Industry Report Card: North American Insurance Holding Companies |
| Publication date: 01-May-2012 09:53:51 EST |
Economic Outlook
Property/casualty insurance
In 2011, the U.S experienced significant catastrophic activity with some estimates of insured losses being 50% higher than the historical 10-year average of catastrophe losses. For many insurers, the accumulation of these events substantially eroded or exceeded full-year 2011 budgets for catastrophe losses. Moreover, although 2011 was one of the largest insured loss years for natural catastrophes and man-made disasters, the U.S. property/casualty (P/C) industry continues to face other challenges, including economic uncertainty, lower reinvestment returns due to low interest rates, and multiyear price declines and stagnating reserve releases for the commercial-lines sector.
These factors have generally contributed to insurers recording weaker operating performance and, for some, weaker competitive positions and financial profiles. In the aggregate, however, the U.S.-based P/C insurers that Standard & Poor's Ratings Services rates are on solid financial footing--primarily because of their strong capital positions--and have not suffered any significant disruptions to their operations.
Although we believe that commercial- and personal-lines insurers have much in common, including strong capital adequacy and conservative investment strategies, the key differences remain in pricing and loss-reserve adequacy. Generally, pricing for commercial lines reached an inflection point in mid-2011 when rates started to flatten, whereas rates in the personal-lines sector have been moderately improving during the past several years. Reserve releases for personal lines have been fairly consistent and stable for many years; however, we expect greater susceptibility to adverse reserve development for long-tailed commercial lines (where claims usually take several years to settle). Our negative outlook on the commercial lines sector, which has a longer-tail profile and lower reserve risk, reflects this viewpoint. The personal-lines sector has a stable outlook.
Life insurance
North American life insurers' fourth-quarter results remained supportive of our stable outlook. The stable outlook reflects our expectation of continued strong capital and liquidity, and moderate investment portfolio losses. However, we expect net investment income to remain pressured by low interest rates. We expect intense competitive rivalry, particularly in more commoditized products distributed through third parties, and low interest rates to continue to limit operating margins and restrict the potential for positive ratings actions. On balance, we expect limited rating actions in 2012, unless we lower the U.S. sovereign rating, which would likely result in downgrades of the eight U.S. life insurance groups we currently rate 'AA+'.
The greater-than-expected rise in U.S. equity markets during first-quarter 2012 should be a boost to issuers of separate account products and insurers with equity-oriented asset-management operations, whereas the decline in volatility should reduce hedging costs. The U.S. 12-month trailing speculative-grade corporate default rate remains less than long-term averages, which is a good sign for investment portfolios. Interest rates remain stubbornly low, with the 10-year Treasury retesting at 2%. The low new-money-earned rates remain a significant headwind for life insurers.
In response to low interest rates, equity-market volatility, and intense competitive conditions, we have witnessed life insures reprice, de-risk, and in some cases exit parts of the U.S. life and annuity market. Low interest rates have prompted issuers of protection products--such as life and long-term care insurance--to raise prices or in some cases exit individual long-term care. Equity-market volatility has prompted variable annuity issuers to develop volatility-managed investment options. Notable exits from the U.S. individual life insurance and annuities market include Sun Life Financial (announced December 2011) and Hartford Financial Services Group (announced March 2012), although both companies continue to operate in the group benefits business. Group benefits businesses remain attractive to many life insurers from risk and return perspectives because earnings are primarily driven by mortality and morbidity margins, with less asset and capital intensity than most individual products and more limited capital and earnings sensitivity to market risks.
Health insurance
Our stable outlook on the U.S. health insurance sector reflects our belief that industry risk is moderating, business conditions--including growth and retention opportunities and access to capital--have improved, and health insurers' financial fundamentals are now relatively strong. Offsetting these favorable factors are concerns about the pace of economic growth, growing governmental fiscal pressures (particularly at the state and local levels), and health care reform issues. We believe these factors will affect each company differently and will likely keep the number of rating actions moderate for 2012.
Return on revenue (ROR) for the publicly owned insurers that we rate was 7.5% in 2011, compared with 7.6% a year ago, partly reflecting the benefits of a sustained lower medical inflation trend. Relative operating strength and the general adoption of moderately more-conservative balance-sheet management has strengthened liquidity and capitalization. Although we expect insurers' margins to compress moderately in 2012, we do not believe operating performance will erode to levels that are inconsistent with the current ratings.
As we had expected, merger and acquisition (M&A) activity accelerated in 2011 following a three-year lull amid stressed economic conditions and uncertainties about health reform. The more-recent transactions, in our view, are consistent with the longer-term consolidation of a mature industry with growing barriers to entry. We believe that scale is becoming more of a competitive differentiator, in part due to incentives built into the Patient Protection and Affordable Care Act (PPACA). Also, major U.S. health insurers are diversifying their businesses beyond traditional benefits coverage, given the growing focus on containing health care costs.
Reinsurance
In fourth-quarter 2011, the Thailand floods and, to a lesser extent, increased loss estimates from catastrophe events that took place earlier in the year affected global reinsurers. We maintain a stable outlook on the global reinsurance sector despite the near-record level of catastrophe losses in 2011. Previously, we had noted that many global reinsurers could fail to meet our earnings expectations for the year. However, the 2011 catastrophe losses were an earnings event for the sector.
The global reinsurance sector still holds excess capital, although the amount has fallen from its peak a year ago. Also, we generally assess global reinsurers' enterprise risk management (ERM) capabilities as strong relative to the rest of the insurance industry. Near-term earnings for the sector will likely be limited by low interest rates, a relatively weak macroeconomic environment, and greatly reduced reserve releases.
Pricing changes in the reinsurance market have been fragmented, in our view. Property-catastrophe treaties that were loss-free in 2011 and global marine/energy have experienced rate increases of around 5%-10%. Loss-affected property-catastrophe treaties experienced greater rate increases, although they varied by region. Rate activity on casualty treaties ranged from down 5% to up 5% and there were no major reductions in capacity.
During the January 2012 renewal season, pricing changes were more influenced by changing views on exposure, actual loss experience, and competitiveness of prior years' pricing. In some lines, we consider the rate increases we have seen to be insufficient to cover increasing loss costs or the increased view of risk. Therefore, we do not consider the market as having turned to "hard" across the board yet.
Industry Ratings Outlook
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Issuer Review
Table 1
| Company/Credit rating as of April 26, 2012/Comments | Analyst | |
|---|---|---|
| ACE Ltd.(A/Stable/--) | ||
| ACE met our expectations for fourth-quarter and full-year 2011 results. The group reported lower net income of $1.6 billion in 2011 compared with $3.1 billion in 2010, but these results were within our expectations for 2011 in light of significant catastrophe activity. The company incurred pretax catastrophe losses (including restatement premiums) of $899 million in 2011 compared with $401 million in 2010. Despite the higher catastrophe loss activity, ACE continued to report strong and better-than-peer-group underwriting results, with a nonlife combined ratio of 94.6% for 2011. We expect ACE's consolidated capital adequacy to remain very strong during the next two years based on our view that operating results will remain very strong. Debt plus preferred leverage (measured on a tangible capital basis) likely will remain less than 25% in the medium term. | Laline Carvalho | |
| AXIS Capital Holdings Ltd.(A-/Stable/--) | ||
| In 2011, AXIS increased its gross premiums written by 9% to $4.1 billion. The insurance segment's premiums grew by 11%, mainly because of geographic expansion and new businesses (e.g. new renewable energy initiative and accident and health unit). The reinsurance segment's premiums rose 8%, driven by increases on renewal and new business in the motor reinsurance line, trade credit, and bond reinsurance. AXIS reported a combined ratio of 112.3% for the year, which compared with 88.7% for 2010. The increased combined ratio was attributed to catastrophe losses that contributed 28 percentage points. Although 2011 catastrophe losses had a significant impact on net income for the year, AXIS still reported net income of $9.4 million. | Douglass Ostermiller, CFA | |
| Aetna Inc.(A-/Positive/A-2) | ||
| In 2011, Aetna Inc. reported strong operating earnings growth of about 28% with pretax earnings of $3.0 billion on operating revenues of $33.6 billion (a 9.1% ROR) compared with $2.4 billion on revenues of $34.0 billion (a 7.0% ROR) in 2010. The earnings growth was primarily driven by favorable prior-period adjustments and low medical utilization. Debt leverage of 37.7% (including net present value of operating leases and unfunded post-retirement obligations) and EBITDA interest coverage of 13.4x (including imputed interest on operating leases) were consistent with our expectations. | Neal Freedman | |
| Aflac Inc.(A-/Negative/--) | ||
| In 2011, Aflac continued to perform strongly, generating an operating earnings increase of 7%, excluding the impact of foreign exchange. Japanese sales increased 19% during the year, reflecting continued strong bank-channel sales. Sales in the U.S. increased 7%, reflecting good performance in both the traditional and broker channels. As of Dec. 31, 2011, financial leverage (including pension and lease obligations) was approximately 24%, with strong EBITDA interest coverage of more than 20x. The negative outlook on Aflac parallels the negative outlook on Japan. Any downward movement in the sovereign rating will cause a parallel downward movement in our ratings on Aflac. | Jon Reichert | |
| Alleghany Corp.(BBB/Stable/--) | ||
| On Nov. 20, 2011, Alleghany and Transatlantic Holdings Inc entered into a merger agreement that closed on Mar. 6, 2012. For 2011, Alleghany's pretax income declined about 31% to $191 million due to a decline in premiums earned, an increase in claims, and a decline in net investment income offset by an increase in realized gains. Higher catastrophe losses and reserve strengthening in its workers' compensation book affected losses. These were partially offset by reserve releases in its casualty book. Consequently, the reported combined ratio deteriorated to 93.4% from 83% in 2010 but remains strong. While the company continues to face increased competition, growth in its premiums written reflects assumed business from international carriers and growth in binding authority. As of Dec. 31, 2011, Alleghany's debt leverage supported the ratings. | Hardeep S Manku | |
