Moody’s and S&P took action on Aflac Inc.'s $750 million of fixed rate senior unsecured notes, divided into two tranches maturing in 2015 and 2040.
Moody's assigned an A2 (negative outlook) debt rating to the notes. The proceeds of the notes are expected to be used to repay Aflac's fixed and floating rate Uridashi notes coming due in September 2011 (approximately $396 million), share repurchases, and for general corporate purposes, Moody’s says. Although the planned refinancing of the 2011 debt maturities with the proceeds of the issuance eliminates near-term refinancing risks, the incremental debt (expected to be approximately $350 million) increases Aflac's adjusted financial leverage modestly. Going forward, Moody's anticipates that the company will reduce adjusted financial leverage to below 25%.
S&P assigned its 'A-' rating on the notes. The rating reflects Aflac's “very strong franchise value, very strong earnings, extremely strong liquidity, and sizable investment concentrations,” the rating agency says.
Fitch Ratings affirmed at 'A-' the issuer default ratings (IDR) for American Financial Group Inc. (AFG) and Great American Financial Resources Inc. (GAFRI). The insurer financial strength (IFS) ratings of the primary insurance operating subsidiaries have also been affirmed at 'A+' with the exception of certain subsidiaries of GAFRI, which have been upgraded to 'A+' from 'A.' The rating outlook for all ratings has been revised to stable from negative.
The outlook revision reflects the company's strong operating results, which have more than offset the company's credit-related investment losses (primarily in the annuity subsidiaries), as well as improvement in market value of bond portfolio since Fitch's last review.
The affirmation of AFG's ratings reflects its consistently solid operating performance, particularly in its specialty P&C operations (GAIC), as well as improved statutory capital levels and a solid liquidity position, the rating agency says.
Americo Life Inc. and subsidiary
S&P revised its outlook on Americo Life Inc. (ALI) and its subsidiary, Americo Financial Life Annuity Insurance Co. (Americo), to stable from negative. At the same time, the rating agency affirmed its 'BBB-' counterparty credit rating on ALI and our 'A-' counterparty credit and financial strength ratings (FSR) on Americo.
The ratings are based on Americo's strong operating performance, strong capital adequacy, and conservative investment portfolio, S&P says. The company's relatively small scale and narrow product portfolio in the highly competitive life and annuity marketplace as well as its concentration in the IMO distribution platform somewhat offset the strengths. The company maintains an opportunistic sales strategy, which, over time, has led to an evolving sales focus as market dynamics have shifted and new opportunities have surfaced.
CNA Financial Corp. announced it is issuing $500 million in senior unsecured notes due 2020. The company expects to use proceeds to redeem $500 million of the $1 billion outstanding senior perpetual preferred stock. All four rating agencies assigned ratings to the notes.
A.M. Best Co. has assigned a debt rating of “bbb” to the forthcoming notes and indicative ratings to selected securities under the shelf registration filed on April 14, 2010 of CNA. The outlook assigned to all ratings is stable. CNA intends to use the net proceeds of the senior unsecured notes issuance to redeem approximately $500 million of the $1.25 billion of cumulative senior perpetual preferred stock issued to its parent, Loews Corp., in November 2008. CNA redeemed an additional $250 million of this preferred stock in Q4 of 2009 with a portion of the proceeds from another senior notes issuance. A.M. Best believes CNA’s financial leverage will be approximately 20% at year-end 2010, which is well within A.M. Best’s guidelines for the assigned ratings.
Fitch Ratings assigned a 'BBB-' rating to CNA’s notes. The ratings of CNA and its insurance company subsidiaries are not affected by this action. The rating outlook is stable. CNA's equity credit adjusted debt-to-total-capital ratio was 17.1% at June 30, 2010, down from 19% at Dec. 31, 2009. Pro forma for the senior note issuance and preferred stock redemption, equity credit adjusted debt-to-total capital is about 19.6% at June 30, 2010, and remains below Fitch's expected range of 20% to 25%.
