Fitch Ratings has affirmed Germany-based Allianz SE's Insurer Financial Strength (IFS) rating and Long-term Issuer Default Rating (IDR) at 'AA-'. At the same time, the main Allianz subsidiaries have been affirmed at IFS 'AA' as listed below. The Outlook for all ratings is stable.
The affirmation reflects Fitch's expectation that the strong quality of Allianz group's (Allianz) investment and capital composition will lead to the insurer reporting strong 2010 results. The agency also expects that profitability from the non-life business will improve during 2011, as the group management continues to focus on underwriting discipline.
Allianz's ratings reflect the group's strong technical profitability, strong and improved consolidated group capital position, broad diversification by geography and by product, and solid business position in its key markets. In addition, the group's ratings also benefit from an investment mix of sound credit quality. Partially offsetting these rating factors is the currently suppressed technical profitability in the non-life business segment, partly driven by claims due to severe weather related events and natural catastrophes in 2010.
The group's strong core capitalization further improved in Q3 2010 with shareholders' funds increasing to EUR44.9bn (Q210: EUR43.8bn) while the consolidated solvency ratio remained stable at 168% (Q210: 170%). Fitch views the profitability as sustainable and strong with 9-month operating profits increasing by 19.8% to EUR6.1bn. In non-life insurance, Allianz continued to focus on profitable underwriting with currency-adjusted premiums decreasing 1.1%. The group's 9-month combined ratio in 2010 improved to 97.9% compared with 98.2% over the same period in 2009.
Fitch notes that a further substantial increase in capitalization following a stabilization of the economic environment and a significant sustainable improvement in the group's combined ratio could lead to an upgrade. Factors that could lead to a downgrade include substantial deterioration in the group's underwriting profitability, the acquisition of a sizeable financially weaker insurance group and a significant decrease in capital.
Allianz is the largest insurance group in Europe. IFRS gross written premiums (excluding premiums for investment-oriented products of EUR28.2bn) were EUR65.1bn (2008: EUR66.2bn) and total assets stood at EUR584bn in 2009. The group is active in both the non-life and life/health businesses as well as in asset management and has a strong business position and franchise.
Moody's announced that it has affirmed the A3 senior debt rating of The Allstate Corp. (Allstate), the Aa3 insurance financial strength
(IFS) rating of Allstate Insurance Co. (AIC), and the A1 IFS rating of Allstate Life Insurance Co. (ALIC) and their related affiliates. The outlook for the ratings is stable.
P&C Operations
Moody's said the affirmation of Allstate's lead property/casualty subsidiary, AIC, reflects its formidable competitive position in the U.S. market for personal insurance of automobiles and homes, multiple distribution channels, good operating profitability in its automobile line, and strong financial position. These strengths are offset by the company's weak profitability in its homeowners line of business, significant (albeit declining) exposures to natural catastrophes, its regulatory and competitive challenges given its high profile within the often politically sensitive personal lines market, and reserve risk emanating from the company's exposure to asbestos and environmental liabilities.
During 2010, the company has implemented rate increases nationwide in order to address profitability within its homeowners segment. Moody's says it expects that revenue growth for Allstate will continue to be a challenge given a sluggish, although improving macro-economic climate and increasing competition in the automobile line. Other risks include the potential for additional capital contributions from the P&C insurance subsidiaries to support the life operations, which are exposed to investment volatility.
Life Operations
Moody's A1 IFS ratings of Allstate Life Insurance Co. (Allstate Life) and its primary subsidiaries, Lincoln Benefit Life Co. (Lincoln Benefit) and Allstate Life Insurance Company of New York (Allstate-NY), are based on Moody's expectations of continued capital support from their parent, AIC, and/or other affiliates, as needed, as well as the brand, distribution, and other benefits of Allstate ownership. The rating is also based on the companies' own established positions in the life insurance and individual annuity market. The A1 rating reflects an A3 standalone credit profile at Allstate Life supplemented by our view of two notches of implicit support from the parent, Allstate Insurance Co.