| Alliant Holdings I Inc.(B-/Stable/--) | ||
| The ratings on Alliant are based on the company's limited financial flexibility and low-quality balance sheet as a result of a highly leveraged capital structure, weak fixed-charge coverage, and some earnings volatility. Partially offsetting these weaknesses are Alliant's enhanced competitive position because of its focus on niche specialty products, peer-leading organic revenue growth, strong EBITDA margins, good liquidity, and experienced management team. For 2011, we expect EBITDA margins of at least 25%, an EBITDA fixed-charge coverage ratio of at least 2.0x, and a debt-to-EBITDA coverage ratio of 6.5x or lower. In addition, we expect the company to generate positive operating cash flows and to remain compliant with its bank loan covenants. | Ying Chan | |
| Allied World Assurance Co. Holdings AG(BBB+/Stable/--) | ||
| For full-year 2011, Allied World Assurance Co. Holdings Ltd. increased its gross and net premiums written by 10%. Allied World reported a combined ratio of 95.9% that lost 20 percentage points, or $292.2 million, because of catastrophe losses, somewhat offset by 17.4 percentage points from favorable reserve development. Although the 2011 catastrophe losses had a significant impact on net income for the year, Allied World reported net income of $274.5 million. | Douglass Ostermiller, CFA | |
| Allstate Corp.(A-/Negative/A-2) | ||
| Allstate reported pretax income of $960 million for full-year 2011, compared with pretax income of $1.13 billion in 2010, partly because of lower interest income and higher catastrophes. Allstate's property-liability operations' full-year combined ratio was 103.4%, compared with 98.1% last year. Catastrophes and associated losses added 14.7 points to the combined ratio for the full year compared with 8.5 points for 2010. Allstate Financial's operating income increased $53 million to $529 million for the full year. Allstate Financial continues to adjust its product mix, decreasing its emphasis on annuities and focusing more on life insurance products. Leverage and fixed-coverage metrics remain in line with the rating and our expectations. | Timothy Connor | |
| Alterra Capital Holdings Ltd.(BBB+/Stable/--) | ||
| For 2011, Alterra reported pretax operating income of $142 million, down from $272 million in the same period in the prior year, mainly driven by higher catastrophe losses ($253.4 million versus $54.9 million, net of reinstatement premiums). In 2011, gross written premiums from property and casualty (P/C) operations accounted for $1.9 billion. The P/C combined ratio including all corporate expenses increased to about 103% in 2011 from 90% in 2010, mostly because of increased natural catastrophe losses in the year. The ROR (excluding realized capital gain/losses) was 9% in 2011, down from 19% in 2010. Financial leverage and fixed-charge coverage ratios remain within our expectations. | Pablo A Feldman, ASA | |
| AmWINS Group Inc.(B/Watch Dev/--) | ||
| The counterparty credit rating on AmWINS reflects its limited financial flexibility; earnings volatility caused by exposure to underwriting, pricing, and economic cycles; and risks inherent in its growth-by-acquisition strategy. These factors are partially offset by AmWINS's enhanced competitive position gained by opportunistic acquisitions, its diversified revenue base, and its niche expertise in the excess and surplus market. For 2011, we expected the company to maintain favorable performance, with overall organic growth in the positive low-single digits, sustained margins at more than 20%, a debt-to-adjusted EBITDA ratio of 6x or less, and EBITDA fixed-charge coverage more than 2x, and the company met all of these expectations. | Julie Herman | |
| American Equity Investment Life Holding Co.(BB+/Stable/--) | ||
| American Equity Investment Life Holding Co.'s (AEL) pretax GAAP operating income (excluding realized gains and SFAS 133 charges, which changes the fair value of derivatives) for 2011 increased by 23% to $206.3 million from $167.6 million in 2010. Sustained spreads and higher business volume lifted earnings. We could raise the ratings by one notch if AEL's financial profile improves sufficiently and sustainably to support higher ratings and the investment risk profile continues to improve without any material risk concentrations. This would include capitalization sustainably redundant at the 'A' confidence level and continuation of the company''s favorable operating performance and strong competitive advantages. | Robert A Hafner, FSA | |
| American Financial Group Inc.(BBB+/Stable/--) | ||
| The group's pretax earnings declined to $563 million in 2011 from $663 million in 2010. The decline was primarily due to lower favorable reserve developments in core business, $50 million reserve strengthening in A&E, and lower reduced investment income from its P/C operations. AFG's GAAP combined ratio for the P/C segment deteriorated to 91.6% from 88% in 2010, though it remains strong. The annuity and supplemental pretax operating earnings improved to $224 million from $202 million in 2010 because of higher earnings in the fixed annuity and supplemental health insurance operations, though partially offset by higher mortality in the run-off life operations and lower earnings in the variable and indexed annuity businesses. As of Dec. 31, 2011, AFG's financial leverage and fixed-charge coverage ratios supported the ratings. | Siddhartha Ghosh, PhD | |
| American International Group Inc.(A-/Stable/A-2) | ||
| The rating on AIG reflects the diversified stream of earnings from its property/casualty (Chartis) and life insurance (SunAmerica) operations. Chartis's 2011 net premiums written were $34.8 billion, up 10% from 2010, largely due to the acquisition of Japanese insurer Fuji Fire & Marine. Premium volume in the U.S. was flat for the year. Chartis's 2011 combined ratio was 109.0%, compared with 116.8% for 2010, despite record catastrophe losses that added nine points to the 2011 ratio. SunAmerica's pretax operating income of $3.3 billion was down 19% from 2010, driven by lower investment income and higher policyholder benefits. Strong sales of both fixed and variable annuities drove premiums, deposits, and other considerations up 25% from 2010, to $23.8 billion. Holding-company statistics were within our expectations and in line with the current rating level. | John Iten | |
| Americo Life Inc.(BBB-/Stable/--) | ||
| For 2011 Americo reported pretax GAAP operating income (excluding realized gain/loss) of $65 million less than in the prior year. Adverse mortality (relative to the prior year) was slightly offset by better persistency and better expense management in 2011. As of Dec. 31, 2011, financial leverage was in line with our expectations at about 20%, and interest coverage exceeded our expectations for the rating level. We expect Americo to maintain capital in excess of the rating level and interest coverage of at least 5x. | Jeremy Rosenbaum, CFA | |
| Amerigroup Corp.(BB+/Stable/--) | ||
| AGP has met or exceeded all our expectations for 2011. Its EBIT return on revenue (ROR) was 5% with a five-year average of 6%. Debt leverage remains conservative at about 26.5% (excluding convertible debt) with EBITDA interest coverage, including adjustments for imputed interest for operating leases, remaining strong but dropping to about 14x from 22x in 2010. We believe the company is well-positioned to continue executing its organic growth and geographic diversification strategies to grow its top-line revenue and continue to produce very good operating performance (EBIT ROR of 3.5% - 4.5% in 2012). In addition, we expect the company to keep its debt-to-capital ratio in the 20%-30% range--barring any large acquisitions--and its EBITDA interest coverage more than 8x. | Hema Singh | |
| Ameriprise Financial Inc.(A/Stable/--) | ||
| For 2011, Ameriprise's GAAP pretax income decreased to $1.39 billion from $1.43 billion in 2010. The decrease in earnings was driven by increase in DAC amortization charges due to change in assumptions and increase in operating expenses, and partially offset by increase in fee-based income. With the 2010 acquisition of Columbia Management, the company's business mix shifted more toward asset management and advice and wealth management. The asset and advice and wealth management segment reported strong growth in earnings, driven by higher asset-based fees and the improved equity market. Ameriprise had EBITDA fixed-charge coverage of 10.1x and financial leverage of 21%. We assume ongoing revenue growth and strong profitability, though the company's business model is sensitive to equity market activity and fluctuation. | Michael Gross | |
| Aon Corp.(BBB+/Stable/A-2) | ||
| Aon's pretax income from continuing operations increased 7% for the fourth quarter and 31% for the full year of 2011 compared with the same periods of 2010. Revenues for full-year 2011 were $11.3 billion, as compared with $8.5 billion in 2010. The increase in the results was primarily driven by the acquisition of Hewitt Associates, which closed in October 2009. Organic revenue growth was 3% for the quarter compared with 2% last year. We expect Aon, through good earnings and prudent capital management, to continue to balance cash flows to debt at levels consistent with the rating. The EBIT-to-fixed charge coverage from continuing operations ratio of 7.2% and ROR of 14% were consistent with our expectations. | Timothy Connor | |
| Arch Capital Group Ltd.(A-/Stable/--) | ||
| In 2011, Arch reported pretax operating income of about $350 million, compared with $550 million in 2010. Its combined ratio in 2011 was 98.3%, with 15.4 percentage points (or about $405 million) stemming from catastrophe losses, as compared with 92.5% in 2010. The ROR (excluding realized capital gains/losses on investments) was 12% in 2011, down from about 19% for the same period in the prior year. This decrease reflects the lower underwriting performance in 2011 as a result of the high catastrophe activity in the year. Gross written premiums increased by 5% to $3.4 billion, mainly because of increases in reinsurance premiums. In March 2012, Arch issued $325 million in preferred stocks to call its outstanding preferred shares. Financial leverage and fixed-charge coverage ratios remain within our expectations. | Pablo A Feldman, ASA | |
| Assurant Inc.(BBB/Positive/A-2) | ||
| We expect Assurant's consolidated earnings to remain strong despite the tepid economic recovery and the resulting modest decline in premiums, above-normal catastrophe losses in 2011, and minimal earnings at Assurant Health. Assurant's full-year 2011 financial leverage and EBITDA fixed-charge coverage remained strong and well within our expectations at 19% (including DAC accounting impact) and 12x, respectively. | John Reichert | |
| Assured Guaranty Ltd.(A-/Stable/--) | ||
| Assured Guaranty Ltd. (AGL) reported a 9% decrease in operating income, a non-GAAP financial measure, to $604 million for 2011. Overall total U.S. public finance new issue volume was down more than 30% in 2011, which somewhat affected the company's business production, and insured penetration was less than 6%. Operating income was helped by higher recoveries assumed on breaches of representations and warranties on 2005-2007 vintage RMBS exposure. However, continued stress presented by this exposure may hurt operating performance. Net premiums earned declined 19% primarily because of the run-off of the structured finance portfolio. In 2011, the companies insured $15.1 billion of U.S. public finance par, which is down from $27.6 billion in 2010. AGL's subsidiaries provide adequate dividend capacity to support holding-company debt-service and liquidity needs. | David Veno | |