Moody's assigned provisional ratings to the shelf registration of CNA Financial Corp. and has assigned a Baa3 rating to the senior notes to be issued under the shelf. According to Moody's, the ratings on CNA Financial Corp. and its subsidiaries reflect the group's leadership position in many major commercial and specialty property/casualty insurance lines in the United States, its good risk-adjusted capitalization and reasonable reserve position, as well as its improved operational controls, profitable specialty lines segment, and the historically supportive parentage of Loews (senior unsecured debt rated A3).
S&P assigned its 'BBB-' rating on CNA's notes. At the same time, it affirmed its 'BBB-' counterparty credit rating on CNA and our 'A-' counterparty credit and FSRs on CNA's core operating insurance companies. The outlook remains stable. S&P viewed this issuance of the senior perpetual preferred stock as debt in 2008. Therefore, the debt and financial leverage metrics that it calculated in accordance with its criteria will remain unchanged following the debt issuance and subsequent redemption of preferred stock.
Moody's affirmed the Aa1 insurance financial strength (IFS) rating of Government Employees Insurance Co. (GEICO) and the Aa3 senior unsecured debt rating of its immediate parent, GEICO Corp. The rating outlook for these entities is stable, reflecting GEICO's strong market presence and healthy underwriting results, even in a weak economy. National Indemnity Co. (NICO – IFS rating of Aa1, stable outlook), the whole owner of GEICO Corp., ultimately is owned by Berkshire Hathaway Inc. (Berkshire -- long-term issuer rating of Aa2, short-term issuer rating of Prime-1, stable outlook, NYSE: BRK-A).
GEICO's ratings reflect its well-established brand, efficient operations and implicit support from NICO and Berkshire, the rating agency says. By selling through direct channels, such as mass media, the Internet, telephone and mail, GEICO can maintain a low underwriting expense ratio and offer competitive pricing. GEICO's underwriting expense ratio is typically several points below the average for its personal lines peer group, which allows the company to spend heavily on advertising its brand and competitive rates, Moody’s says.
Nationwide Mutual Insurance Co. and P&C and life insurance affiliates
Moody's affirmed the IFS ratings of Nationwide Mutual Insurance Co. (NMIC) and its property/casualty and life insurance affiliates at A1. The ratings on NMIC's surplus notes were affirmed at A3, and ratings of Nationwide Financial Services' (NFS) senior unsecured debt were affirmed at Baa1. In the same action, Moody's changed the ratings outlook on NMIC and its various affiliates to stable from negative.
The change in the Nationwide group's outlook to stable is primarily based on Moody’s opinion that the risk profile of the group's life affiliate NFS has improved in recent quarters, driven by a much stronger level of capitalization and a reduced risk of capital strain caused by investment losses and equity market-driven volatility. In addition, overall capital levels at NMIC and its property/casualty subsidiaries had also improved due largely to earnings and a recovery in investment valuations, according to the rating agency.
The rating affirmation of NFS and its subsidiaries was based on NFS' established position in the annuity and pension markets, diversified distribution channels and strong brand recognition, as well as generally good asset quality and strong capitalization.
The change in the ratings outlook for NMIC and its property/casualty insurance affiliates largely reflects the reduced risk at NMIC's wholly owned life insurance subsidiary NFS.
A.M. Best Co. placed under review with negative implications the FSR of A+ (superior) and issuer credit rating (ICR) of “aa-” of State Auto National Insurance Co. State Auto National is a member of the State Auto Insurance Cos. (State Auto), both of which are part of the State Auto Financial Corp.
The rating actions are a result of State Auto’s announcement of its definitive agreement to sell State Auto National to Hallmark Insurance Co., which has an FSR of A- (excellent) and an ICR of “a-”. A.M. Best anticipates that upon the close of the transaction, State Auto National will participate in an inter-company pooling agreement with Hallmark, which should result in a downgrading of State Auto National’s ratings.
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