S&P is keeping its 'A+' financial strength rating on AIG Edison Life Insurance Co. on CreditWatch, where it was placed on Sept. 30, 2010, with developing implications. S&P placed the rating on CreditWatch as a result of the announced sale of AIG Edison to Prudential Financial Co. for $4.8 billion.
The 'A+' rating is based on the guarantee provided by American Home Assurance Co. (A+/Negative/--), which the rating agency expects to remain in place until the sale is completed in the first quarter of 2011. If S&P considers AIG Edison to be a strategically important subsidiary of Prudential and if it believes AIG Edison's stand-alone credit characteristics plus Prudential's implicit support are below that of the current 'A+' rating, S&P could lower the rating. Conversely, if it considers AIG Edison to be a core subsidiary of Prudential based on implicit or explicit support, it could raise the rating.
Allianz Global Corporate & Specialty North America and its members
A.M. Best affirmed the financial strength rating of A+ (superior) and issuer credit ratings of “aa” of Allianz Global Corporate & Specialty North America (AGCS NA), which includes Allianz Global Risk US Insurance Company, Allianz Underwriters Insurance Company and AGCS Marine Insurance Company. The outlook for all ratings is stable.
These ratings are based on A.M. Best’s view that AGCS NA is a strategic cornerstone of the group’s global industrial and specialty lines business, fully integrated into the operation processes of AGCS Global, and as such, has the explicit support of the group’s ultimate parent company, Allianz SE. The ratings also consider AGCS NA’s excellent risk-adjusted capitalization, strong business franchise and solid underwriting and operating performance in recent years.
Moody's affirmed the ratings of Arrowhead General Insurance Agency Inc. (Arrowhead -- corporate family rating of B3), reflecting the company's expertise in distributing specialty property/casualty insurance products, its strong carrier relationships and its consistent operating margins. These strengths are tempered by the company's significant debt burden and restrictive financial covenants as well as its modest size relative to the largest national brokers, the rating agency says. The rating outlook remains stable.
Arrowhead has returned to organic growth in revenues and EBITDA during 2010 following various restructuring actions taken in 2009, Moody's says. The favorable trend in EBITDA should help the company to renegotiate or refinance its maturing credit facilities.
As of Sept. 30, 2010, Arrowhead's financing arrangement consisted of a $10 million first-lien revolver maturing in August 2011 (undrawn, rated B3), a $110 million first-lien term loan due in September 2012 (rated B3) and a $41 million second-lien term loan due in February 2013 (rated Caa1). Moody's expects the company to complete a refinancing during the first half of 2011.
Fitch Ratings affirmed all ratings for The Chubb Corp. (Chubb), including the 'AA-' issuer default rating (IDR) and 'A+' senior debt rating. Fitch also affirmed the 'AA' insurer financial strength ratings (IFS) of Chubb's property/casualty insurance subsidiaries, which are led by Federal Insurance Co. (Federal). The rating outlook is stable.
The ratings continue to reflect Chubb's market position as a leading property/casualty insurer in its commercial and personal lines business segments, history of favorable underwriting performance, strong capital position at both the insurance subsidiary and parent holding company levels, and conservative investment portfolio, Fitch says.
Chubb has reported consistently favorable operating results, with a 5-year (2005 to 2009) average GAAP combined ratio of 86.8% and net income return on equity of 16.6%. Chubb continues to post strong underwriting profits, the rating agency says. For the first nine months of 2010, net written premium volume increased by 1%. The combined ratio increased to 90.1% for the period compared with 86.5% for the first nine months of 2009, with the increase largely attributable to significantly higher catastrophe losses that represented 7.1% of year to date earned premium versus 1.1% in the same period in the prior year.
The company's net income for the first nine months of 2009 increased by approximately 4.4% relative to the prior year to approximately $1.55 billion, which corresponds with an annualized return on equity of 13.1%. While underwriting profits declined somewhat in 2010, pre-tax realized investment gains have shifted positively and were $271 million for year to date 2010.