| Berkshire Hathaway Inc.(AA+/Negative/A-1+) | ||
| For 2011, Berkshire Hathaway Inc. (BRK) reported consolidated pretax operating income (PTOI) of $17.2 billion, virtually unchanged from 2010. The PTOI of the insurance segment declined 30% to $5.0 billion from $7.2 billion, primarily because of earthquake-related claims in Japan and New Zealand. This decline was offset by higher earnings from the railroad and manufacturing/service/retail segments. Consolidated net income was down 20% to $10.7 billion, reflecting a $3.2 billion negative swing in capital gains/losses. As of Dec. 31 2011, the financial leverage ratio was conservative at 13.9%. Fixed-charge coverage for 2011 was strong at 18.9x. These debt metrics exclude the separately rated MidAmerican Energy and Burlington Northern Santa Fe operations and the debt associated with Clayton Homes's mortgage-finance operations (which we view as operating leverage). | John Iten | |
| CIGNA Corp.(BBB/Stable/A-2) | ||
| For full-year 2011, Cigna reported pretax GAAP operating earnings (excluding realized investment gains and special charges) of $2.0 billion on operating revenues of $21.9 billion (an 8.9% ROR) which was consistent with our expectations. The company's strong earnings were driven by favorable prior-period adjustments and low medical utilization in its health insurance business, strong growth in its international business, and steady performance in its disability and life insurance business. On Jan. 31, 2012, Cigna acquired HealthSpring Inc. for about $3.8 billion. At year-end 2011, debt leverage (FAS 115-adjusted and including postretirement benefits and operating leases) of about 48%, reflecting the partial financing of the HealthSpring acquisition, and EBITDA interest coverage of 10.6x (including imputed interest on operating leases) were consistent with our expectations. | Neal Freedman | |
| CNA Financial Corp.(BBB-/Positive/--) | ||
| The company has met expectations for fourth-quarter and full-year 2011. CNA reported consolidated pretax operating income of $1.06 billion for full-year 2011, compared with $1.18 billion for the same period in 2010. The P/C segment's underwriting performance modestly declined, as reflected in a combined ratio of 98.4% for 2011, compared with 94.8% in the prior-year period. The combined ratio excluding catastrophe losses and reserve releases, which contributed about 3.7 points and 7 points, respectively, was 101.7%. The operating result was also hurt by reserve strengthening in the payout annuity business. In 2011, net investment income decreased to $1.26 billion from $1.46 billion in the prior year primarily because of lower earnings from limited partnership investments. | Patricia Kwan | |
| CNO Financial Group Inc.(B+/Stable/--) | ||
| For 2011, CNO's pretax earnings strongly improved (by 21%) to $317 million from $263 million in 2010. The increase in earnings stemmed from higher investment income and lower insurance policy benefit costs. All core operating segments improved their performance. We believe that the group's focus on lower-risk life and Medicare Supplement products, the use of reinsurance for riskier products such as long-term care, and strong investment returns contributed to an increase in earnings in 2011. CNO will have modest financial flexibility because of regulatory limitations on dividends from the operating companies. If improvements in earnings, capitalization, and financial flexibility continue and if capitalization improves at the 'BBB' level, we could raise the ratings by one notch. | Kevin G Maher | |
| Centene Corp.(BB/Positive/--) | ||
| For 2012, we expect CNC to continue to grow and generate stable cash flow in the intermediate term (12 to 24 months) to meet its debt-service requirements and pay for expenses related to expansion into new markets. In addition, we expect the company to keep its debt-to-capital ratio consistent with recent improvements in the 20%-30% range barring any large acquisitions. We expect EBIT ROR to be in the range of 3%-4%, EBITDA interest coverage to remain more than 10x and redundancy of statutory capitalization to stay at the 'BBB' level of confidence as per our capital model. | Hema Singh | |
| Chubb Corp. (A+/Stable/A-1) | ||
| In 2011, Chubb's net premiums written increased by 5% to $11.8 billion and were led by its international operations, which were up by 11%. Chubb experienced a moderate level of catastrophe losses during the year that contributed 8.9 percentage points to the combined ratio of 95.3%, which benefited from 6.6 percentage points, or $767 million, of favorable prior-year reserve development. Chubb reported lower, but strong earnings, with pretax income of $2.19 billion compared with $2.98 billion in 2010, due to lower underwriting results and a decline in net realized investment gains. On a GAAP basis, Chubb's strong fixed-charge coverage and conservative financial leverage (including additional pension deficit as debt) as of Dec. 31, 2011, were within our expectations. | Douglass Ostermiller, CFA | |
| Cincinnati Financial Corp.(BBB/Stable/--) | ||
| The company has met our expectations for fourth-quarter and full-year 2011. Cincinnati Financial reported consolidated pretax income of $176 million for full-year 2011 compared with $501 million for 2010. For 2011, the company?s combined ratio deteriorated to 109.2% from 101.7% in 2010. The negative results were attributed to above-normal catastrophe losses (which added about 13.4 points to the combined ratio) and partially offset by higher investment income. The company's financial leverage and fixed-charge coverage are consistent with our expectations. | Patricia Kwan | |
| Coventry Health Care Inc.(BBB-/Stable/--) | ||
| Coventry's full-year 2011 operating earnings were strong, with total revenue of $12.3 billion and pretax income of $681.8 million, for a strong pretax ROR of 5.6% (excluding realized gains and a nonrecurring pretax adjustment to earnings of $159.3 million). Strong earnings were driven by operating revenue growth tied to organic membership gains, the company's entry into Medicaid Risk markets, and the acquisition of MHP Inc., partially offset by higher medical costs and a decline in Part D membership. As of Dec. 31, 2011, adjusted debt leverage of 30.2% and EBITDA interest coverage of 10x were in line with our expectations. | James Sung | |
| Delphi Financial Group Inc.(BBB/Stable/--) | ||
| Delphi's 2011 pretax GAAP operating earnings (excluding realized losses) decreased 1.4% to $285 million from $289 million in the previous year. The earnings results reflect a 10% increase in premium and fess, offset by a 10.6% increase in benefits and expenses. The company's interest expenses decreased 14%, primarily due to the early retirement of the 2033 senior notes. For 2012, we expect financial leverage to remain less than 35%, and GAAP and statutory fixed-charge coverage to be more than 5x and 2x, respectively, which are appropriate for the ratings and risk profile. | Carmi Margalit, CFA | |
| Endurance Specialty Holdings Ltd.(BBB+/Stable/--) | ||
| In 2011, Endurance's gross premiums written were up by about 20% to $2.5 billion, while its net premiums written were up 12% to $1.9 billion. The growth in net premiums written was driven primarily by its insurance segment in general and specifically its primary agriculture and general casualty businesses. Similar to its peers, Endurance's underwriting performance deteriorated in 2011 because of significant catastrophe losses in various regions (e.g. New Zealand, Japan, Thailand, and U.S.). Endurance reported a combined ratio of 113.9% for full-year 2011 compared with 88.7% for full-year 2010. As of Dec 31, 2011, the combined ratio included approximately 25 percentage points of catastrophe losses, which was partially offset by 9.3 percentage points of favorable prior-year loss reserve development. | Douglass Ostermiller, CFA | |
| Everest Re Group Ltd.(A-/Stable/--) | ||
| In 2011, Everest's gross premiums written increased marginally by 2% to $4.3 billion from the same period last year. Worldwide reinsurance premiums were down 1% to $3.31 billion because of a decline in U.S. casualty and catastrophe business and a reduction in large crop reinsurance contracts, offset by higher reinstatement premiums and favorable foreign exchange rates. Conversely, insurance premiums grew 13% to $976 million because of new business generated through the acquisition of Heartland Crop Insurance and rate increases in California workers' compensation business, offset by reduced participation on a large casualty program. Everest reported a combined ratio of 118.5% and a reported net loss of $80.5 million for 2011, which was affected by $1.3 billion of catastrophe losses (gross of reinstatements and taxes). | Douglass Ostermiller, CFA | |
| FBL Financial Group Inc.(BBB-/Stable/--) | ||
| For full-year 2011, FBL Financial Group Inc. (FFG) reported pretax operating income of $115.6 million, relatively flat compared with 2010. The company has closed the sale of EquiTrust life for $465.3 million and used the proceeds to redeem $175 million senior public debt and $50 million affiliated debt. In addition, FFG's board has approved a stock repurchase plan of $200 million. Consolidated debt leverage was 20.8% and fixed-charge coverage was 8.9x at year-end 2011. We expect that upon completion of all related transactions, FBL and FFG's financial profile should improve and remain strong. With the sale of EquiTrust, which was predominantly selling fixed annuities, we expect the absolute earnings level to decline in 2012 from 2011, but earnings quality to improve as contribution from traditional insurance will increase. | Patrick Wong | |
| FHC Health Systems Inc.(B/Stable/--) | ||
| In 2011 FHC had operating EBITDA of $58.2 million, which exceeded our expectations of $45 million-$55 million as earnings margin compression in FHC's commercial business and the absence of several one-time items that were favorable in 2010 were partially offset by new business growth and lower-than-expected medical claims costs on certain public-sector contracts. The company also reduced the debt on its first-lien term loan by about $23 million in 2011, including a $19 million voluntary prepayment, and was in compliance with all covenants at year-end 2011. Based on the company's track record of meeting or exceeding expectations, we believe that FHC will generate sufficient free cash flow to avoid a covenant violation and provide a very tight covenant cushion in first-quarter 2012 as well as provide a moderate cushion for the remainder of 2012. | Neal Freedman | |
| Fairfax Financial Holdings Ltd.(BBB-/Positive/--) | ||
| In 2011, Fairfax reported a pretax operating loss of $486 million, largely as a result of about $1 billion in catastrophe losses, compared with $220.5 million in 2010. Its combined ratio in 2011 for ongoing operations was somewhat high at 114.3%, with 19 percentage points stemming from catastrophe losses in 2011, as compared to 103.5% in 2010. On a pro-forma basis at year-end 2011, upon completion of the issuance of C$250 million preferred stocks and repayment of some outstanding debt, Fairfax's total financial leverage will be approximately 31.5%, which marginally exceeds our expectation, and the impact on EBITDA fixed-charge coverage is negligible. In 2012, we expect earnings and capital growth to bring financial leverage back to our expectation of about 30%. | Pablo A Feldman, ASA | |
| Fidelity National Financial Inc.(BBB-/Stable/--) | ||
