oct. 8, 2010, announcement by Unity Mutual and Columbian Mutual Life Insurance Co. that a merge was intended. The merged organization will adopt the Columbian name and product portfolio. Columbian Mutual is the lead life insurer of Columbian Financial Group (CFG). Following regulatory and policyholder approval, the merger is expected to take effect by June 30, 2011.
CFG has employed a strategy of combinations with mutual life insurers, completing several similar transactions in recent years. The proposed combination with Unity Mutual is consistent with this strategy and will incorporate Unity Mutual policyholders into a stronger organization. The FSR of A- and ICR of “a-” of Columbian Mutual is unchanged by this transaction.
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