Fitch Revises Insurer Debt Ratings Methodology

Fitch has made several minor revisions to its methodology for insurance industry debt ratings. The new standards are discussed in the recently published criteria report titled ‘The Relationship Between Insurer Financial Strength and Debt Ratings’.

A complimentary copy is available on Fitch’s web site www.fitchratings.com. Concurrently, Fitch adjusted fixed-income security ratings on eight insurance industry debt issuers. Fitch indicated that the ratings adjustments do not reflect any change in its view on the underlying fundamental credit quality of the issuers, but are simply mechanical changes based on the new methodology.

Furthermore, the rating outlook status of those issuers was not affected by the ratings changes. In the case of existing Negative Rating Outlooks, any upward rating adjustments made on Feb 12 would not preclude a ratings downgrade in the near future if credit trends for the issuer continued to develop adversely. The methodology focuses on the standards and theories used by Fitch in establishing the ‘notching’ relationship between the financial strength ratings of insurance companies and the debt issued by either the insurer itself or a parent holding company.

The methodology also discusses the notching standards used in rating various classes of debt and other fixed-income securities for a given issuer.

The two key criteria that most affected the changed ratings were:

(1) Greater emphasis placed on a general ratings approach used throughout Fitch of compressing notching between ratings at the higher end of the ratings scale, and widening notching at the lower end. This resulted in one notch rating improvement for the securities of seven issuers. Fitch believes this adjustment makes its ratings more comparable across industries.

(2) Clarification of the ratings benefit Fitch will afford a holding company for maintaining liquidity and back-up balances against long-term debt. This resulted in a one-notch ratings decrease for one issuer.

A copy of the criteria report can also be obtained by contacting Market Services at 1-800-853-4824.

The following ratings were changed to adapt to the new methodology: Entity/Issuer/Type Old Rating New Rating/Outlook AFLAC, Inc.
–Long-term issuer ‘A’ ‘A+’/Stable
–Senior debt ‘A’ ‘A+’/Stable American Financial Group, Inc. American Financial Capital Trust I –Trust-preferred sec. ‘BBB’ ‘BBB+’/Negative American General Corporation American General Capital I, II and III –Trust-preferred sec. ‘A’ ‘A+’/Stable American General Capital, LLC –Preferred securities ‘A’ ‘A+’/Stable American General Institutional Capital A and B –Trust-preferred sec. ‘A’ ‘A+’/Stable Ceska Pojistovna AS –Long-term issuer (foreign currency) ‘BBB-‘ ‘BBB’/Stable Fairfax Financial Holdings Ltd. –Long-term issuer ‘BBB+’ ‘BBB’/Negative –Senior debt ‘BBB+’ ‘BBB’/Negative Great American Financial Resources Inc. American Annuity Group Capital Trusts I and II –Trust-preferred sec. ‘BBB’ ‘BBB+’/Negative Torchmark Corporation –Long-term issuer ‘A’ ‘A+’/Stable –Senior debt ‘A’ ‘A+’/Stable Torchmark Capital LLC –Monthly income pfd ‘A-‘ ‘A’/Stable UnumProvident Corp. Provident Financial Trust I –Trust-preferred stock ‘BBB’ ‘BBB+’/Negative

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