| FNF reported total revenue of $4.8 billion in 2011, down from $5.1 billion (adjusted for realized gains/losses) in 2010 due to the worsening housing market. However, with pretax income of $408 million for 2011, FNF saw its pretax margin increase to 8.3% for 2011 from 6% in 2010 due to lower expenses, including claim provisions and agent retention. FNF maintains a conservative debt-to-capital ratio at its rating level of 20%. We could raise the ratings if volumes and home prices recover at a faster pace than we expect and if the group demonstrates sustainable margin improvement with less volatility, including its equity investments and new restaurant segment. Alternatively, we could consider a downgrade if margins deteriorate or increase in volatility, if the group's statutory capital declines significantly, or if equity investments and non-title business substantially increases. | Robert E Green | |
| Finial Holdings Inc.(BBB/Stable/--) | ||
| The rating on Finial reflects National Indemnity Co.'s (NICO) 100% ownership of Finial and its North American operating subsidiary, Connecticut-based Finial Re. The rating also reflects our view that Finial is strategically important to NICO. Although NICO does not have a legal obligation to pay interest and principal on Finial's $200 million, 7.125% notes due Oct. 15, 2023, the acquisition benefits Finial's bondholders given the importance for NICO, a core subsidiary of Berkshire Hathaway Inc. (BRK), to continue servicing the debt to protect BRK's and NICO's reputation with regulators and investors. | Ying Chan | |
| Genworth Financial Inc.(BBB/Negative/A-2) | ||
| The ratings on Genworth Financial Inc. remain unaffected by the recent downgrade of Genworth Mortgage Insurance Corp. to 'B' from 'BB-'. For full-year 2011, GNW reported GAAP pretax operating earnings of $534 million on revenues of $10.3 billion. Earnings from the insurance and wealth-management segments grew by 24%, while U.S. mortgage insurance segment earnings declined by 13%. GNW's debt leverage of 22% is within expectations for the current rating, while consolidated interest coverage of 2x is at the low end of our expectations. Following the implementation of new accounting regulations for deferred acquisition costs in first-quarter 2012, we expect GNW's leverage to fall gradually to between 24% and 26% under our criteria. Prospectively, we expect GNW to maintain cash of at least 2x holding company expenses. | Jeremy Rosenbaum, CFA | |
| HCC Insurance Holdings Inc.(A/Stable/--) | ||
| In 2011, HCC's pretax operating income declined to $355 million from $490 million in 2010 despite significantly higher catastrophe losses during the year compared to its historical average. Catastrophe losses contributed $118 million to 2011results, compared with $21 million in 2010 . Also, the group's 2011 operating results were hurt by a modest $10 million of adverse reserve developments (about $37 million of this was in diversified financial product lines) compared with a favorable $22.7 million of reserve releases in 2010. Nevertheless, HCC's GAAP combined ratio was very strong at 90.8% (5.4 percentage points due to catastrophe losses) compared with 84.6% in 2010 (1.1 percentage points). Also, as of Dec. 31, 2011, HCC's GAAP financial leverage and fixed-charge coverage ratios supported the ratings. | Siddhartha Ghosh, PhD | |
| HMSC Corp.(B-/Stable/--) | ||
| The ratings on HMSC reflect its highly leveraged capital structure, limited financial flexibility, low-quality balance sheet, weak coverage metrics, and limited revenue diversification compared with those of its peers. HMSC's seasoned management team, expense controls, and positive cash flow partially offset the negative factors. We expect HMSC's revenue growth to continue to improve modestly (in the flat to low-single-digit range) in 2012. The company's EBITDA margins should remain strong and supportive of the rating at more than 20%, its adjusted EBITDA fixed-charge coverage should be at least 1.5x, and its debt-to-last-12-months adjusted EBITDA will likely remain around 10.6x and generate healthy positive cash flows from operations and maintain a cushion of unrestricted cash of at least $10 million as it continues to pursue strategic initiatives that enhance its operational efficiencies. | Polina Chernyak | |
| HUB International Ltd.(B/Stable/--) | ||
| The rating on HUB reflects the company's limited financial flexibility, which is a function of its highly leveraged capital structure; the pressure on organic revenue growth and profitability, stemming from soft pricing in the insurance market; and the execution risk related to its debt-funded acquisition strategy. Somewhat offsetting these weaknesses are HUB's success in enhancing its competitive position through its acquisition strategy, its good earnings diversification within the brokerage arena, and a consistent history of favorable operating results and margins relative to its peers. Our expectations for full-year 2011 included organic growth in the flat to low single-digit range, margins of near 30%, a debt-to-adjusted EBITDA ratio of less than 7x, and EBITDA fixed-charge coverage of at least 1.7x. The company performed in line with these expectations. | Julie Herman | |
| Harleysville Group Inc.(BBB-/Positive/--) | ||
| In 2011, Harleysville group''s statutory income was $43.7 million, compared with pretax operating income of $68.4 million in 2010. Large catastrophe and noncatastrophe weather losses, along with lower favorable development, affected the current-year earnings. Catastrophe losses were $93.2 million (11.6 loss ratio points) compared with $35.7 million in 2010. The group's consolidated statutory combined ratio deteriorated to 119.9% in 2011 from 102.5% in 2010. However, the group continues to have very strong capital adequacy and maintains conservative financial leverage that supports the ratings. | Siddhartha Ghosh, PhD | |
| Hartford Financial Services Group Inc. (BBB/Stable/A-2) | ||
| For 2011, Hartford reported adjusted EBITDA of $1.3 billion as compared with $4 billion for the previous year. The earnings were affected primarily by higher catastrophe losses, reserve increases for asbestos and workers' compensation, and DAC charges. As of Dec. 31, 2011, HIG's financial leverage was about 26%, and fixed-charge coverage was 2.2x. In March 2012, HIG announced its decision to shift its focus away from certain products in its wealth-management segment, and is likely to divest individual life and retirement plans. We believe the group will sustain its strong competitive position and business profile in the consumer and commercial segments. | Shellie Stoddard | |
| Health Net Inc.(BB/Stable/--) | ||
| The company's 2011 adjusted EBIT of $481 million (excluding realized gains and losses, Northeast operations, and special charges) on total revenues of $11.9 billion with EBIT ROR of 4% are in line with our expectations and compare favorably with 2010 operating earnings of $453 million and an ROR of 3.4%. We expect the company to sustain or improve its earnings through 2012. Debt leverage (adjusted for unfunded post-retirement obligations and operating leases) was about 31% and EBITDA interest coverage (including imputed interest on operating leases) was 10x. We believe that the unregulated cash flows from the TRICARE contracts diversify Health Net's earnings and improve the company's financial flexibility. | Hema Singh | |
| HealthCare Partners LLC(BBB-/Stable/--) | ||
| For year-end 2011 and 2012 we expect EBITDA to improve as a result of continued revenue growth in the high single digits. HCP's revenue will be $2.2 billion to $2.45 billion and the company will serve about 630,000 delegated managed-care members. We also expect sources of liquidity during the next 12-24 months to exceed uses by much more than 2x, excluding discretionary acquisitions. Operating cash flow averaging more than $200 million is more than sufficient to cover capital expenditure and debt repayment. Lease-adjusted debt-to-EBITDA, funds from operations-to-adjusted total debt, and adjusted EBITDA interest coverage ratios will likely be about 1.5x, 50%, and much higher than 10x, respectively. Through third-quarter 2011 HCP reported EBIT ROR of more that 10% on revenue of approximately $1.8 billion. | Hema Singh | |
| Healthways Inc.(BB-/Stable/--) | ||
| We assume that, for 2012, Healthways will generate revenues of $665 million-$705 million, EBITDA of $85 million-$100 million, EBITDA margin of 12%-15%, a debt-to-EBITDA ratio of 3x-4x, a debt-to-capital ratio of 45%-50%, EBITDA coverage of at least 6x, and a funds-from-operations-to-debt ratio of 20%-30%. We would consider a downgrade in the next 12 months if the company is unable to meet 2012 revenue and earnings expectations, and if key credit metrics fall significantly below projected expectations. However, notwithstanding a potential refinancing that significantly increases its debt load, our target credit metric ranges for Healthways indicate that the company could report operating results at the lower end of projections and still maintain the current rating. | James Sung | |
| Horace Mann Educators Corp.(BBB/Stable/--) | ||
| For full-year 2011, Horace Mann reported pretax income of $94.8 million, compared with $111.3 million in 2010. The substantial decline is driven by significantly above-normal catastrophe losses, resulting in a property/casualty combined ratio of 106.7% for of full-year 2011 However, on an underlying basis, the company's property-casualty operations performed well, with an accident-year combined ratio excluding catastrophes of 92.9% for full-year 2011, an improvement from 95.8% in 2010. Mitigating the adverse results in the P/C book, the company's life and annuity segments continued to demonstrate strong and stable results, with life ROR decreasing modestly to 17.7% for 2011 from 18.5% in 2010, and annuity ROA declining slightly to 95 basis points from 103 in 2010. As of year-end 2011, the company's capital adequacy and financial leverage metrics were consistent with our expectations. | Julie Herman | |
| Humana Inc.(BBB/Stable/--) | ||
| For 2011, Humana reported strong earnings with pretax income of $2.2 billion, up 28% from 2010, and total revenues of $36.8 billion, resulting in an ROR of 6.1%. The earnings reflect increase in premium revenue in the retail segment and increase in service-based revenue in the health and well-being segment. Although Medicare Advantage membership increased by 11%, overall medical membership (excluding Part D) remained flat at 8.6 million members due to lower employer group enrollment. The loss ratio improved marginally to 82.1% from 82.9% for the previous year. As of Dec. 31, 2011, Humana's debt-to-capital ratio was 21.8% with strong EBITDA fixed coverage of 15.8x. The company has been active in M&A, with recent completed and announced acquisitions including MD Care Inc., Anvita Inc., Arcadian Management Services, and SeniorBridge Family Cos. (pending). | James Sung | |
| Industrial Alliance Insurance and Financial Services Inc.(A+/Stable/--) | ||
| IAG is a Canadian life insurance operating and holding company. In 2011, on an IFRS basis, IAG reported adjusted EBIT of C$179 million, down from C$388 million in 2010. The earnings remained dampened due to lower individual life insurance and wealth-management earnings resulting from subdued interest rates and equity market. As of Dec. 31, 2011, the company's solvency ratio was 189%, which is within its target range of 175%-200%. The financial leverage was 34% with a fixed-charge coverage ratio of 2.9x. The stable outlook reflects the quality and consistency of the earnings and the well-diversified nature of the company's operations. | David M Zuber | |
| Infinity Property and Casualty Corp.(BBB/Stable/--) | ||
