A.M. Best commented that the financial strength ratings, issuer credit ratings and debt ratings of Aetna Inc. and its insurance and health maintenance organization (HMO) subsidiaries remain unchanged. The outlook for all ratings is stable.
This comment follows the announcement that Aetna has entered into an agreement to acquire Medicity, a privately held health information exchange technology company. Medicity offers a broad range of products and services that allow providers to securely access and exchange health care information. Aetna plans to acquire Medicity for approximately $500 million. The transaction should be funded by available sources, the company says.
This transaction is expected to be a source of business diversification for Aetna as well as unregulated cash flows, A.M. Best says. Additionally, the Medicity connected health care platform for providers, in combination with the clinical decision support capabilities of Aetna’s ActiveHealth Management subsidiary, should provide Aetna with the opportunity to improve the quality and efficiency of patient care for its customers, as well as control health care expenditures.
Aetna’s financial leverage will remain unchanged by the acquisition, and parent company liquidity is projected to be sufficient for the current ratings.
Alliant Holdings I Inc.
Moody's affirmed the ratings of Alliant Holdings I Inc. (Alliant -- corporate family rating of B3) following the company's announcement that it plans to increase its credit facilities by up to $180 million to help fund two acquisitions.
The target companies are T&H Group Inc., a New York-based insurance broker with a focus on construction/surety, real estate and employee benefits, as well as a San Francisco-based employee benefits brokerage firm. Moody's also affirmed the B2 rating on Alliant's senior secured credit facilities and the Caa1 rating on its senior unsecured notes. The rating outlook is stable.
The rating agency expects Alliant to benefit from the product expertise of the target companies as well as the improved geographic diversification associated with T&H Group. Alliant's business has historically been weighted toward the western United States, whereas T&H Group is active mainly in New York City and the surrounding region, Moody’s says.
The proposed acquisition financing would cause a moderate weakening of Alliant's financial flexibility metrics, according to Moody's estimates (which often differ from company or covenant calculations). On a pro forma basis, giving effect to the acquisitions for the 12 months through September 2010, Alliant's debt-to-EBITDA ratio was just under 7x and its (EBITDA -- capex) interest coverage was just under 2x. These metrics are consistent with Alliant's current rating level, said the rating agency.
Moody's assigned a Baa2 rating to the recent $250 million senior debt issue of Aspen Insurance Holdings Limited. The rating outlook is stable in line with the rest of the ratings on the Aspen Group (A2 IFSR, Baa2 senior, Ba1 preferred), which were affirmed on Nov. 30, 2010.
The issuance of the $250m senior debt, which will be used for general corporate purposes, will meaningfully increase Aspen's financial leverage from around 14% to around 19% although the level will still be relatively low, the rating agency says. The Group's interest expense will also increase, although going forward we expect the Group's earnings cover to remain within the A category, and overall financial flexibility to remain good.
Assurant Inc. and subsidiaries
S&P revised its outlook on Assurant Inc. and on all the firm's strategically important subsidiaries to stable from negative. At the same time, the rating agency affirmed its 'BBB' long-term counterparty credit rating on Assurant Inc. and its 'A-' counterparty credit and financial strength ratings on the strategically important subsidiaries.
S&P also affirmed its 'BBB+' counterparty credit and financial strength ratings on non-strategically-important subsidiaries Time Insurance Co. and John Alden Life Insurance Co. (collectively, Assurant Health). The outlook on Assurant Health remains negative.
The outlook revision to stable from negative on Assurant and its strategically important subsidiaries reflects S&P’s view that Assurant has demonstrated resilient operating performance amid challenging economic conditions. The resolution of the SEC investigation in early 2010 was within the rating agency’s expectations.
The investigation, while open, was a concern, but its effect on financial results, competitive positioning, and management strategies was minimal. The negative outlook on Assurant Health reflects S&P’s opinion that its lack of scale vis-à-vis large national players and declining membership, and our expectation for lower profitability, weakens this division's competitive position.
The ratings on Assurant and its operating subsidiaries reflect the group's leading niche positions in several specialty insurance businesses and its strong and diverse earnings sources through multiple operating entities, large distribution partners, and fee-based businesses. Strong financial flexibility, with strong leverage and coverage metrics, also support the rating.