Similar to many property/casualty peers, Chubb holds a significant portion (47%) of its investment portfolio in municipal securities. While this asset class has performed well historically, greater concerns have mounted on the credit quality of states and municipalities amidst greater fiscal strain and reduced revenue bases emanating from the weakened economy. Fitch notes that Chubb's portfolio is well diversified by class and geographically and the market value of Chubb's municipal securities investments were trading at approximately a 7% premium to amortized cost at Sept. 30, 2010.
CNO Financial Group Inc. and its companies
A.M. Best, Moody’s and S&P assigned ratings to CNO Financial Group Inc. and its companies.
A.M. Best upgraded the financial strength rating (FSR) to B+ (good) from B (fair) and issuer credit ratings (ICR) to “bbb-” from “bb” for Bankers Life and Casualty Co., Bankers Conseco Life Insurance Co., Colonial Penn Life Insurance Co. and Washington National Insurance Co. (WNIC).
A.M. Best also has upgraded the ICR to “bb-” from “b-” and the existing senior debt rating to “bb-” from “b-” for the group’s ultimate holding company, CNO Financial Group Inc. (CNO) (formally known as Conseco Inc.) The outlook for the ICRs and debt ratings has been revised to stable from positive, while the outlook for the FSR is stable.
Additionally, A.M. Best assigned a debt rating of “bb-” to the new senior secured notes of CNO. The assigned outlook is stable.
A.M. Best says the upgrades reflect CNO’s more focused operating profile, enhanced financial flexibility and improved risk-adjusted capitalization. Over the past few years, the company has been proactive in streamlining and simplifying its focus on markets where true competitive advantages are achievable while, at the same time, prudently managing risk. The rating actions also reflect CNO’s improved financial flexibility due to its debt restructuring plan, which was completed Dec. 21, 2010. The company recently finalized a new $375 million senior secured credit facility due September 2016, with more flexibility and slightly more favorable covenants and issued $275 million of 9.0% senior secured notes due January 2018. These proceeds, in addition to cash on its balance sheet, have been used to retire the $652 million of debt outstanding under its existing senior credit facility.
Moody's upgraded the ratings of CNO Financial Group's senior secured credit facility and senior secured notes to B1 from B2 and its senior unsecured convertible debentures to B2 from Caa1. The rating outlook for CNO and its subsidiaries is stable. This rating action concludes the review for possible upgrade that was initiated on Nov. 30, 2010.
Moody’s says the upgrade of CNO's debt follows the successful refinancing of the company's bank debt, which reflects improvement in the company's capital structure, particularly a better laddering of debt maturities. CNO issued a $375 million senior secured amortizing term loan with a final maturity of September 2016 and a new pari-passu issuance of $275 million of senior secured notes with a final maturity of January 2018, and used the proceeds of these issuances, along with cash held at the holding company, to refinance the existing $652 million of senior secured bank debt. The B2 rating on the senior convertible debentures has been upgraded by two notches to one notch below the senior secured debt ratings. This notching difference reflects its more junior ranking in the capital structure as unsecured versus secured debt, and incorporates Moody's normal notching practice.
S&P raised its counterparty credit rating on CNO Financial Inc. to 'B' from 'B-' and its counterparty credit and financial strength ratings on CNO Financial's operating companies to 'BB' from 'BB-'. S&P also removed all of these ratings from CreditWatch, where they were placed on Nov. 30, 2010, with positive implications. The outlook on all these companies is stable.
The ratings on CNO Financial reflect the company's significantly improved financial flexibility in the past year, S&P says. This improvement stemmed from extending the maturities of its credit facility by several years, an equity offering, renegotiated covenants of the senior credit agreement, and a convertible debt restructuring in October 2009.
