Best Revises Insurance Holding Company and Debt Ratings: Companies Affected

May 12, 2014

A.M. Best announced that it has made some revisions to the criteria it uses in constructing its ratings reports, which will “provide clarification on several issues related to the rating of an insurance company’s debt, including A.M. Best’s approach to rating debt that emphasizes the contractual subordination of each security in the company’s capital structure.

In addition Best said the criteria report “explains the approach to rating debt issued by insurers when senior debt holders rank pari passu with policyholders and to rating debt issued by special purpose entities funded by debt issued to insurance companies.

“These revisions have been made as a result of A.M. Best’s continual review of its methodology and are intended to increase the transparency and consistency of the approach to notching debt across different markets and jurisdictions. The revisions to this criteria report are considered material and are expected to result in the movement of roughly a dozen ratings on subordinated and junior subordinated debt securities.”

Shortly after announcing the changes, Best issued a number of revised ratings, using the new methodology for the following companies: Munich Re, Zurich, Hannover Re, Generali, Lloyd’s and Aspen. They are summarized as follows:

Munich Re:

Best downgraded the reinsurer’s debt ratings to “a” from “a+” on €1.5 billion [$2.064 billion] 5.767 percent fixed to floating rate undated subordinated bonds; the €1.0 billion {$1.376 billion] 6.0 percent subordinated fixed to floating rate bonds due 2041; and the €900 million [$1.238 billion] 6.25 percent subordinated fixed to floating rate bonds due 2042, issued by the company. Best also indicated that the outlook on all three debt ratings remains stable. In addition the report said: “The financial strength rating of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of Munich Re and its subsidiaries remain unchanged. Additionally, all other ratings on debt issued or guaranteed by Munich Re remain unchanged.”.

Best’s bulletin also indicated that the “financial leverage and interest coverage ratios for Munich Re remain within A.M. Best’s tolerance levels. The debt ratings are notched down from Munich Re’s ICR. Downward or upward rating actions will likely move in line with Munich Re’s ICR.”

Zurich Insurance

Best downgraded the debt rating to “a-” from “a” of the $500 million 8.25 percent perpetual subordinated reset capital notes, issued by Cloverie plc and secured over the $500 million perpetual subordinated reset capital notes issued by Zurich Insurance Company Limited (ZIC). (Switzerland).

At the same time Best assigned a debt rating of “a-” to the €143 million [$196.8 million] 12 percent perpetual subordinated capital notes, also issued by Cloverie plc and secured over the €143 million perpetual subordinated capital notes issued by ZIC.

Best also assigned a debt rating of “a” to the CHF 500 million [$534.21 million] 4.625 percent perpetual subordinated notes, issued by ZIC, and “a-” to the $700 million 6.45 percent trust preferred securities Series II due 2065, issued by ZFS Finance (USA) Trust II and guaranteed by Zurich Group Holding (ZGH), the former intermediate holding company of the Zurich group. “This debt issue benefits from a subordinated support agreement provided by ZIC,” Best noted

Best also noted that the “outlook on all debt ratings is stable. The financial strength rating of ‘A+’ (Superior) and issuer credit rating (ICR) of “aa-” of ZIC and all other ratings on debt issued or guaranteed by this entity, or benefiting from a subordinated support arrangement with ZIC, remain unchanged.

“Financial leverage and interest coverage ratios for ZIC remain within A.M. Best’s tolerance levels. The debt ratings are notched from ZIC’s ICR. Upward or downward rating actions will likely move in line with ZIC’s ICR.

Hannover Re

Best has downgraded the debt rating to “a” from “a+” on the €500 million [$685 million] undated guaranteed subordinated fixed-to-floating callable bonds issued by Hannover Finance (LU) S.A. (Luxembourg) and guaranteed by Hannover Re. The outlook remains stable.

Best also said the “financial strength rating of ‘A+’ (Superior) and the issuer credit rating (ICR) of “aa-” of Hannover Re and its main subsidiaries remain unchanged. Additionally, all other ratings on debt issued or guaranteed by Hannover Re remain unchanged. The debt ratings are notched down from Hannover Re’s ICR. Downward or upward rating actions will likely move in line with Hannover Re’s ICR.

Assicurazioni Generali S.p.A.

Best has downgraded the debt ratings to “bbb” from “bbb+” on the £350 million [$590 million] 6.269 percent perpetual fixed/floating rate subordinated notes and the £495 million [$834.2 million] 6.416 percent perpetual fixed/floating rate subordinated notes issued by Generali, and the €1.250 billion [$1.7134 billion] 5.479 percent perpetual fixed/floating rate subordinated notes, the €1.275 billion [$1.748 billion] 5.317 percent perpetual fixed/floating rate subordinated notes, and the £700 million [$1.18 billion] 6.214 percent perpetual fixed/floating rate notes issued by Generali Finance B.V. (The Netherlands) and guaranteed by Generali.

Best has also assigned an indicative rating of “bbb” to the junior subordinated notes available under the €10 billion [$13.707 billion] EMTN program to Generali and Generali Finance. “The outlook for these ratings on debt remains negative, which is in line with the outlook on the group’s issuer credit rating,” Best explained.

“The financial strength rating of ‘A’ (Excellent) and issuer credit rating (ICR) of “a” of Generali and all other ratings on debt issued or guaranteed by this entity remain unchanged. Financial leverage and interest coverage ratios for Generali remain within A.M. Best’s tolerance levels.The ratings on debt issued or guaranteed by Generali are notched down from Generali’s ICR. Downward or upward rating actions will likely move in line with Generali’s ICR.”

Society of Lloyd’s

Best has downgraded to “bbb+” from “a-” the debt rating of the £392 million [$660.6 million] 7.421 percent perpetual subordinated capital securities issued by the Society of Lloyd’s.Best said the “outlook for the debt rating remains positive. The issuer credit rating (ICR) of “a” of the Society and the other debt ratings of the subordinated notes issued by the Society remain unchanged. Financial leverage and interest coverage ratios for the Society remain within A.M. Best’s tolerance levels. Upward or downward rating actions on the debt ratings of the Society will be dependent on any corresponding upward or downward rating actions on the Society.”

Aspen Insurance Holdings

Best has downgraded to “bb+” from “bbb-” the indicative debt rating under the universal shelf registration of Bermuda-based Aspen Insurance Holdings Limited in respect of junior subordinated debt.

“The issuer credit rating (ICR) of “bbb” of Aspen and all other debt ratings of Aspen remain unchanged,” Best said. “Financial leverage and interest coverage ratios for Aspen remain within A.M. Best’s tolerance levels. The indicative debt rating of the junior subordinated debt is notched down from Aspen’s issuer credit rating (ICR). Downward or upward rating actions will likely move in line with Aspen’s ICR.”

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Source: A.M. Best

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