| For year-end 2011, Infinity reported pretax income of $54 million, down from $129 million in 2010. The decline was driven by an uptick in the calendar-year combined ratio to 98.0% from 89.6% for the same period in the prior year because of modest unfavorable development of $4.5 million compared with $73.9 million of favorable development in 2010. On an underlying basis, the company demonstrated stable performance, with a reported accident-year combined ratio of 97.6% for 2011 compared with 97.8% in 2010. The company continued to demonstrate strong gross premium growth of 13.7% for the year, driven by growth in almost all focus states. On Jan. 10, 2012, Infinity completed its sale of Infinity Specialty Insurance Co. and Infinity General Insurance Co. to James River, and we subsequently withdrew these ratings. | Julie Herman | |
| Ironshore Inc.(BBB-/Stable/--) | ||
| Ironshore's net income for 2011 declined, partly because of catastrophe losses. Growth in gross premiums written was about 20%. The company continues to add new products and further its international expansion. Ironshore's consolidated GAAP combined ratio rose to 107.1% in 2011 from 100.5% in 2010, partially because of catastrophe losses, offset by some improvement in the company's expense ratio. We expect Ironshore's good competitive position to improve gradually as the company increases penetration across its target markets. Leverage remains consistent with the ratings. | Jason Porter, CFA | |
| Kemper Corp.(BBB-/Stable/--) | ||
| For full-year 2011, Kemper Corp. reported net income of $83.7 million, down from $184.6 million in 2010. The substantial decline is partially driven by elevated catastrophe costs for 2011 of $149.8 million (compared with $70.2 million last year), resulting in a property/casualty combined ratio of 110%. On an underlying basis, the company's property/casualty operations produced an accident-year combined ratio (excluding catastrophes) of 102% for the quarter, a modest deterioration from 98.2% in 2010 due primarily to weak performance in the company's direct book. The company's life and health segment continued to perform well, with a 14% increase in segment net operating income to $108.5 million for the year. As of year-end 2011, the company's capital adequacy and financial leverage metrics were consistent with our expectations. | Julie Herman | |
| Lancashire Holdings Ltd.(BBB/Stable/--) | ||
| In 2011, Lancashire's gross premiums written decreased by 8.2% to $632 million from $689 million in 2010. The decline is attributable to a number of property and energy multiyear deals written in 2010 that are not currently up for renewal, as these contracts continue to earn out. The company's operating performance declined, as it generated a combined ratio of 66.9% and EBITDA of $228 million in 2011 compared with prior-year results of 57.8% and $316 million, respectively. The decline was attributable to a $25 million loss (after reinsurance and reinstatement premiums) from the Thailand floods and a $138.5 million loss in relation to the Tohoku and Christchurch earthquakes. However, partially offsetting these losses was a $155 million favorable reserve development. As of Dec. 31, 2011, the debt leverage ratio of 9.2% and interest coverage ratio of 15.2x remained supportive of the rating. | Adrian Nusaputra | |
| Liberty Mutual Group Inc.(BBB-/Positive/--) | ||
| In 2011, Liberty's GAAP combined ratio deteriorated to 107.4% from 101.2% in 2010. Catastrophe losses significantly affected the current-year performance, contributing 9.3 percentage points to the combined ratio compared with 4.6 points in 2010. The consolidated net income declined to $368 million in 2011 from $1.7 billion in 2010. Also, GAAP consolidated financial leverage and EBITDA fixed-charge coverage ratios were 25% and 2.8x, respectively, in 2011 and were within our expectations. We expect the company's operating performance to continue to improve compared with its peers' and the industry, while keeping strong capital adequacy and strong ERM capabilities. | Siddhartha Ghosh, PhD | |
| Lincoln National Corp.(A-/Stable/A-2) | ||
| For 2011, Lincoln National Corp. (LNC) reported pretax operating earnings of $898 million compared with $1.3 billion in 2010. The decrease in earnings was mainly due to $747 million of goodwill impairment for the life insurance and media business. Holding-company liquidity and operating-company capital adequacy are in line with expectations for the rating on a consolidated basis. Although LNC's operating performance remains somewhat sensitive to equity-market swings, we believe the company's de-risked product profile and well-managed hedging program will effectively limit the adverse capital and earnings impact of equity market volatility. We expect total financial leverage (debt plus hybrid to capital) to be less than 30% in the intermediate term, with fixed-charge coverage of at least 6x in 2012. | Li Cheng, CFA, FRM, FSA | |
| Loews Corp.(A+/Stable/--) | ||
| Loews's financial profile (parent and unrated entities) benefits from its significant cash dividends and investment income well in excess of debt service and other needs. Ending 2011, Loews's cash and liquid investments (which include Loews Hotels and HighMount Exploration & Production LLC) were approximately $3.3 billion, 27% in financial leverage, and 6.6x in EBITDA fixed coverage. For full-year 2011, Loews's pretax earnings declined to $2.2 billion from $2.9 billion in 2010. EBITDA coverage fell short of our expectations in 2011 because of higher catastrophe losses, reserve strengthening in the payout annuity business, and lower investment income from limited partnership income recorded by CNA. The drop in earnings was also due to lower returns from its noninsurance operating subsidiaries (Diamond Offshore, Boardwalk Pipeline, and HighMount). | Patricia Kwan | |
| MBIA Inc.(B-/Negative/--) | ||
| MBIA Inc.'s liquid investments should cover its debt service, operating expense, and the cash needs of the ALM business through 2013. The estimated tax release related to the tax-sharing agreement could provide additional liquidity. In our view, dividends from the insurance operating companies (MBIA Insurance Corp. and National Public Finance Guaranty Corp.) will be the primary source of cash in the longer term. Weak full-year results were dominated by settlements and claim payments relating to MBIA Insurance's multisector commercial real estate exposures and by mark-to-market and losses in the wind-down operations. For 2011, consolidated GAAP pretax income was a loss of $2.2 billion, including a pretax loss of $2.5 billion at MBIA Insurance, a $409 million pretax loss at the wind-down operations, and $575 million of pretax income at National. | David Veno | |
| MGIC Investment Corp. (Unsolicited Ratings)(CCC/Negative/--) | ||
| Operating losses of $561 million for full-year 2011 significantly exceeded our expected losses. New notices of delinquency remain elevated, increasing the risk of adverse deviation due to higher-than-expected claims incidence. MGIC is also subject to significant losses if adverse judgments are rendered in disputes with certain significant counterparties. We expect MGIC to continue to incur operating losses into 2013, although losses should trend toward break-even by year-end 2013. MGIC's holding company had about $487 million in liquid assets as of year-end 2011 after contributing $200 million to its primary operating subsidiary. Debt leverage was 25%, with the next debt maturity of $245 million in 2015. | Ron Joas, CPA | |
| Magellan Health Services Inc.(BBB-/Stable/--) | ||
| Magellan has a growing revenue base, diversifying business profile, consistent earnings profile, and very conservative capital structure for the rating level. In addition, the company has strong liquidity and financial flexibility. Offsetting these positive factors are Magellan's client concentration and an acquisition-oriented growth strategy. In 2012, we expect Magellan's revenue to grow about 17% to $3.3 billion from $2.8 billion in 2011. We expect 2012 segment profits to decline slightly to $240 million-$260 million from $270.4 million in 2011, reflecting the absence of about $20 million of favorable prior-period adjustments recorded in 2010 and $15 million of additional operating costs related to new product development initiatives. | Neal Freedman | |
| Maiden Holdings Ltd.(BBB-/Stable/--) | ||
| In 2011, Maiden Holdings Ltd.'s net premiums earned increased 33% to $1.6 billion. Maiden's net income fell to $28.5 million from $69.9 million in 2010, mostly because of nonrecurring debt refinancing charges of $35.4 million. The 2011 combined ratio deteriorated to 98.9% from 96.9% in 2010, reflecting losses related to U.S. catastrophe events. On March 20, 2012, Maiden priced $100 million of senior notes with a 30-year maturity and 8% coupon. The ratings on Maiden reflect its low volatility of underwriting results, conservative investment portfolio, and stable clientele. Offsetting the favorable rating factors are Maiden's overlapping ownership and transactions with affiliates and limited competitive position. | Jason Porter, CFA | |
| Manulife Financial Corp.(A-/Stable/--) | ||
| In 2011, MFC reported net income of C$129 million versus a loss of C$1.7 billion in 2010. The volatility of its IFRS-C net income with market movements due to fair-value accounting is reflected in the ratings. Capitalization remained strong with a 216% MCCSR. The company's investment credit experience remains better than peers' and a strength to the ratings. MFC is well ahead of schedule with its plan to reduce earnings sensitivity to equity markets and interest rates. We could lower the ratings if MFC doesn't maintain or achieve its risk-reduction targets, its competitive advantages deteriorate significantly, basis charges remain elevated or increase significantly, or core earnings are too low to sustain a 5x fixed-charge coverage level. If MFC maintains its competitive advantages and improves its financial risk profile within its risk-reduction objectives, we could raise the ratings. | Robert A Hafner, FSA | |
| Markel Corp. (Unsolicited Ratings)(BBB/Stable/--) | ||
| The company met our expectations in fourth-quarter and full-year 2011. In 2011, Markel's gross written premiums were up by 16% to $2.3 billion from $1.98 billion in 2010. The growth is attributed to new business under the Specialty Admitted and the London Insurance Market segments, which benefited from the acquisitions of FirstComp and Elliott Special Risks. Markel's combined ratio deteriorated to 102% in 2011 from 97% in 2010. Higher natural catastrophe-related losses added eight points to the combined ratio, partially offset by $354 million of favorable reserve development and a lower expense ratio in 2011. | Patricia Kwan | |
| Marsh & McLennan Cos.(BBB-/Stable/A-3) | ||
| After several years of restructuring the business and a number of legal and regulatory settlements, MMC's operating results began showing more significant improvement starting in fourth-quarter 2010. For 2011, the company's reported pretax operating income of $1.4 billion increased materially compared with $769 million in 2010. The improvement was driven by organic revenue growth of 3%, increased margins, and materially lower recurring charges. On March 7, 2012, we assigned a 'BBB-' rating to the company's $250 million of 2.3% senior notes due 2017. Accordingly, financial leverage of approximately 2.7x at year-end 2011 remained unchanged as a result of the notes issuance. | Laline Carvalho | |
| Medical Card System Inc.(CCC/Watch Neg/--) | ||
| We believe that MCS's unexpected third-quarter 2011 operating losses and its recent announcement that it was replacing several key executives, including the chief executive officer increase the probability of a covenant breach in the near term. We will continue to monitor MCS's operating performance. If the company breached any of its covenants as of year-end 2011, we could lower the ratings by one notch. Conversely, if the company were to avoid a covenant breach, we could remove the ratings from CreditWatch with negative implications, contingent upon our view of expected 2012 operating performance. | Neal Freedman | |