A.M. Best upgraded the issuer credit ratings (ICR) to “a+” from “a” and affirmed the financial strength rating (FSR) of A (excellent) of Fireman’s Fund Insurance Cos. (Fireman’s Fund), which includes Fireman’s Fund Insurance Co. and its intercompany pool participants and reinsured affiliates. A.M. Best affirmed the ICR of “a” of Allianz of America Inc. Concurrently, A.M. Best affirmed the FSR of A+ (superior) and ICRs of “aa” of Fireman’s Fund’s parent company, Allianz Global Risks US Insurance Co. (Allianz US) and its affiliates, AGCS Marine Insurance Co. and Allianz Underwriters Insurance Co. The outlook for all ratings is stable.
The rating actions reflect Fireman’s Fund’s strategic importance to the global insurance operations of its German-based ultimate parent, Allianz SE, operating as a key U.S. platform, as well as the explicit and implicit support that remains vital to the group’s current ratings, A.M. Best says. The ratings further reflect Fireman’s Fund’s solid stand-alone capitalization and generally favorable operating performance over the current 5-year period.
S&P assigned its 'AA-' local currency financial strength and counterparty credit ratings to Great Eastern Life Assurance Co. Ltd. (Great Eastern Life). The outlook is stable. The ratings reflect Great Eastern Life's very strong business profile, its superior capitalization, and well-developed risk management framework, the rating agency says. The company's concentrated exposure to some equity investments and its lower premium income since 2008 moderate these strengths. S&P views Great Eastern Life as a core entity for Great Eastern Holdings Ltd. (GEH). GEH is ultimately owned by Oversea-Chinese Banking Corp. Ltd. (OCBC; A+/ Stable/ A-1). S&P considers the rating on Great Eastern Life on a segmented basis, based on its group methodology criteria. GEH's separate listing from OCBC provides strong financial flexibility and operational independence. The fact that the group's board comprises seven independent directors and outside owners have nearly 15% shareholding in the group also supports a segmented rating approach.
S&P considers Great Eastern Life a dominant life insurer in Singapore and Malaysia. Its diversified distribution channels include highly productive tied agency networks and a bancassurance arrangement with OCBC. The rating agency expects the recent receipt of a Takaful license in Malaysia to help diversify Great Eastern Life's product offerings.
Fitch Ratings affirmed HCC Insurance Holdings Inc.'s holding company ratings, including the senior debt rating at 'A', as well as the insurer financial strength (IFS) ratings of its operating subsidiaries at 'AA'. The rating outlook is stable.
Fitch's ratings reflect HCC's solid niche in the specialty insurance markets, strong capitalization, sound underwriting discipline, and conservative investment profile and reserving practices.
HCC remains strongly capitalized with low operating leverage (as measured by net premiums written to surplus) of 0.55 for its U.S. property/casualty companies and 0.97 for total property/casualty operations at year-end 2009. The company's GAAP equity increased 15% during 2009 and 10% through Sept. 30, 2010 to $3.3 billion. The improvement is primarily due to strong operating results and unrealized investment gains. Due to its high-quality investment portfolio, Fitch's investment stress analysis had minimal impact on HCC's capital as compared to the industry.
A.M. Best Europe – Rating Services Limited has revised the outlook to positive from stable and affirmed the financial strength rating (FSR) of A (excellent) and the issuer credit rating (ICR) of “a+” of International Insurance Company of Hannover Limited (Inter Hannover) (United Kingdom).
The outlook has been changed to reflect the positive outlook on the ratings of Inter Hannover’s parent company, Hannover Rueckversicherung AG (Hannover Re). The ratings reflect Inter Hannover’s importance to its parent as a source of primary insurance business. In addition, the company benefits from explicit parental support in the form of quota share reinsurance of both its single risk and delegated authority business.
