Rating agencies reacted to the recent announcements by American International Group Inc. (AIG) that it agreed to sell subsidiary American Life Insurance Co. (ALICO) and AIA Group Ltd. to MetLife Inc. and Prudential plc, respectively.
Fitch Ratings affirmed AIG's issuer default rating (IDR) and senior and hybrid securities ratings. Additionally, Fitch revised the rating watch status of ALICO's 'A+' insurer financial strength (IFS) rating to positive from evolving. After AIG’s March 1 announcement that it had entered into an agreement to sell its AIA subsidiary to Prudential plc for $35.5 billion, Fitch affirmed AIG's IDR and related ratings and revised its Rating Watch status for AIA to Positive from Evolving when that transaction was announced. Fitch views the ratings impact of the ALICO sale, valued at $15.5 billion and AIA sale similarly. As a result, the agency has taken equivalent rating actions after the two transactions were announced.
A.M. Best Co. commented that the ratings of AIG and its subsidiaries are "unchanged following the announcement that AIG will sell AIA to Prudential plc. The rating agency described the sale of AIA as a "continuation of AIG's efforts to liquidate assets and repay the assistance provided to it by the U.S. Government in late 2008 and early 2009. By accelerating the monetization of AIA through a sale, rather than pursuing an option to sell the company through a series of public offerings, AIG management has indicated that it will have an increased ability to focus on its core business areas."
A.M. Best notes that the sale of AIA, and the potential transaction related to AIG’s other foreign life insurance operation, ALICO, while expected, represent the sale of two significant operating units that have historically been a material provider of earnings to AIG.
Moody's Investors Service affirmed the A1 insurance financial strength (IFS) rating of ALICO, and changed the outlook to stable from developing. The rating agency said that the affirmation of ALICO, and the change in outlook to stable from developing, is based on the resolution of its ownership uncertainties, given the planned acquisition by MetLife, as well as the recent stabilization of its business fundamentals. Moody's said ALICO's A1 IFS rating is based on the company's strong position in the Japanese life insurance market, as well as its important (and often leading) market positions in approximately 50 other markets around the globe.
Standard & Poor's Ratings Services affirmed its 'A+' counterparty credit and financial strength ratings (FSR) on ALICO. At the same time, it removed the ratings from CreditWatch, where they were placed with developing implications on Feb. 3, 2010. The outlook is negative. S&P-issued ratings on AIG and its Chartis and SunAmerica Financial Group insurance subsidiaries are unaffected.
S&P believes the acquisition will leverage the global diversification strengths of ALICO, which has formidable market positions in Japan and eastern European countries. Upon the completion of the transaction, S&P expects that its 'A-' rating on AIG, which comprises a stand-alone rating of 'BB-' and a six-notch uplift for government support, would remain unaffected.
American Fidelity Assurance Co. and American Public Life Insurance Co.
A.M. Best Co. revised the outlook to stable from negative, and affirmed the FSR of A+ (superior) and issuer credit rating (ICR) of “aa-” of American Fidelity Assurance Co. A.M. Best also revised the outlook to stable from negative and affirmed the FSR of A- (excellent) and ICR of “a-” of American Public Life Insurance Co. Both companies are subsidiaries of American Fidelity Corp. (AFC).
American Fidelity’s revised outlook reflects its favorable operating results and improved risk-adjusted capital position. Additionally, the rating agency says the company has made considerable progress in lowering its expense ratio in recent years, which, historically. has been relatively high. The rating affirmations also reflect the company’s well-established niche in the voluntary education market. American Public’s revised outlook recognizes its return to profitability and improved capitalization position.
American Modern Insurance Group and members
A.M. Best Co. affirmed the FSR of A+ (superior) and ICR of “aa-” of American Modern Insurance Group and its property/casualty members. The outlook for all ratings is stable. Munich-American Holding Corp., the U.S.-based subsidiary of Munich Reinsurance Co, owns the American Modern companies.
The ratings of American Modern reflect its solid risk-adjusted capitalization, favorable operating performance and continued strategy as a provider of diversified specialty personal lines insurance products, A.M. Best says.
Moody's Investors Service assigned an A3 senior debt rating to the planned $750 million issuance of Ameriprise Financial Inc.'s 10-year senior notes, and affirmed the ratings of Ameriprise and its life insurance subsidiaries, led by RiverSource Life Insurance Co. The outlook for the companies was changed to stable from negative. There is an expectation that the senior notes’ proceeds will be used to refund debt maturing in November 2010, and for general corporate purposes.
Moody's said that the proceeds from the senior notes being issued will initially be used to complete the refinancing of the $800 million debt issue ($460 million was previously financed in May and June 2009) maturing in November 2010.
S&P assigned its 'A-' counterparty credit and FSRs to Forethought Life Insurance Co. (FLIC) and its 'BBB-' counterparty credit rating to FLIC's parent, Forethought Financial Group Inc. (FFG). The outlook on both companies is stable.
The ratings on FLIC reflect the company's leading market position in the pre-need life insurance segment and very strong capitalization, the rating agency says. The counterparty credit rating on FFG reflects the organization's modest financial leverage, which has been significantly reduced from historically high levels. The stable outlook reflects S&P’s expectation that FLIC will maintain its leading market position in the pre-need insurance market.
Moody's Investors Service affirmed MetLife Inc.’s credit ratings (senior debt at A3) and the IFS ratings of its subsidiaries, including Metropolitan Life Insurance Co. (MLIC), at Aa3. The rating outlook for the long-term ratings of MetLife and its subsidiaries was changed to negative from stable. This rating action follows MetLife's announcement of a definitive agreement to acquire ALICO (see beginning of story), a large, diversified international life insurance company with a significant presence in Japan, and an insurance subsidiary of AIG (senior debt at A3).
The rating agency said the affirmation is based on the strategic diversification and growth benefits that ALICO will bring to MetLife's business, together with a funding composition consistent with MetLife's current capital structure, but mitigated by the substantial execution risks, as well as heightened pressure on certain financial metrics for the company arising from the transaction.
Old Mutual plc and subsidiary
A.M. Best Co. affirmed the ICR of “bbb+” and the existing debt ratings of Old Mutual plc. Concurrently, A.M. Best affirmed the FSR of A (excellent), the ICR of “a” and the debt rating of Old Mutual’s subsidiary, Old Mutual Life Assurance Co. Ltd. The outlook for all ratings is stable.
The ratings reflect A.M. Best’s view that Old Mutual’s risk-adjusted capitalization is satisfactory and that its prospective earnings will continue to be depressed by global economic conditions in the short to medium term.
A.M. Best Co. affirmed the FSR of A+ (superior) and ICR of “aa-” of Pacific Life Insurance Co. (PLIC) (Omaha, NE) and its wholly owned subsidiary, Pacific Life & Annuity Co. (together known as Pacific Life). Concurrently, A.M. Best affirmed the existing debt ratings of PLIC, as well as the ICR of “a-” and debt ratings of its parent holding company, Pacific LifeCorp. A.M. Best also assigned a debt rating of “a-” to Pacific LifeCorp’s recently issued $450 million, 6.00% 10-year senior notes. The outlook for all ratings is negative.
The rating actions reflect Pacific Life’s strong risk-based capital position at year-end 2009, a significantly reduced net unrealized loss position within its investment portfolio, and a substantial shift in the individual annuity product sales mix from primarily variable to an equal amount of variable and fixed. The ratings also reflect the company’s extensive distribution relationships and strong competitive positions, A.M. Best says.
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