The affirmation of Allstate's debt ratings reflects the intrinsic credit profiles of both the property/casualty and life insurance subsidiaries. Moody's views the portfolio of liquid assets maintained at the holding company and its unregulated subsidiary Kennett Capital Inc. (totaling approximately $3.5 billion at September 30, 2010) as available for future capital needs at Allstate's property-liability and life operations, which could result from further investment losses and/or large property catastrophes. A portion of these funds is also available to support potential funding needs at the holding company.
A.M. Best Co. has affirmed the financial strength rating of B+ (Good) and issuer credit ratings of “bbb-” of AmFirst Insurance Co. (AmFirst) (Oklahoma City, OK) and Monitor Life Insurance Company of New York (Monitor) (Utica, NY). The outlook for AmFirst’s ratings is stable, and the outlook for Monitor’s ratings has been revised to stable from negative.
AmFirst closed on its acquisition of Monitor on Jan. 1, 2011. The revised outlook on Monitor Life reflects its expected reduced administrative cost burden as part of AmFirst, its projected premium and earnings growth, as well as capital support from its new parent, A.M. Best says. Subsequent to the acquisition, the company had an immediate capital infusion of approximately $600,000 in order to bring capital and surplus to acceptable levels for all state minimum requirements. AmFirst also received a contribution of capital from its owners of about $2 million at year-end 2010. Both of these infusions evidence management’s commitment to maintain appropriate capital based on business growth and regulatory requirements.
Monitor’s acquisition will immediately allow AmFirst to begin writing business in 13 states where it was not previously licensed, the rating agency says. Monitor will commence its premium production by assuming supplemental medical premiums from AmFirst and its reinsurance partners, and will be filing with regulators to write AmFirst’s existing products. In addition, the group will begin quoting Monitor’s group term life insurance in conjunction with its supplemental medical and dental products.
Standard & Poor's says that its ratings on Assurant Inc. (NYSE:AIZ; BBB/Stable/A-2) and its related companies were unaffected by the recent announcement that Assurant will take a non-cash goodwill impairment charge of $306 million (after taxes) for the fourth quarter of 2010.
Assurant took this write-down in connection with its annual goodwill impairment testing in accordance with ASC Topic 350: "Intangibles - Goodwill and Other," S&P says. The impairment charge relates to the goodwill of the Assurant Health and Assurant Employee Benefits segments. Factors underlying the impairment charge include the effects of health care reform, low interest rates, continuing high unemployment, and the slow pace of the U.S. economic recovery.
The goodwill impairment has not affected S&P’s view of Assurant's risk-adjusted capital adequacy because goodwill is excluded when analyzing the company's capitalization, which is consistent with our criteria. Furthermore, Assurant does not expect this non-cash charge to affect its business operations, cash flow, or regulatory capital ratios or to result in future cash expenditures.
A.M. Best Co. has withdrawn the financial strength rating (FSR) of B+ (Good) and issuer credit rating (ICR) of “bbb-”of Cooperative Mutual Insurance Co. (CMIC) (Omaha, NE) and assigned a category NR-5 (Not Formerly Followed) to the FSR and “nr” to the ICR.
On January 1, 2011, CMIC was merged into Austin Mutual Insurance Co. pursuant to policyholder and regulatory approval.
Standard & Poor's says that its ratings on Bermuda-based Endurance Specialty Holdings Ltd. (BBB+/Stable/--; NYSE:ENH) and its operating subsidiaries are unaffected by the recent announcement that Endurance has entered into an agreement to repurchase the ordinary shares and options held by two affiliated funds of Perry Corp., which was a founding shareholder of Endurance. Endurance is repurchasing 7,143,056 ordinary shares and options to purchase an additional 10,000 ordinary shares. The company is using existing cash on hand to fund this transaction, with an aggregate repurchase price for the shares and the options of about $322 million, S&P says.