Fitch affirmed all AXA entities' insurer financial strength (IFS) ratings at 'AA-'. Fitch also affirmed AXA SA's long-term issuer default rating (IDR) at 'A' and short-term IDR at 'F1'. The outlooks on the long-term IDR and IFS ratings have been revised to stable from negative.
The 'AA-' IFS rating of National Mutual Life Association of Australasia Ltd. (NMLA) remains on rating watch negative (RWN). Fitch continues to closely monitor the development of the joint offer made by AMP and AXA and expects to resolve the RWN on NMLA once this is finalized.
The affirmation reflects Fitch's view of the group's solid capital adequacy and recovering profitability. As measured by both regulatory calculation and Fitch internal analysis, the group's capital adequacy has materially recovered from the low levels seen at end-2008 and is expected to show resilience in the near future. Fitch notes that AXA is increasingly focused on integrating capital management in all decision-making processes to use its existing capital base more efficiently.
S&P assigned its 'AA+' senior debt rating to Berkshire Hathaway Finance Corp.'s (BHFC) $500 million senior notes. The notes will have a maturity of five years.
The assigned rating is based on the ratings on Berkshire Hathaway Inc. (BRK; AA+/Stable/A-1+), BHFC's ultimate parent, reflecting BRK's extremely strong competitive position, very strong earnings, very strong liquidity position, and conservative financial leverage and coverage metrics. These factors are offset to some extent, in S&P’s opinion, by the company's high tolerance for equity investment risk and resulting volatility in insurance company statutory capital; the insurance group's capital adequacy—as measured by S&P’s capital model—below what it typically expects to see for the current rating category; exposure to adverse development of reserves held for long-term insurance liabilities; concerns about risk-tolerance levels; and the issue of management succession.
BRK fully guarantees BHFC's new note issuance. BHFC will use the net proceeds of this issuance to repay $500 million of notes maturing on Dec. 15, 2010. BHFC's borrowings are used to fund the finance operations of Vanderbilt Mortgage Finance Inc., a wholly owned subsidiary of Clayton Homes Inc. The debt associated with these operations is treated as operating leverage. Clayton is a vertically integrated manufactured housing company.
S&P assigned a 'B-' rating to CNO Financial Inc.'s $300 million senior secured notes issue due 2017. At the same time, the rating agency placed this rating on CreditWatch with positive implications because the other ratings on CNO Financial have been on CreditWatch positive since Dec. 1, 2010.
The $300 million notes are the second part of CNO Financial's plan to refinance $652 million of current indebtedness due October 2013. The company announced the first part on Nov. 30, 2010.
The ratings remain on CreditWatch positive pending the completion of the refinancing. S&P placed the ratings on CreditWatch because of management's strategy to improve financial flexibility, which it begun in the third quarter of 2009. CNO Financial raised $325 million on Nov. 30, 2010, from the senior secured credit facility maturing September 2016. It will complete the remaining balance of the refinancing once it has raised the proceeds from these notes plus some cash at the holding company to repay $652 million of existing debt, maturing October 2013. We believe that the refinancing could enhance the company's financial flexibility.
Moody's affirmed the Baa3 issuer rating of Flagstone Reinsurance Holdings S.A. and the A3 insurance financial strength rating of Flagstone Reassurance Suisse SA following the firm's announcement that it will retire the capital of co-founder Mark Byme ($91.9 million in stock plus $13.5 million warrant). The rating agency views the share repurchase as manageable but the transaction will greatly limit additional buyback capacity at the current rating level.
In the same action, Moody's also decided to continue the negative outlook on the ratings. The resolution of the negative outlook will depend on the extent to which the company follows through on its plans to maintain or decrease its risk exposure at the January 1 renewal season. Moody's would likely return the outlook to stable if management follows through on its plans, absent other developments.
The share repurchase represents approximately 10.4% of Flagstone's outstanding shares immediately prior to the transaction. In conjunction with the share repurchase, Mark Byrne will resign from the firm's Board of Directors, which will have no rating implications.