| MetLife Inc.(A-/Negative/A-2) | ||
| MetLife reported strong earnings in 2011, with adjusted EBITDA of $11.1 billion compared with $6.3 billion for the previous year. The earnings surged from strong international segment results, postincluding a full year contribution from after the AlicoLICO acquisition, followed by growth in U.S. life insurance earnings. In line with the company's strategy to focus on its core business, MetLife exited its forward mortgage business as well asand discontinued the depository business of MetLife Bank. As of Dec. 31, 2011, MetLife's financial leverage ratio wais 36%, with strong GAAP EBITDA fixed-charge coverage of 8.2x. The negative outlook reflects the continued capital weakness in MetLife's domestic life operations and, to a lesser degree, the ongoing integration of Alico and the creation of a leveragable international operations platform. | Shellie Stoddard | |
| Metropolitan Health Networks Inc.(B+/Stable/--) | ||
| On Oct. 4, 2011, Metropolitan Health Networks completed its acquisition of ContinueCare Corp. for about $416 million. For year-end 2011, on a pro-forma basis, revenue of $701.3 million and adjusted EBITDA (EBITDA plus a $3.5 million goodwill impairment related to the company's acquisition of ContinueCare's sleep diagnostic business plus stock-based compensation) of $107.8 million were consistent with our expectations. | Neal Freedman | |
| Montpelier Re Holdings Ltd.(BBB/Stable/--) | ||
| Montpelier closed the sale of its U.S. excess and surplus insurance platform, MUSIC, on Dec. 31, 2011. The company will maintain its focus on property catastrophe and other short-tail lines with the support of private sidecars formed during 2011. The company also hired Chris Schaper as president of Montpelier Bermuda. Mr. Schaper was most recently chief underwriting officer of Endurance Bermuda. In 2011, Montpelier's gross premiums written were about flat from the prior year at $726 million, but operating performance deteriorated with a combined ratio of 131.1% compared with 82% in 2010. Catastrophe losses were $409 million during 2011, driving the deterioration in results. Favorable loss-reserve development of $89 million partially offset these losses. Leverage metrics remained consistent with the ratings. | Jason Porter, CFA | |
| MultiPlan Inc.(B/Stable/--) | ||
| The speculative-grade rating on Multiplan continues to reflect its highly leveraged financial profile. High debt leverage and acquisition integration risks remain as key credit risks for this company, but it continues to handle these risks relatively well. The company grew revenues by 15.6% in 2011 through organic growth, several acquisitions, and a full year of Viant earnings (acquired in 2010). EBITDA margins remained strong in 2011, at more than 50%, which was consistent with historical norms. | James Sung | |
| NLV Financial Corp.(BBB/Stable/--) | ||
| For full-year 2011, NLV Financial reported pretax income of $207.1 million, an increase of 11% compared with $186 million in 2010, resulting in a return on assets (ROA) of 104 bps, an increase of 5 bps year-over-year. This increase in pretax income is attributed to policy charges and interest declines credited to policyholders. Offsetting factors include declines in net investment income and pressure from a continued low interest rate environment. The group has strong pretax operating earnings on both statutory and GAAP bases, as well as a high-quality investment portfolio. We could take a rating action on NLV if capital becomes deficient at the 'A' rating confidence level as measured by our capital model or if statutory earnings fall to less than $100 million. We could also consider lowering the rating on NLV if GAAP interest coverage falls below our expectation of 4x. | Patrick Wong | |
| Navigators Group Inc. (BBB/Negative/--) | ||
| Navigators recorded a 12.3% increase in gross premiums written for 2011 as growth in its Nav Re division more than offset revenue lost from the sell of its middle-market property/casualty division and lower directors and officers liability (D&O) premiums. Pretax operating income declined by 67% to $32.7 million from $98.8 million in 2010, primarily due to losses in D&O and energy lines and lower investment performance. Reinsurance reinstatement premiums in the Marine lines and $2.1 million in adverse reserve development also affected results. In 2011 Navigators generated a combined ratio of 104.9% and an underwriting loss of $32.6 million compared with 101.5% and $4.9 million, respectively, in 2010. The debt-leverage ratio and interest-coverage ratio remained in line with the rating at 15.0% and 3.2x, respectively, despite $90.9 million in common stock repurchases. | Blake Mock | |
| Old Republic International Corp.(BBB+/Negative/--) | ||
| ORI's indentures are subject to acceleration should Republic Mortgage Insurance Co. be adjudicated as bankrupt or insolvent. We believe ORI's liquid assets, subsidiary dividending capacity, and access to the capital markets will enable ORI to repay or refinance the obligations to avoid a liquidity crisis. As well, management has implemented measures to mitigate this risk. However, ORI might incur reputational damage, impairing its ability to access the capital markets at a reasonable cost. Title pretax operating profits increased to $18 million in 2011 from $8 million in 2010. General insurance results also improved, as the loss ratio declined to 71.3% in 2011 from 76.4% in 2010. The total debt-to-capital ratio was 21.3% with GAAP interest coverage of 4.3x, excluding the results from the mortgage insurance segment. | Ron Joas, CPA | |
| PartnerRe Ltd.(A-/Stable/--) | ||
| PartnerRe Ltd. (PRE) reported lower-than-expected operating results in 2011. We expect the group's nonlife combined ratio to be 92%-96% in 2012 and its capital adequacy to remain very strong. PRE reported a net loss of $520 million in 2011 compared with net income of $853 million in 2010, mainly driven by significant catastrophe losses of $1.8 billion. The combined ratio for 2011 deteriorated to 125% from 95% for 2010 (with catastrophes representing 45 pts in loss ratio). The financial leverage remains within our expectations. | Laline Carvalho | |
| Phoenix Cos. Inc.(B-/Stable/--) | ||
| For full-year 2011, The Phoenix Cos. Inc. (NYSE:PNX) reported pretax income, adjusted for realized gains and losses, of $48.4 million compared with a pretax loss in 2010 of $24.8 million. This increase in pretax income is a result of lower policy acquisition costs and decreased operating expenses as apart of the organization's 2009 repositioning to implement a long-term expense mitigation/reduction plan. Offsetting factors include lower premium and fee income, which in the future will be vital in growing its revenue base to counteract the run-off of the current closed-block business. We could take rating action on Phoenix if holding company resources become strained to meet its obligations on a timely basis or if the company consistently incurs a statutory loss. | Patrick Wong | |
| Platinum Underwriters Holdings Ltd.(BBB/Stable/--) | ||
| Gross premiums written decreased about 12% to $687 million in 2011 because of management's view of rate adequacy and repositioning of property exposures away from less-transparent geographies. The 2011 combined ratio increased to 145% from 89% in 2010. 2011 net catastrophe losses were $541 million. Erosion of Platinum's capital base was offset by more than $150 million of investment gains. During the next few years, we expect Platinum's combined ratio to average less than 90%, return on revenues to average at least 20%, fixed-charge coverage to average at least 3x to 5x, and financial leverage to remain between 10% and 15%. | Jason Porter, CFA | |
| Power Corp. of Canada(A/Stable/--) | ||
| Power Corp.'s 2011 operating earnings improved to C$1152 million, compared with C$1097 million in the previous year. However, operating performance continues to reflect the performance of its primary holding, Power Financial Corp., along with its important but less significant private-equity investments. In February 2011, the company issued 5.60% noncumulative first preferred shares to raise gross proceeds of $200 million. For 2012, we expect underlying earnings to continue to improve to near-historical levels, and financial leverage to moderate during the next two years. | Michael Gross | |
| Power Financial Corp.(A+/Stable/--) | ||
| Power Financial's 2011 operating earnings improved 6% to C$1.72 billion from C$1.62 billion in 2010, reflecting the continued strong performance at of its primary holdings in insurance and asset management, namely Great-West Lifeco Inc. and IGM Financial Inc. However, lower dividend contributions from Pargesa and adverse currency movements offset the improvement. Total assets under management totaled C$620.7 million as of year-end 2011. We expect earnings to normalize and fixed-charge coverage to improve to more than 8x during the next 12 months. | Michael Gross | |
| Principal Financial Group Inc.(BBB/Positive/--) | ||
| Principal Financial generated operating earnings of $878 million in 2011--an increase of 4% from 2010--and results for fourth-quarter 2011 were marginally up by 1%. Effective expense management helped to offset the decline in sales and lower investment yields across most segments. We continue to feel that the company's relatively high exposure to mortgage securities, 'BBB' rated bonds, and financial institutions relative to peers' remains an area of risk. For 2012, we expect GAAP EBIT and fixed-charge coverage of $1 billion and 6x, respectively. An upgrade hinges on Principal Life strengthening its capital by maintaining a combination of a larger capital base within the operating company, overall statutory earnings capacity during a two-year horizon, and to a lesser degree the level of net cash at the holding company. | Donald H Chu, CFA | |
| ProAssurance Corp.(BBB/Stable/--) | ||
| For full-year 2011, ProAssurance reported strong operating results, with net premiums earned increasing to $565 million, a 9% increase from $519 million in 2010. The increase is largely attributable to the business acquired from American Physicians Services. Reported net income for 2011 was $287 million, a 24% increase from 2010. The combined ratio improved to 52.5% in 2011 from 68% in 2010, mainly due to a 13.9 percentage point decrease in loss ratio, the improvement largely driven by $326 million favorable prior year reserve development. For year-end 2011, the GAAP financial leverage and interest coverage remained supportive of the ratings. The rating reflects our view of the company's financial profile, supported by its strong operating performance, capital adequacy, investments, and financial flexibility, and bolstered by its well-established competitive position. | Jieqiu Fan | |
| Progressive Corp. (A+/Stable/--) | ||
| Progressive reported favorable earnings and very strong underwriting results for 2011, in line with our expectations. Net premiums written grew by 5% to $15.1 billion, led by strong growth in direct personal auto business, and the company's net income and reported combined ratio of $1.02 billion and 93%, respectively, declined from $1.07 billion and 92.4%, respectively, for 2010. The decline in profitability was primarily due to higher catastrophe losses and lower contribution from favorable loss reserve development. It was partially offset by a decrease in auto accident frequency. The shareholders' equity also declined by 4%, partly because of higher share repurchases in 2011. The increase in total debt during the previous year was partially offset by maturity of $350 million of notes in January 2012. On a net adjusted basis, the leverage remains within our expectations. | Hardeep S Manku | |