The repurchase is separate from Endurance's existing 7 million share-repurchase program that its board of directors authorized in August 2010. The repurchase of the ordinary shares is approximately 15% of the total Endurance ordinary shares outstanding as of Dec. 31, 2010 and about 11% of Endurance shareholders' equity as of Sept. 30, 2010. Despite the size of this repurchase, S&P expects Endurance's capital adequacy to remain very strong, redundant, and supportive of the rating.
Fitch affirmed the ratings of Pacific LifeCorp (PLC) and certain of its subsidiaries, including Pacific Life Insurance Co. (PLIC), which is PLC's primary life insurance subsidiary. The rating outlook is stable.
The rating action follows a periodic review of PLC's financial results. PLC's ratings reflect the company's diverse business profile, robust statutory capitalization, good liquidity and stabilizing operating and investment performance, Fitch says. Somewhat offsetting these positives are the increased leverage across the organization and expectations of lower earnings which will pressure organic capital generation.
PLIC had statutory capitalization of $6.1 billion and a relatively strong estimated risk-based capital ratio at Sept. 30, 2010. Liquidity appears sound from both a holding company and insurance operating company perspective with access to available sources of liquidity including but not limited to a $700 million commercial paper (CP) program, the rating agency says. PLC and PLIC have no debt due until 2023 although the company will have to refinance a $650 million maturing letter of credit facility before April 2012.
PLC's relatively large variable annuity exposure resulted in higher-than-expected statutory and GAAP earnings volatility over the past several years. Over the near term, Fitch says it expects PLC's earnings to moderate relative to historical levels but be less volatile due to increased hedging. Fitch believes projected investment losses over the next 12 to 18 months are manageable in context with PLIC's statutory capitalization and earnings.
A.M. Best revised the outlook to negative from stable and affirmed the financial strength ratings (FSR) of B ++ (Good) and issuer credit ratings (ICR) of “bbb” of the Palisades Group (Palisades) (Berkeley Heights, NJ), its members and the currently separately rated affiliate, High Point Preferred Insurance Co. (Preferred) (Lincroft, NJ). The lead member of the Palisades group is Palisades Safety and Insurance Association.
The revised outlook reflects Palisades’ adequate risk-adjusted capitalization, declining operating performance over the recent five-year period and the 2010 decline in policyholders’ surplus, A.M. Best says. The group has reported four years of underwriting losses, while maintaining elevated underwriting and loss reserve leverage, and a dependence on reinsurance. The group’s business is concentrated exclusively in New Jersey, which exposes it to potentially unfavorable judicial decisions, regulatory actions, increased competitive market conditions and catastrophic weather-related losses.
The underwriting losses in 2010 resulted from frequent and severe winter weather events, which were within the company’s catastrophe retention. In addition, A.M. Best says Palisades experienced an increased frequency of automobile liability losses.
Offsetting factors include Palisades’ well-established market position and extensive local market expertise as a leading writer of personal lines business in New Jersey.
The affirmation of Preferred’s ratings recognize its generally favorable performance in the homeowners’ book of business, as well as its adequate capitalization, which is offset by catastrophe exposure and the rating factors in Palisades, the firm says.
The FSR of B++ (Good) and ICRs of “bbb” have been affirmed for the Palisades Group and its following members:
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Pathfinder Insurance Co.
A.M. Best Co. has upgraded the financial strength rating to B++ (Good) from B+ (Good) and issuer credit rating to “bbb” from “bbb-” of Pathfinder Insurance Co. (Pathfinder) (Denver, CO). The outlook for both ratings has been revised to stable from negative.
These ratings reflect Pathfinder’s strong capitalization, as reflected in its very high Best’s Capital Adequacy Ratio, conservative leverage and operating strategies and its historically high profitability, A.M. Best says.
Partially offsetting these positive rating factors are the company’s limited scope of business and its dependence on its ultimate parent, Avis Budget Group Inc. (Avis Budget) (headquartered in Parsippany, NJ), for business generation. Pathfinder continues to have minimal losses due to the structure of coverage provided by Avis Budget and its strict risk management program.
