Fitch Affirms USAA Insurer Financial Strength Ratings, Assigns Debt Ratings To USAA Capital

Fitch affirmed the “AAA” insurer financial strength rating of San Antonio-based United Services Automobile Association (USAA), and assigned an “AA+” long-term issuer rating and medium-term note rating and an “F1+” short-term issuer rating and commercial paper rating to USAA Capital Corp., a downstream holding company for USAA’s non-insurance operations. The rating outlook for all USAA ratings was declared to be stable.

Fitch said the ratings reflect USAA’s very good capitalization and low operating leverage, a low cost structure and conservative reserving philosophy, and noted that USAA has a competitive advantage because of its low cost structure.

The ratings consider the negative effect of intense price competition in auto insurance rates on profits. Additionally, in order to maintain growth, USAA expanded its base of eligible policyholders and this new book of business is still maturing. The company is monitoring this group’s risk characteristics and is taking steps to ensure appropriate product pricing.

USAA has a high concentration of homeowners’ policies in states that expose it to greater risk of catastrophe, but the company monitors this risk closely and mitigates it with a sophisticated catastrophe management and reinsurance strategy.

The company’s results are also affected by policyholder dividends that are higher than the industry average. USAA is organized as a reciprocal insurance exchange. As such, it has members, not shareholders. Fitch indicated USAA will continue to return premiums to members in the form of policyholder dividends when such action does not conflict with the maintenance of its high capital strength levels.

USAA reported statutory assets for its combined property/casualty insurance operations of $12.3 billion and surplus of $6.6 billion as of June 30. Net written premium from its property/casualty insurance operations was $2.9 billion through the first half of 2001.

Topics Carriers