| Protective Life Corp.(A-/Stable/--) | ||
| For full-year 2011, Protective Life's (PL) GAAP pretax operating income $507 million. While all other segments reported a growth in earnings, life marketing and asset protection reported a decline. Adverse earnings from the life marketing segment were on account of higher operating expenses and negative change in unlocking of $19 million, while asset protection earnings declined due to lower investment income and high commission expenses. Protective's financial leverage and fixed-charge coverage were in line with expectations at about 30% and 8x, respectively. | Jeremy Rosenbaum, CFA | |
| Prudential Financial Inc.(A/Stable/A-1) | ||
| For 2011, pretax adjusted operating income for Prudential Financial Inc. (PRU) improved by 7% to $4.3 billion from $4.0 billion in 2010. The results reflect strong earnings from the international insurance segment, which included a contribution of $354 million before integration costs from the Star and Edison businesses that were acquired in February 2011. The company's GAAP fixed-charge coverage was about 8.0x and financial leverage, including hybrids, was about 27% for 2011. We expect the group to maintain a very strong competitive position, very strong capital adequacy, and improving operating earnings, and to continue to integrate the Star and Edison acquisitions successfully. | Matthew Carroll, CFA | |
| RLI Corp.(BBB+/Stable/--) | ||
| In 2011, RLI reported net premiums earned of $538.5 million, a strong 9.1% increase from the prior year. The increase in premiums was aided by the successful acquisition of Contractors Bonding and Insurance Co. and new product initiatives taken during the past few years. The company reported strong underwriting income of $116 million, a 22% increase from $95 million in 2010, primarily driven by favorable reserve development of $110.1 million. The company showed a strong consolidated combined ratio of 78.4% and pretax net income of $189.7 million for 2011. As of year-end 2011, the company's financial leverage and fixed-charge coverage were within our expectations. We do not expect any rise in the rating in the next 12 months due to potential earnings volatility stemming from the group's catastrophe exposures and a narrower competitive position than its similarly rated peers. | Jieqiu Fan | |
| Radian Group Inc.(CCC/Negative/--) | ||
| Our rating on Radian reflects its operating performance failing to meet our expectations, its high delinquent inventory (though improving throughout 2011), and its NOD's not declining rapidly enough. Radian group made a tender offer to repurchase its debt due in 2013 worth $250 million at discount and we viewed this as an opportunistic repurchase. We still believe the quality of Radian's capital is low relative to its peers' and we are concerned with the company's medium-term capital adequacy and its ability to repay its debt in 2015 and 2017. Radian's loss ratio remained high at 189.8%, primarily because of higher incurred losses. We expect Radian to report losses throughout 2012 into 2013. | Patrick Wong | |
| Reinsurance Group of America Inc.(A-/Stable/--) | ||
| For full-year 2011, Reinsurance group of America (RGA) reported adjusted pretax GAAP ROR of 8.4%, which is in line with our expectation but lower than pretax ROR of 9.4% in 2010. This drop was due a decrease in earnings in the U.S. and Asia Pacific segments. Higher claims from group disability business in the U.S. segment, reserve increases for Australia businesses, and unfavorable claims in the Asia Pacific segment hampered earnings. We expect RGA to maintain capital adequacy at levels fully supportive of the ratings and redundant at 'AA' confidence levels. RGA's financial leverage of less than 25% and GAAP fixed-charge coverage of more than 6x are in line with our expectation. | Jeremy Rosenbaum, CFA | |
| RenaissanceRe Holdings Ltd.(A/Stable/--) | ||
| RenRe's gross premiums written were up 23% to $1.44 billion in 2011, mainly in its catastrophe unit, which was positively affected by $160 million of reinstatement premiums written, improved property-catastrophe pricing and terms during June 2011 renewals, and premium growth in its Lloyd's syndicate. RenRe's operating performance weakened in 2011, with a reported combined ratio of 118.6% ($560 million-or 85.4 percentage points-due to catastrophes) compared with 45.1% for 2010. As a result, RenRe reported a net loss of $92 million for full-year 2011, compared with net income of $703 million in the same period last year. If 2012 proves to be a year with light catastrophic activity, we expect RenRe to report a combined ratio comparable to its historical average of 65% to 70% and a return on revenue of more than 20%. | Taoufik Gharib | |
| Sedgwick Claims Management Services Inc.(B+/Stable/--) | ||
| For 2011, Sedgwick reported pretax income of $5.6 million (excluding the transaction cost of $7.1 million), down 20% from the prior year primarily because of higher operating cost and increased interest expense. Sedgwick's revenues increased by 40% to $1.03 billion in 2011 from 2010, and its adjusted EBITDA margin remained strong at 15%. The adjusted debt leverage is about 67% while its EBITDA debt leverage is 6.27x and its EBITDA fixed coverage is 2.3x. We may raise the ratings if EBITDA debt leverage declines and remains less than 5x while fixed coverage remains more than 2.6x and EBITDA margins greater than 17%. | Robert E Green | |
| Selective Insurance Group Inc.(BBB/Stable/--) | ||
| For 2011, Selective's GAAP pretax income was $8.1 million, down from $82.0 million in 2010. The earnings decline was a result of an increase in catastrophe losses stemming from the extreme weather in 2011. The GAAP combined ratio for 2011 deteriorated to 107.4% from 101.6% for 2010. The combined ratio included approximately 8.3 points of catastrophe losses. Revenue and after-tax investment income for 2011 were unchanged at $1.6 billion and $111.1 million, respectively. As of Dec. 31, 2011, Selective's financial leverage and fixed-charge coverage ratios supported the ratings. | David Veno | |
| StanCorp Financial Group Inc.(BBB+/Stable/--) | ||
| StanCorp maintains a very strong competitive position based on its top-10 market positions in the group life and long-term disability insurance lines of business. The company's 2011 pretax GAAP operating income (excluding realized gains and losses) of $202 million is consistent with our expectations but less than 2010's operating earnings of $334.1 million, primarily because of higher claim levels in the company's group long-term disability insurance business. Adjusted debt plus hybrid leverage of about 27% and adjusted EBITDA fixed-charge coverage of about 9x at year-end 2011 are consistent with prior expectations. For 2012, we expect pretax GAAP operating earnings of $210 million to $230 million. | Neal Freedman | |
| State Auto Financial Corp.(BB+/Negative/--) | ||
| In 2011, State Auto Financial Corp. (STFC) posted a pretax operating loss of $154 million, compared with a $17 million gain in 2010. The reported GAAP combined ratio was 116% in 2011, up from 105% in 2010, with catastrophe losses adding 16.2 and 7.9 percentage points, respectively. The ROR (excluding realized capital gains/losses on investments) was negative 10% in this period as compared with positive 1% in 2010. The capital initiatives that management pursued by year-end 2011 have resulted in improved capital adequacy as a result of increased surplus and lower capital charges. Although the fixed-charge coverage ratio is substantially below the rating level, the operating insurance companies' dividend capacity is sufficient to cover STFC's fixed-charge obligations in 2012. | Pablo A Feldman, ASA | |
| Sun Life Financial Inc.(A/Negative/A-1) | ||
| We could widen the notching between SLF and its core operating insurance companies to three notches from two by lowering the ratings on SLF if fixed-charge coverage does not rebound to expected levels in 2012. We could lower the ratings if we believe that it will not maintain earnings diversification as the U.S. individual life and annuity business runs off by replacing U.S. earnings with other sources. We could revise the outlook to stable and affirm the ratings if SLF sustainably restores fixed-charge coverage to more than 5x, provided other metrics remain strong. The group is well capitalized with an MCCSR ratio of 211%. | Robert A Hafner, FSA | |
| Symetra Financial Corp.(BBB/Stable/--) | ||
| For full-year 2011, Symetra reported pretax GAAP operating earnings (excluding realized gains) of $272 million, a 9% increase from 2010. Increased earnings primarily reflect improvements in its benefits division's loss ratio and increased business volume from the AUL transaction, and higher income on increased deferred-annuity account values. SFC's financial leverage is about 20%, along with strong GAAP fixed-charge coverage of 8.9x. GAAP ROA (net realized investment gains/losses) was about 101 bps, in line with our expectations for the rating. We expect the company to maintain its existing competitive position in its core markets and keep operating performance strong and well balanced across its core insurance operations. We expect capital, as measured by our model, to remain sufficient at the 'A' level or better. | Ferris Joanis | |
| The Hanover Insurance Group Inc.(BBB-/Stable/--) | ||
| For full-year 2011, Hanover's net income was $37.1 million, down from $154.8 million in 2010. The decline was primarily driven by increased catastrophe losses and noncatastrophe weather-related activity as well as costs associated with the Chaucer acquisition. For the year ended Dec. 31, 2011, net premiums written increased to $3.6 billion from $3.05 billion in 2010, primarily due to the Chaucer acquisition. The company's combined ratio was 104.6%, a deterioration from 101% in 2010. Excluding weather-related losses, the results were in line with 2010 with a combined ratio of 94.6%. The company incurred pretax catastrophe losses of $361.6 million during 2011, of which $49.5 million was related to the Chaucer acquisition. Financial leverage was within our expectations, but fixed-charge coverage was hurt by the higher levels of weather-related losses during the year. | Polina Chernyak | |
| The Travelers Cos. Inc.(A/Stable/A-1) | ||
| In 2011, Travelers reported strong pretax income of $1.4 billion--down compared with $4.3 billion for full-year 2010, driven by significant catastrophe losses. The combined ratio was 105.1% compared with 93.2% for the same period of 2010. In total, catastrophe losses in 2011 amounted to $2.56 billion, accounting for 11.6 percentage points of the combined ratio. As of Dec. 31, 2011, financial leverage and EBITDA fixed-charge coverage were within our expectations. | Tracy Dolin | |
| Torchmark Corp.(A/Stable/A-1) | ||
| TMK's 2011 pretax GAAP income decreased 3% to $755.7 million from 2010. TMK's 2011 life-insurance premiums grew 3.7%, offset by a 5.9% decline in its health-insurance premiums due to increased competition and high turnover of agents. The 2011 life-insurance underwriting margin increased 6.8%, while the health-insurance underwriting margin declined 4.7%. TMK's 2011 profitability remained very strong, with a consolidated pretax GAAP ROR of 24%. TMK's 2011 financial leverage was less than 25% and its fixed-charge coverage was more than 10x. Overall 2011 results met our expectations. | Ferris Joanis | |
| Transatlantic Holdings Inc.(BBB+/Stable/--) | ||