In July 2009, Moody's changed the company's outlook to negative from stable because of two concerns, both of which have been alleviated. First, Moody's was concerned that a recent trend in consolidation amongst reinsurers and brokers would diminish smaller reinsurers' relative standing with brokers and clients. In the case of Flagstone, those concerns have not come to fruition. Brokers and clients continue to respect Flagstone for its responsiveness and creativity in solving problems, as evidenced by recent accolades and good marks on brokers' quality surveys. Secondly, Moody's was concerned that consolidation would leave smaller reinsurers with uncertain prospects after a major catastrophe and in turn make attracting capital more challenging. This concern has not gone away but the company has taken steps to protect capital by securing multi-year, staggered reinsurance protection through a combination of traditional reinsurance, insurance loss warranties and catastrophe bonds, about three-quarters of which is fully collateralized.
ING Groep N.V. insurance subsidiaries
S&P affirmed its long-term counterparty credit and insurer financial strength ratings on various operating insurance subsidiaries of ING Groep N.V. (ING) and its 'A-/A-2' counterparty credit ratings on Netherlands-based insurance holding company ING Verzekeringen N.V. (INGV). At the same time, the ratings were removed from CreditWatch with negative implications where they had been placed on Nov. 10, 2010, following ING's third-quarter 2010 results announcement. The outlook on INGV and various insurance subsidiaries is negative.
The rating affirmation reflects S&P’s expectation that ING will exercise its flexibility to manage the impact on capital adequacy and leverage resulting from risks relating to legacy variable annuity (VA) business. The rating agency also have greater confidence in INGV's ability to improve its future earnings prospects to levels more consistent with the ratings and with reduced volatility.
The negative outlook on INGV and certain operating insurance subsidiaries reflects S&P’s view of the significant execution risks associated with the divestment of ING's insurance operations. The underlying businesses could suffer strategic and operational disruption and, in our view, ING's U.S. insurance operations have a higher risk profile.
Manulife Financial Corp. and subsidiaries
S&P lowered its long-term counterparty credit rating on Manulife Financial Corp. to 'A-' from 'A' and removed it from CreditWatch, where it was placed on Nov. 4, 2010, with negative implications. At the same time, the rating agency lowered the counterparty credit and financial strength ratings on Manulife Financial's core and guaranteed insurance operating subsidiaries to 'AA-' from 'AA' and removed them from CreditWatch negative. The operating companies affected by this action include:
• The Manufacturers Life Insurance Co. (MLI)
• John Hancock Life Insurance Co. (U.S.A.)
• John Hancock Life Health Insurance Co.
• John Hancock Life Insurance Co. of New York
• Manulife (International) Ltd., a Bermudian corporation operating as a branch in Hong Kong
• Manulife Seimei Hoken Kabushiki Kaisha (Manulife Japan; financial strength rating only)
The rating on Manulife Japan depends on explicit support from MFC's lead core subsidiary, MLI, in the form of a claims guarantee for policyholder obligations.
At the same time, S&P removed its counterparty credit ratings on Manulife Bank of Canada (Manulife Bank) from CreditWatch and lowered them to 'A+/A-1' from 'AA-/A-1+'.
Moody's assigned provisional credit ratings to MetLife Inc.'s (MetLife; NYSE: MET; senior debt at A3) new shelf registration filed on Nov. 30, 2010—senior debt at (P)A3. The outlook for MetLife's ratings is negative. The shelf allows MetLife to issue senior debt, subordinated debt, and preferred stock. It also allows MetLife Capital Trusts V, VI, VII, VIII, IX to issue trust-preferred securities that are fully and unconditionally guaranteed by MetLife.
MetLife's ratings reflect its strong brand recognition, significant operating scale with leading market positions, diversified distribution, substantial capital base and very diversified business mix with strong earning capacity, the rating agency says. Tempering these strengths are the challenges that MetLife faces in the current operating environment, specifically pressures on its profitability and financial flexibility emanating from higher levels of investment losses over the medium term as well as execution and integration risks associated with the recent acquisition of ALICO.
The following ratings were assigned with a negative outlook:
• MetLife Inc.—provisional senior debt at (P)A3; provisional subordinated debt at (P)Baa1; and provisional preferred stock at (P)Baa2;
• MetLife Capital Trust V—provisional backed preferred stock at (P)Baa1;
• MetLife Capital Trust VI—provisional backed preferred stock at (P)Baa1;
• MetLife Capital Trust VII—provisional backed preferred stock at (P)Baa1;
• MetLife Capital Trust VIII—provisional backed preferred stock at (P)Baa1;
• MetLife Capital Trust IX—provisional backed preferred stock at (P)Baa1.