A.M. Best’s ratings consider Pathfinder’s strategic value in providing automobile liability insurance for a portion of Avis Budget’s corporately owned rental fleets. The ratings also recognize the overall financial and credit ratings of Avis Budget.
Philadelphia–United Life Insurance Co.
A.M. Best removed from under review with positive implications and affirmed the financial strength rating (FSR) of B+ (Good) and issuer credit rating (ICR) of “bbb-” of Philadelphia–United Life Insurance Co. (P-UL) (Bala Cynwyd, PA). The outlook assigned to both ratings is stable. Concurrently, A.M. Best has withdrawn the ratings and assigned a category NR-5 (Not Formally Followed) to the FSR and an “nr” to the ICR.
The rating actions reflect the change in ownership of P-UL, which has been merged into The Baltimore Life Insurance Co. (BLI) (Owings Mills, MD), effective Dec. 31, 2010.
The FSR of B++ (Good) and ICR of “bbb+” of BLI are unaffected. A.M. Best notes that this transaction will benefit BLI due to P-UL’s similar product offerings, potential for expense efficiencies while increasing premiums and the utilization of P-UL’s distribution system.
Preferred Physicians Medical Risk Retention Group Inc.
A.M. Best Co. has upgraded the financial strength rating to A- (Excellent) from B++ (Good) and issuer credit rating to “a-” from “bbb+” of Preferred Physicians Medical Risk Retention Group, Inc. (Preferred Physicians) (Kansas City, MO). The outlook for both ratings has been revised to stable from positive.
The ratings are reflective of Preferred Physicians’ excellent risk-adjusted capitalization and sound operating performance, the agency says. The improvement in capitalization is due in large part to the recognition of redundancy in loss reserves, which have ultimately flowed into earnings. Recent underwriting gains have been driven by the company’s focused underwriting strategy, extensive risk management program, geographic diversification, significant reduction in claims frequency since 2004 and consistent pattern of establishing solid loss reserves.
The outlook contemplates the sustainability of excellent risk-adjusted capitalization through the adherence to adequate pricing and reserving discipline, controlled growth and the successful execution of the capital management goals.
Fitch revised the outlook on Russian Insurance Centre's (RIC) ratings to stable from negative. At the same time, the agency has affirmed RIC's Insurer Financial Strength (IFS) rating at 'B' and National IFS rating at 'BBB-(rus)'.
The outlook revision reflects the sustainability of RIC's operating performance during the recessionary period and its relative resilience to the challenges in its operating environment, supported by the stable volumes of business written in RIC's niche of insurance of defence and space enterprises. The ratings continue to take into account the low quality of the insurer's investment portfolio and its moderate capital strength, Fitch says. To some extent, these concerns are offset by RIC's solid underwriting expertise, its prudent reinsurance program, and the strong position in its niche.
The insurer's return on adjusted equity remained positive at 12% in 2009, although this was a decline from the higher levels recorded in 2006-2008. Historically, RIC's net profit has been largely formed through the underwriting result. The insurer managed to maintain the combined ratio at a strong 92% in 2009 despite the deteriorated claims experience in some key lines of business. Fitch notes that this was largely achieved due to RIC's prudent reinsurance program, which has helped limit the exposure to significant gross claims and protected the insurer's capital from depletion. Expense cuts initiated by the company at the beginning of the recession also contributed to the maintenance of the combined ratio at a profitable level in 2009. Interim results for 2010 indicate that RIC's underwriting performance is improving, although Fitch notes that the effect of the intense reinsurance utilization might have a delayed effect.
Moody's assigned a Baa1 rating to the perpetual subordinated notes to be issued by SCOR SE (A2 insurance financial strength rating, positive outlook). The rating is in line with existing subordinated debt issued by SCOR, and is based on the expectation that there will be no material difference between current and final documentation in relation to the notes. The outlook is positive in line with all of SCOR's ratings.