| On Nov 20, 2011, Alleghany and Transatlantic Holdings Inc. entered into a merger agreement that closed Mar 6, 2012. For 2011, Transatlantic reported a pretax loss of $215 million, compared with pretax income of $473 million in 2010, primarily due to significant catastrophe losses of about $852 million (compared with $202 million in 2010) and $138 million in termination fees and other expenses related to the terminated merger agreement with Allied World Assurance Co. Accordingly, the combined ratio also deteriorated to 113.9% from 98.2% in 2010, with the catastrophe losses adding about 22 points. The company also reported slightly lower investment income, higher favorable reserve development, and higher realized investment gains compared with the prior-year period. As of year-end 2011, the company''s financial leverage was consistent with our expectations. | Tracy Dolin | |
| USI Holdings Corp.(B-/Positive/--) | ||
| We believe that USI is in a position to display tangible organic growth improvements and earnings momentum during the coming year. In 2011, the company began to show improvement. For the first time since 2007, it reversed its negative organic growth to positive 1% for 2011, partly because of favorable new business and retention trends. In addition, the company displayed modest credit-metrics improvement, with adjusted EBITDA fixed-charge coverage of 2.5x for 2011 (from 1.8x in 2010) and a debt-to-EBITDA ratio of 6.3x as of year-end 2011 (from 7.2x in 2010). | Julie Herman | |
| UnitedHealth Group Inc.(A-/Positive/--) | ||
| For full-year 2011, UnitedHealth reported strong operating performance, with adjusted pretax income (EBIT) of $8.5 billion on total revenues of $101.9 billion (an ROR of 8.3%). The results reflect improved revenues owing to growth in overall membership and commercial premium rate increases. Overall membership increased by 4.9% to 34.6 million members in 2011. GAAP debt leverage was 31.4%, while EBITDA interest coverage was 15.7x. For 2012, we expect stable to moderately diminished operating performance relative to 2011 due to a modest increase in the medical ratio stemming from a sustained shift in the company's business mix and modest underwriting margin compression in the commercial segments attributed to a moderately higher utilization trend. | Joseph Marinucci | |
| Unum Group(BBB-/Positive/--) | ||
| For 2011, Unum reported pretax GAAP operating income (excluding nonoperating charges and realized gains and losses) of $1.3 billion, which was consistent with our expectations. In fourth-quarter 2011, the company reported approximately $1 billion of pretax nonoperating charges, most of which were related to its decision to exit the group long-term care insurance business (about $863 million) as well as reserve strengthening on its claim reserves supporting its individual disability insurance closed block business (about $184 million). If Unum reports further significant nonoperating charges or the company's operating performance materially deteriorates during the next 12 to 18 months, we could revise the outlook to stable or negative or lower the ratings by one notch. | Neal Freedman | |
| Validus Holdings Ltd.(BBB/Stable/--) | ||
| Validus outperformed many of its short-tail reinsurance peers in 2011, producing about break-even underwriting results with a combined ratio of 99.4%. Performance was hurt mainly by $633.9 million in catastrophe and energy losses, which added about 35 percentage points to the loss ratio. These losses were partially offset by 8.7 percentage points of favorable prior-year loss-reserve development. During 2011, Validus capitalized a sidecar, AlphaCat Re, which it is using opportunistically to write retrocessional coverage. As of Dec. 31, 2011, financial leverage supported the rating. | Tracy Dolin | |
| W.R. Berkley Corp.(BBB+/Stable/--) | ||
| For full-year 2011, W.R. Berkley reported net income of $395 million, down from $449 million in 2010, primarily because of a decline in underwriting income due to weather-related losses. Gross premiums written were $5.1 billion in 2011, up 15% from 2010, driven by the rise in premiums in the international segment, alternative markets, and the specialty segment, and slightly offset by the decrease in premiums for the regional segment. Underwriting results remain strong, with a combined ratio of 98.3% for 2011. Financial leverage and fixed-charge coverage are within our expectations and support the rating. Consistently strong earnings from W.R. Berkley's solidly positioned, diversified subsidiaries offset its modestly aggressive financial profile, which supports a stable outlook. | Polina Chernyak | |
| WellPoint Inc.(A-/Positive/A-2) | ||
| For 2011, WellPoint reported adjusted pretax income (EBIT) of $3.5 billion on $60.6 billion of adjusted total revenue. EBIT ROR was 7.2%. The earnings benefited from increased premium rates in the local group and individual businesses, and were offset by higher costs associated with senior Medicare Advantage membership. The overall medical loss ratio increased to 85.1% for 2011 compared with 83.2% for 2010. With growth in national accounts, overall membership (excluding BlueCard and PDP) increased by 2.5% to 29.3 million members. EBIDTA interest coverage and debt leverage were 9.8x and 32%, respectively. | Joseph Marinucci | |
| Willis Group Holdings PLC(BBB-/Positive/--) | ||
| Willis's net income for 2011 declined significantly to $204 million from $455 million in 2010, mainly due to charges relating to operational review ($180 million) and make-whole amounts for redemption of senior notes ($171 million). However,excluding nonrecurring charges, Willis reported a healthy operating margin of 22.5% as compared to 23% for 2010. The revenue grew by 3%, helped by strong organic growth of 2%. The organic growth was driven by its Global (7%) and International (5%) segments, and offset by negative 4% growth in its North American segment, primarily due to a decline in Loan Protector business and the soft economy. In December 2011, Willis entered into a five-year credit facility comprised of a $500 million revolving credit facility and a $300 million term loan to replace its existing credit facilities and refinance its existing term facility. On a net adjusted basis, Willis's leverage and fixed-charge coverage ratios are within our expectations. | Hardeep S Manku | |
| XLIT Ltd.(BBB+/Stable/--) | ||
| In 2011, XL's consolidated gross premiums written grew 9% to $7.29 billion. The insurance segment's premiums grew 9%, driven largely by general property and energy, excess casualty, newly formed construction business, renewal of certain multiyear accounts, and select new business initiatives. The reinsurance segment's premiums also rose 13%, mostly from U.K. motor treaties, marine, recaptured business, and North American property catastrophe. XL's operating performance weakened because of catastrophe losses of $761 million and a noncash goodwill impairment of $429 million. As a result, XL reported a combined ratio of 107.5% and net loss of $475 million for 2011. Although XL's reported combined ratio is somewhat more than our expectation of 103%-105%, these catastrophe losses were not outside its stated risk thresholds and XL is not a negative outlier relative to its peers. | Taoufik Gharib | |
Recent Rating Activity
Table 2
| Recent Rating/Outlook/CreditWatch Actions* | |||
|---|---|---|---|
| Company | To | From | Date |
|
Assured Guaranty Ltd. |
A-/Stable/-- | A+/Watch Neg/-- | Nov. 30, 2011 |
|
Assured Guaranty Ltd. |
A+/Watch Neg/-- | A+/Negative/-- | Sept. 27, 2011 |
|
Fairfax Financial Holdings Ltd. |
BBB-/Positive/-- | BBB-/Stable/-- | Oct. 28, 2011 |
|
Healthways Inc. |
BB-/Stable/-- | BB/Stable/-- | Oct. 26, 2011 |
|
Liberty Mutual Group Inc. |
BBB-/Positive/-- | BBB-/Stable/-- | Oct. 4, 2011 |
|
Loews Corp. |
A+/Stable/-- | A/Positive/-- | Nov. 17, 2011 |
|
Magellan Health Services Inc. |
BBB-/Stable/-- | BB+/Stable/-- | April 5, 2012 |
|
Sun Life Financial Inc. |
A/Negative/A-1 | A/Watch Neg/A-1 | Feb. 24, 2012 |
|
Sun Life Financial Inc. |
A/Watch Neg/A-1 | A/Stable/A-1 | Dec. 13, 2011 |
Rating Trends
Chart 3
Contact Information
Table 3
| Contact Information | |||
|---|---|---|---|
| Credit analyst | Location | Phone | |
| Matthew Carroll, CFA | New York | (1) 212-438-3112 | matthew_carroll@standardandpoors.com |
| Laline Carvalho | New York | (1) 212-438-7178 | laline_carvalho@standardandpoors.com |
| Ying Chan | New York | (1) 212-438-5532 | ying_chan@standardandpoors.com |
| Li Cheng, CFA, FRM, FSA | New York | (1) 212-438-1849 | li_cheng@standardandpoors.com |
| Polina Chernyak | New York | (1) 212-438-7179 | polina_chernyak@standardandpoors.com |
| Donald Chu, CFA | Toronto | (1) 416-507-2506 | donald_chu@standardandpoors.com |
| Timothy Connor | New York | (1) 212-438-6104 | timothy_connor@standardandpoors.com |
| Tracy Dolin | New York | (1) 212-438-1325 | tracy_dolin@standardandpoors.com |
| Jieqiu Fan | New York | (1) 212-438-1975 | jieqiu_fan@standardandpoors.com |
| Pablo Feldman, ASA | New York | (1) 212-438-3773 | pablo_feldman@standardandpoors.com |
| Neal Freedman | New York | (1) 212-438-1274 | neal_freedman@standardandpoors.com |
| Taoufik Gharib | New York | (1) 212-438-7253 | taoufik_gharib@standardandpoors.com |
| Siddhartha Ghosh, PhD | New York | (1) 212-438-1466 | siddhartha_ghosh@standardandpoors.com |
| Robert Green | New York | (1) 212-438-2013 | robert_green@standardandpoors.com |
| Michael Gross | San Francisco | (1) 415-371-5003 | michael_gross@standardandpoors.com |
| Robert Hafner, FSA | New York | (1) 626-765-6361 | robert_hafner@standardandpoors.com |
| Julie Herman | New York | (1) 212-438-3079 | julie_herman@standardandpoors.com |
| John Iten | New York | (1) 212-438-1757 | john_iten@standardandpoors.com |
| Ferris Joanis | New York | (1) 212-438-5552 | ferris_joanis@standardandpoors.com |
| Ron Joas, CPA | New York | (1) 212-438-3131 | ron_joas@standardandpoors.com |
| Patricia Kwan | New York | (1) 212-438-6256 | patricia_kwan@standardandpoors.com |
| Kevin Maher | New York | (1) 212-438-7228 | kevin_maher@standardandpoors.com |
| Hardeep Manku | Toronto | (1) 416-507-2547 | hardeep_manku@standardandpoors.com |
| Carmi Margalit, CFA | New York | (1) 212-438-2281 | carmi_margalit@standardandpoors.com |
| Joseph Marinucci | New York | (1) 212-438-2012 | joseph_marinucci@standardandpoors.com |
| Blake Mock | New York | (1) 212-438-7278 | blake_mock@standardandpoors.com |
| Adrian Nusaputra | New York | (1) 212-438-7255 | adrian_nusaputra@standardandpoors.com |
| Douglass Ostermiller, CFA | New York | (1) 212-438-4530 | douglass_ostermiller@standardandpoors.com |
| Jason Porter, CFA | New York | (1) 212-438-3348 | jason_porter@standardandpoors.com |
| Jon Reichert | New York | (1) 212-438-7234 | jon_reichert@standardandpoors.com |
| Jeremy Rosenbaum, CFA | New York | (1) 212-438-5260 | jeremy_rosenbaum@standardandpoors.com |
| Hema Singh | New York | (1) 212-438-7254 | hema_singh@standardandpoors.com |
| Shellie Stoddard | New York | (1) 212-438-7244 | shellie_stoddard@standardandpoors.com |
| James Sung | New York | (1) 212-438-2115 | james_sung@standardandpoors.com |
| David Veno | New York | (1) 212-438-2108 | david_veno@standardandpoors.com |
| Patrick Wong | New York | (1) 212-438-1936 | patrick_wong@standardandpoors.com |
| David Zuber | New York | (1) 212-438-1125 | david_zuber@standardandpoors.com |
| Primary Credit Analysts: | Matthew Carroll, CFA, New York (1) 212-438-3112; matthew_carroll@standardandpoors.com |
| Joseph Marinucci, New York (1) 212-438-2012; joseph_marinucci@standardandpoors.com | |
| Neil Stein, New York (1) 212-438-5906; neil_stein@standardandpoors.com | |
| Taoufik Gharib, New York (1) 212-438-7253; taoufik_gharib@standardandpoors.com | |
| Secondary Contacts: | Damien Magarelli, New York (1) 212-438-6975; damien_magarelli@standardandpoors.com |
| Kevin Ahern, New York (1) 212-438-7160; kevin_ahern@standardandpoors.com |
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