Moody's affirmed the Aa3 insurance financial strength ratings of Munich Reinsurance Co. (Munich Re), its U.S. non-life reinsurance subsidiary, and its primary German life insurance subsidiaries. Munich Re's debt ratings have also been affirmed. The rating outlook is stable.
The rating affirmation reflects Munich Re's excellent business franchise, strong business diversification and capital adequacy, excellent asset quality, together with conservative management practices, Moody’s says. These strengths are offset somewhat by the challenge of achieving its 15% cross-cycle return on risk adjusted capital (RORAC) target within a low interest rate environment, the inherent volatility of its catastrophe exposed business, and by the challenge of reserve estimation in certain long-tail lines of business.
Principal Financial Group Inc. and subsidiaries
A.M. Best revised the outlook to stable from negative and affirmed the financial strength rating of A+ (superior) and issuer credit ratings (ICR) of “aa-” of Principal Life Insurance Co. and Principal National Life Insurance Co. (together referred to as Principal Life). Both companies are life insurance operating companies of Principal Financial Group Inc. (PFG). A.M. Best also has revised the outlook to stable from negative and affirmed the ICR of “a-” of PFG as well as the group’s existing debt ratings.
The revised outlook reflects Principal’s consistent operating income from a more diverse revenue stream, growing capitalization and an improved unrealized gain/loss position in its general account investment portfolio, A.M. Best says.
Over the past several years, the organization has continued to deliver strong operating earnings through its diversified business segments, diligent expense management and controlled distribution. A.M. Best notes that Principal has been placing increasing emphasis on its fee-based businesses. These efforts have enabled the company to generate less volatile operating results recently while improving its consolidated risk-adjusted capital position.
The ratings also reflect Principal’s dominant position in the U.S. defined contribution plan market, its broad distribution, continued global growth and significant cash holdings at PFG. Principal has diverse product lines that include group dental and vision insurance, individual and group life and disability insurance, annuities and mutual funds distributed by wholesalers, career agents and independent agents. In addition, Principal continues to be well positioned for international growth by leveraging its retirement plan expertise in the United States to serve selected countries with favorable demographics and growing long-term savings and defined contribution markets. Furthermore, A.M. Best views Principal’s recently announced decision to exit the group medical business as a long-term credit positive.
S&P placed its 'A-' counterparty credit and financial strength ratings on State Auto National Insurance Co. (SA National), which is a subsidiary of State Auto Financial Corp. and a member of SAG, on CreditWatch with negative implications.
The rating action results from the agreement of SAG with Hallmark Insurance Co. (Hallmark) to sell its nonstandard auto subsidiary, SA National. The transaction is expected to close by year-end 2010 and is subject to regulatory and other approvals.
After the closing, SAG will continue to provide policy and claims administration services to SA National's new and renewing policyholders in those states where Hallmark does not currently do business until Hallmark can incorporate this business into its own systems. SA National will cede any business administered by SAG to SAG under a reinsurance agreement. This arrangement is expected to last about six months. Consequently, while some SA National policyholders will benefit from the reinsurance support of SAG, others will not.
S&P expects to resolve the CreditWatch status of the ratings on SA National upon the closing of the transaction by withdrawing these ratings.
Moody's affirmed WellPoint Inc.'s Baa1 senior unsecured debt rating and the A1 insurance financial strength (IFS) ratings of its operating subsidiaries and changed the outlook on the long-term ratings to stable from negative.
According to Moody's, the change in outlook reflects the company's improved results in 2010, including organic membership growth and strong operating margins despite pressures from the economic downturn. WellPoint has been able to establish modest growth of approximately 1% during 2010 as well as a successful National Account season that will add an additional 300,000 members in January 2011, despite economic conditions that continue to restrain membership growth in the sector, according to the rating agency.
While Moody’s notes the negative implications from health care reform that continue to weigh on the healthcare insurance sector, it believes WellPoint is well positioned to meet the challenges posed by the new law as a result of the company's geographic and product diversity.
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