The subordinated notes, which will amount to CHF400 million and rank pari passu with SCOR's existing subordinated debt, will be utilized by SCOR to support the implementation of its Strong Momentum plan three-year targets, create further financial flexibility as part of SCOR's capital management strategy, optimize the financial structure of the SCOR group, fund any growth opportunity, including through acquisitions, falling within SCOR's strategic cornerstones, and/or to fund its general corporate needs. Moody’s adds that the notes will qualify as regulatory capital under the existing Solvency I rules and are designed to qualify as Tier Two regulatory capital under the forthcoming Solvency II regime currently scheduled to commence in January 2013.
UNIFI Cos.
A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a+” of Ameritas Life Insurance Corp. (Ameritas Life) (Lincoln, NE), First Ameritas Life Insurance Corp of New York (Suffern, NY), Acacia Life Insurance Co. (Acacia Life) and The Union Central Life Insurance Co. (Union Central). These insurance entities comprise the life/health operations of UNIFI Cos. (UNIFI) (Lincoln, NE), which employ a mutual holding company structure. Concurrently, A.M. Best has affirmed the debt rating of “a-”on the existing $50 million 8.20% surplus notes due 2026 of Union Central. The outlook for all ratings is stable.
The ratings primarily reflect the group’s strong balance sheet, more than adequate levels of risk-adjusted capitalization across the insurance entities and favorable operating results on both a statutory and GAAP accounting basis. A.M. Best notes that UNIFI maintains only a modest level of intangible assets and minimal financial leverage. In addition, GAAP equity and statutory surplus have increased noticeably in recent periods driven by good operating results and improvement in the unrealized gain/loss position of its general account investment portfolio. While the company experienced significant realized capital losses in 2008 and 2009, primarily due to its exposure to non-agency residential mortgage-backed securities within Union Central, A.M Best believes that any additional near-term impairments are likely to be significantly reduced relative to prior periods.
Fitch Ratings has affirmed the ratings of XL Group Ltd. (XL) and its property/casualty (re)insurance subsidiaries, including the Issuer Default Rating (IDR) for XL at 'BBB+', and the Insurer Financial Strength (IFS) rating of its core operating companies at 'A'. The rating outlook is stable.
Fitch's rating rationale for the affirmation of XL's ratings reflects the company's solid capitalization, reasonable financial leverage and stable competitive position. The ratings also reflect anticipated challenges in a competitive property/casualty market rate environment and the potential drag from the remaining run-off life business.
XL's capital position has improved thus far in 2010, Fitch says, with GAAP shareholders' equity up 15% since year-end 2009 to $10.9 billion at Sept. 30, 2010, following a significant 54% increase in full year 2009. The increase for the first nine months of 2010 was driven by net income of $448 million and improvement in the company's net unrealized investment position to a gain of $0.2 billion at Sept. 30, 2010 from a loss of $1.3 billion at Dec. 31, 2009, as credit and investment markets continued to recover in 2010. As a result of the shareholders' equity growth, XL's equity-credit adjusted debt-to-total capital ratio (including accumulated other comprehensive income) continued to decline to 18.5% at Sept. 30, 2010, down from 20.7% at year-end 2009.
Fitch also notes that XL's competitive position remains stable with property/casualty net premiums written up 2.6% in the first nine months of 2010 due to targeted new business growth, particularly in professional, aviation, marine and upper middle market lines; improved retentions across all lines of business to historic mid to upper 80% levels; and the recapture of some of the previously lost business, partially offset by the continuing weak market environment that has decreased insured exposures.
Additonally, XL's underwriting results remain favorable, with core property/casualty operations posting a GAAP combined ratio of 95.9% for the first nine months of 2010 compared to 92.8% for the first nine months of 2009, due to higher catastrophes, Fitch says. Excluding the impact of catastrophes (7 points) and favorable reserve development (6.7 points), XL's combined ratio for the first nine months of 2010 was 95.6%, down 2.2 points from the first nine months of 2009.
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