The ratings also reflect Inter Hannover’s stand-alone risk-adjusted capitalization, which is expected to remain strong, A.M. Best Europe – Rating Services Limited says. Further development of Inter Hannover's single risk portfolio, as well as the addition of a number of new agency agreements, is expected to lead to a significant increase in gross premium in 2010. However a large proportion of this business is ceded to Hannover Re.
Kingsway Financial Services Inc. and subsidiaries
S&P affirmed its 'CCC-' unsolicited long-term counterparty credit ratings and negative outlook on Kingsway Financial Services Inc. and its subsidiaries (Kingsway). Subsequently, it withdrew the unsolicited ratings.
The ratings on Kingsway Financial Services and its subsidiaries were based on the group's weak operating performance, liquidity, capital adequacy, competitive position, and financial flexibility, S&P says. Kingsway reduced its outstanding senior unsecured debt rated by S&P and held by third parties to about $36.9 million as of Sept. 30, 2010, from $176.8 million at year-end 2009. Kingsway financed this debt reduction with cash obtained from the sale of some of its subsidiaries and assets.
Because the company now has only a small amount of outstanding rated senior unsecured debt, S&P is withdrawing its unsolicited ratings. The negative outlook reflected S&P’s assessment of the company's operating performance, liquidity, capital adequacy, competitive position, and financial flexibility as weak. The rating agency believes that the company has a high level of financial leverage and that its operating companies face a difficult underwriting environment. S&P also believes that Kingsway Financial Services is highly dependent upon favorable business, financial and economic conditions to meet its financial obligations.
S&P lowered its counterparty credit, financial strength, and financial enhancement ratings on MBIA Insurance Corp. to 'B' from 'BB+'. The rating agency lowered its counterparty credit, financial strength and financial enhancement ratings on National Public Finance Guarantee Corp. to 'BBB' from 'A'. In addition, S&P lowered its counterparty credit rating on MBIA Inc. to 'B-' from 'BB-'. The outlooks on MBIA Insurance and MBIA Inc. remain negative, and the outlook on National remains developing.
S&P downgraded MBIA Insurance because its stress-case loss projections for the company's collateralized debt obligations (CDOs) of asset-backed securities and its commercial real estate related exposures are now significantly higher than previously projected and significantly exceed the company's capital resources. However, these loss expectations do not require immediate cash outflows, and the company has adequate liquidity for the next few years, the rating agency says.
The rating action on National is related to the rating action on sister company MBIA Insurance. Although National and MBIA Insurance are separate legal entities, they both are subjects of litigation that seeks to void the restructuring undertaken in 2009 that split off the municipal business formerly insured by MBIA Insurance and related capital into National.
The rating action on MBIA Inc. reflects the downgrades to key operating subsidiaries MBIA Insurance and National. However, MBIA Inc.'s liquidity is currently strong, bolstered in 2010 by a small dividend from Cutwater (the asset management subsidiary) and a tax refund, S&P says. Cash on hand and cash inflows expected in the next few years adequately cover the holding company's debt-service and operating-expense obligations.
The negative outlook on MBIA Insurance reflects the possibility that adverse loss development on the structured finance book could continue, diminishing liquidity and weakening capital, S&P says.
UnitedHealth Group Inc. and insurance affiliates
A.M. Best affirmed the financial strength ratings (FSR) and issuer credit ratings (ICR) of the majority of the insurance subsidiaries of UnitedHealth Group Inc. (UnitedHealth). At the same time, A.M. Best affirmed the ICR of “bbb+” and all debt ratings of UnitedHealth. Concurrently, A.M. Best has assigned debt ratings of “bbb+” to $450 million 3.875% senior unsecured notes and $300 million 5.70% senior unsecured notes both issued on October 20, 2010 by UnitedHealth.
Additionally, A.M. Best upgraded the FSR to A (excellent) from A- (excellent) and ICRs to “a” from “a-” of some entities of UnitedHealth.
