Ratings Roundup

For the week of April 26, rating agencies including A.M. Best, Oldwick, N.J., and Moody’s Investors Service and Standard & Poor’s Corp., both in New York, weighed in on how the industry is faring.

Insurer’s financial strength was rated as follows:
Fortis SA/NV and Fortis N.V., collectively referred to as Fortis has had its ratings revised to positive from developing on the CreditWatch placement of it’s ‘BB’ long-term counterparty credit ratings and the ‘B’ short-term counterparty credit ratings by Standard & Poor’s Corp. The action reflects the “upside potential” from a deal between the Belgian government and BNP Paribas which is expected to alleviate some uncertainties such as Fortis’ liquidity and capital positions. S&P also maintained the ‘A’ long-term counterparty credit and financial strength ratings on Fortis Insurance Belgium on CreditWatch with negative implications and will look at FIB’s stand-alone credit profile, particularly given a difficult operating environment.

Horace Mann Educators Corporation’s ‘Baa3’ senior debt rating and the ‘A3’ insurance financial strength ratings of its property-casualty and life insurance subsidiaries have been affirmed by Moody’s Investors Service. A ‘stable’ rating has been assigned to all of the insurer’s ratings.
The P-C group’s operating returns have matched its peers although natural catastrophes have caused returns to be more volatile, according to Moody’s. However, the rating agency also noted the company is “pruning” costal exposures and the “near doubling of single-event reinsurance protection since 2005.”
The life insurance group, led by Horace Mann Life, is strongly capitalized as witnessed by its holding of preferred stock and hybrids, Moody’s says. The life unit also has a good liquidity profile.

Share ratings were released by S&P as follows:
Aetna’s ‘buy’ recommendation has been lowered to ‘hold’ by S&P. The rating agency cites the company’s reserve methodology, given an unfavorable reserve development. However, S&P did note that before net realized capital losses, the company’s first quarter earnings per share of $0.96 vs. $0.92 beat S&P’s estimate by $0.03 on higher than expected revenue.

CIGNA has been assigned a ‘hold’ recommendation following first quarter adjusted earnings per share of $0.87 before $0.11 in net one-time charges vs. $0.93 before $0.74 in net one-time charges, $0.05 below S&P’s estimate. The “worse” than expected results were on the non-health units.

Cincinnati Financial has been downgraded by S&P to a “strong sell” following the company’s post of operating earnings per share of $0.23 vs. $0.66 in the first quarter, “well below consensus and our $0.67 estimate.” The results according to S&P, reflect “subpar underwriting and investment results, in our view.” The company has an underwriting loss reflected in a 107.5% vs. 98.6% combined ratio compared to a profit from many of its peers, S&P stated.

Humana’s rating has been raised to ‘Buy’ from ‘Hold’ by S&P as first quarter earnings per share rose to $1.22 vs. $0.47 beating S&P’s estimate by $0.07. Operating revenues rose 11.2% to $7.64 billion vs. 8.3% growth as higher pricing and 16% more Medicare Advantage members outweighed the impact of 34% fewer Medicare Part D members.

Travelers Corp.’s ‘buy’ recommendation has been retained by S&P following Travelers’ $1.34 vs. $1.60 first quarter operating earnings per share, $0.01 above the consensus estimate. S&P maintains that in spite of a difficult investment environment, Travelers is among the better-positioned underwriters to leverage opportunities for growth amid the turmoil surrounding AIG and others.

An assessment of the industry as a whole was provided as follows:

A.M. Best noted that Singapore’s insurance market is “defying odds and growing amid a worldwide economic slowdown, a result of a high savings rate and an aging population. The growth comes in spite of the fact that it is already a developed insurance market.

Moody’s said that the troubled asset relief program’s capital purchase program would be a positive development for insurance companies experiencing short-term capital and liquidity pressure, although it did note uncertainty whether insurers will receive relief from the program. The program would provide “bridge capital and liquidity support to qualifying firms until the economy and capital markets recover.”
The rating agency says TARP money could change the competitive landscape but also notes the uncertainty over who will receive funding.

Moody’s also addressed the industry’s impaired assets which it said would likely pressure insurers through 2009. As profitability erodes and losses mount, charges related to impairments of intangible assets will pressure insurers’ 2009 earnings, the rating agency says. Moody’s notes that “In recent reporting periods, insurance companies have reported continuing impairments of intangible assets such as goodwill, deferred acquisition costs ("DAC"), and value of business acquired ("VOBA"), on their
financial statements.”
While intangible assets do not have an effect on liquidity, they do have an impact on the intrinsic economic value of a firm, Moody’s notes.