Saturday, April 4, 2009

Ratings Roundup

Here is a list of some of the ratings announcements made by Moody’s Investors Service and Standard & Poor’s Corp., both in New York during the week of March 29.
Financial Strength/Debt
Aetna Life Ins. Co. and Aetna Inc.’s core operating companies had their ‘A+’ financial strength and counterparty credit ratings affirmed by S&P. The ‘A-‘ counterparty credit rating on Aetna, Inc., was also affirmed. The outlook on these companies remains ‘stable’ according to S&P. Among the reasons cited for the ratings were: diversity of businesses, strong earnings and strong cash flow.

Americo Financial Life & Annuity Ins. Co. will retain its S&P ‘A-‘ financial strength and counterparty credit ratings on CreditWatch where it is now placed with negative implications. The rating is on hold while the company develops capital plans, according to S&P.

Conseco Inc. and its insurance subsidiaries have been affirmed by S&P which is also assigning a ‘negative’ outlook on these companies. The action, according to S&P, results follows the company’s announcements that it has amended credit facility covenants to provide greater cushion and that “the auditor’s opinion regarding 2008 operating results is unqualified.” S&P did note improved 2008 operating earnings but raised the issue of sustainability.

Fortis Corporate Insurance N.V. has had its ‘A-‘ counterparty credit and financial strength ratings of the commercial lines insurer affirmed by S&P but also was assigned a ‘negative’ outlook. The affirmation reflects a “strong, albeit weakened, capitalization and good competitive position in its specialty markets.” However, S&P also noted “pressure on operating performance, and uncertainty about the company’s future ownership and strategy.”

Genworth Financial, Inc. has had its senior debt ratings downgraded to ‘Baa3’ from ‘Baa1’ by Moody’s. The company’s primary life insurance subsidiaries including Genworth Life Ins. Co., have received an insurance financial strength ratings of ‘A2’ compared with its previous ‘A1’ by Moody’s.
The rating agency said the downgrade and negative outlook were driven by the expected impact of investment losses on profitability and capital generation and the weakened financial flexibility of the holding company in the current distressed market.
But Moody’s also noted a risk-based capital level of ‘well above 400%’ and ‘a robust cash position’ after drawing down on its bank credit facility to fund $700 million of debt maturities in May and June.

The Hartford Financial Services Group has had the insurance financial strength ratings for its life insurance subsidiaries downgraded to ‘A3’ from ‘A1’ by Moody’s. The property and casualty operations were downgraded to ‘A2’ from ‘A1.’ And The Hartford’s long-term senior debt was downgraded to ‘Baa3’ from ‘Baa1’ and short term debt ratings to ‘P-3’ to ‘P-2.’ Reasons cited include ‘expected continued weakness in earnings and reduced capitalization resulting from investment losses and substantial exposure to variable annuities.”

Jackson National Life Ins. Co., a unit of Prudential plc, has had its ‘A1’ insurance financial strength rating affirmed by Moody’s. A key part of the affirmation is the support of parent. However, Moody’s also noted that the company is well-positioned in the asset accumulation business with a broad annuity product offering and multiple distribution channels.
Equity Research

XL Capital, has received a ‘buy’ recommendation on its shares from S&P, raising its 12-month target price to $7 from $5. The rating agency views the shares as ‘speculative’ and the risk profile as ‘high’ but undervalued compared with the insurer’s peers. The shares, according to S&P, trade at approximately .40x2008 tangible shareholders’ equity (excluding goodwill and deferred acquisition costs) compared with a peer average of approximately 1.7x.

Lincoln National Corp. now has an S&P recommendation of ‘hold’ from ‘buy.’ LNC is trading at a discount to its peers, says S&P, but factors including above average equity sensitivity, and sizable intangible assets including variable annuity deferred acquisition costs and goodwill. S&P notes that LNC can use internal resources to maneuver around potential shortfalls in liquidity and capital but also has ‘weaker’ financial flexibility than its peers and “less margin for error.”

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