A.M. Best also has assigned an FSR of A- (excellent) and ICR of “a-” to the following UnitedHealth entities: National Pacific Dental, Inc., Nevada Pacific Dental Inc. and PacifiCare Dental of Colorado. In addition, A.M. Best withdrew the FSR of A- (excellent) and ICR of “a-” of UnitedHealth’s subsidiary, PacifiCare Behavioral Health of California, Inc. following its merger into another UnitedHealth subsidiary, U.S. Behavioral Health Plan, California. The outlook for all ratings is stable.
The affirmation of the ratings of UnitedHealth and its insurance subsidiaries reflects the organization’s significant market presence, strong earnings from diversified health care operations in multiple states as well as from a growing non-regulated business, A.M. Best says. UnitedHealth is one of the nation’s largest publicly traded health benefits companies serving more than 70 million Americans with its diverse product offerings.
UnitedHealth also earns a steady stream of income from its profitable non-regulated businesses, the rating agency says. Although the organization’s share of non-regulated earnings has declined over time following several large acquisitions of regulated businesses, it remains much higher compared to its peers. Furthermore, UnitedHealth’s non-regulated subsidiaries are well positioned for continuous revenue growth.
USAA, its subsidiaries and USAA Capital Corp.
A.M. Best affirmed the financial strength ratings (FSR) of A++ (superior) and issuer credit ratings (ICR) of “aaa” of United Services Automobile Association (USAA) and its property/casualty and life/health subsidiaries. Concurrently, A.M. Best affirmed the debt rating of “aaa” on the medium-term note program and the AMB-1+ on the commercial paper program of USAA Capital Corp. The outlook for all ratings is stable.
The affirmations reflect USAA’s superior capitalization and strong operating results through focused business and financial strategies. USAA maintains diversified sources of earnings, capital accumulation and strong enterprise risk management with a full range of financial products and services to its membership of military and ex-military personnel and their dependents, A.M. Best says. USAA’s low cost structure, high customer retention, effective use of technology and exceptional customer service capabilities has enabled it to build a sustainable competitive advantage in the personal lines sector. As a result of these strengths, USAA has built a sizeable market position, especially in the property/casualty segment, as the nation’s eighth-largest private passenger auto and sixth-largest homeowners’ policy provider.
Moody's withdrew the A2 insurance financial strength rating (IFSR) of ZC Specialty Insurance Company Austin, Texas (ZC Specialty) following its merger into Centre Reinsurance (U.S.) Limited (CRUS), A2 IFSR on review for upgrade.
As a result of the merger, ZC Specialty's insurance and reinsurance obligations have the same seniority as those from CRUS. Zurich Insurance Co. (A1 IFSR on review for upgrade) provides an unconditional guarantee to CRUS. Prior to the merger, ZC Specialty's obligations benefited from a net worth maintenance surety from CRUS.
Zenith National Insurance Corp. and affiliates
S&P affirmed its 'BBB-' counterparty credit rating on Zenith National Insurance Corp. and 'A-' the insurer financial strength rating on Zenith Insurance Co. and ZNAT Insurance Co., members of the Zenith Insurance Group Intercompany Pool (collectively, Zenith). At the same time the rating agency revised the outlook on all these ratings to negative from stable.
The negative outlook reflects S&P’s concern regarding the company's underwriting profitability in light of unprecedented macroeconomic headwinds in California and Florida (Zenith's domain states). For the first nine months of 2010, Zenith's combined ratio was 125.5% (including policyholders' dividend) while EBITDA fixed coverage according to generally accepted accounting principles (GAAP), excluding realized investment gains, was negative, the rating agency says.
The affirmation of Standard & Poor's counterparty 'BBB-' counterparty credit rating on Zenith National Insurance Corp. and the 'A-' insurer financial strength rating on Zenith Insurance Co. and ZNAT Insurance Co. is based on the company's very strong capitalization, very low financial leverage, strong competitive position in California workers' compensation, and record of outperforming the California workers' compensation industry throughout the cycle.
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