2008-08-06 23:54:04 -
- Fitch Ratings has affirmed Assurant Inc.'s (NYSE:AIZ) ratings as follows:
--Long-term Issuer Default Rating (IDR) at 'BBB+';
--$500 million senior notes due 2014 'BBB';
--$475 million senior notes due 2034 'BBB'
--Insurer financial strength (IFS) at 'A'.
For a complete list of subsidiary ratings, see below. The Rating Outlook is Stable.
AIZ's chief credit strengths:
-- Diversified and growing earnings
-- Solid niche market positions
-- A relatively conservative balance sheet
AIZ's chief credit strengths are Fitch Ratings views AIZ's strong, diversified sources of profitability as a positive factor in its ratings. In Fitch's opinion, AIZ's balanced businesses provide continuity
in its earnings during various economic and credit environments as evidenced by its operating earnings growth of 16% to $400 million for the six months ended June 30, 2008, which was more than the company earned in the full year of 2004.
Additionally, Fitch views competitive advantages that secure AIZ's niche market positions as a positive factor in its ratings. The company's strategic, long-standing distribution relationships with market leaders, which are protected by highly integrated systems, are such advantages, in Fitch's opinion. Fitch views distribution expansion as a key factor to AIZ's success in its long-term growth plans.
Sound asset quality and relatively low financial leverage (18% at June 30, 2008) are considered strengths in the ratings of AIZ. Fitch believes that Assurant has relatively low exposure to credit risk in its investment portfolio with below investment grade securities at approximately 15% of GAAP equity (excluding accumulated other comprehensive loss) at June 30, 2008, which was notably lower than the industry average, in large part due to the companies' investment focus on publicly traded investment-grade bonds. Yet, consistent with the industry, AIZ has not been immune to the credit crisis with respect to residential mortgage-backed securities (RMBS). For the six months ended June 30, 2008, AIZ recognized other than temporary impairments (OTTI) of $71 million pretax primarily related to its RMBS portfolio. AIZ's remaining RMBS exposure is about 10% of its fixed income securities. Yet only a modest $58 million was subprime, all fixed rate and a majority first lien. Fitch will continue to monitor AIZ's as well as the industry's exposure to RMBS and other troubled securities as well as unrealized loss positions on investment portfolios, which were up significantly in the second quarter of 2008 given the rise in interest rates. At this time, Fitch believes, AIZ's exposure to current investment market weakness is manageable and that losses can be absorbed by existing capital.
AIZ's chief credit weaknesses:
-- Competitive challenges
-- Adequacy of statutory capital levels are difficult for Fitch to measure
-- Potential negative repercussions from ongoing SEC investigations
Fitch's primary concern is Assurant's long-term ability to protect its positions in its niche markets from new and existing competitors. Fitch notes that Assurant's experience to date in protecting its market share has been good. However, from time to time, some businesses become less profitable for various reasons, causing Assurant to adjust or exit the business. The company's ability to shift from credit insurance to debt protection administration in the U.S. is an example where the company was able to overcome this risk successfully. In other situations, such as variable annuities or the U.S. independent preneed franchise, the company has chosen to exit.
Fitch's ratings consider the potential variability of AIZ's consolidated Prism score and risk-based capital based on the range of management's capital targets at the operating company level. AIZ's 2006 Prism score (US operations only) was solid at 'AA'. AIZ's 2007 consolidated RBC ratio was 285%.
With the return of Robert B. Pollock in Jan. 2008 to his position as President and Chief Executive Officer of AIZ, Fitch has regained some comfort that AIZ's near and long-term strategic goals will not be disrupted. However, the SEC's ongoing investigation of a loss-mitigating reinsurance contract remains a cloud over the company. Philip Bruce Camacho, Executive Vice President (EVP)and Chief Financial Officer (CFO), and Adam Lamnin, EVP and CFO of Assurant Solutions/Assurant Specialty Property, remain on administrative leave pending the completion of the review. Fitch believes the investigation is a management distraction and it has the potential to result in material fines or penalties to AIZ.
Future credit considerations:
--In Fitch's view, a prolonged Prism score below 'A' (all else equal) would put downward pressure on AIZ's rating, while a prolonged score comfortably above 'AAA' could do the opposite.
-- Fitch would view the loss of an important market niche or several key distribution partners as unfavorable to AIZ's operating and earnings profile.
-- Fitch would reassess AIZ's rating if its financial leverage was maintained above 30% or below 15%.
-- Fitch believes that AIZ's exposure to current investment market weakness is manageable and losses can be absorbed by existing capital. However, if weaknesses were to spread to other asset classes and/or the broader economy, then the financial impact on AIZ would be more adverse and could impact the company's rating level.
-- A material acquisition where AIZ was either the acquirer or the acquired would cause Fitch to reevaluate the ratings.
Fitch has affirmed the following ratings with a Stable Outlook:
Assurant, Inc.
--Long-term IDR 'BBB+';
--$500 million 5.64% senior notes due 2014 'BBB';
--$475 million 6.80% senior notes due 2034 'BBB';
--Commercial paper 'F2'.
Union Security Insurance Co. (formally Fortis Benefits Insurance Co.)
Time Insurance Co. (formally Fortis Insurance Company)
John Alden Life Insurance Co.
American Memorial Life Insurance Co.
American Bankers Life Assurance Co. of FL
American Bankers Insurance Co. of FL
American Security Insurance Co.
--Insurer financial strength (IFS) 'A'.
Fitch has assigned the following rating with a Stable Outlook:
American Reliable Insurance Co.
--IFS 'A'.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings
Lauren Kalinowski, 212-908-0524, New York
Dafina Dunmore, 312-368-3136, Chicago
Peter Patrino, 312-368-3266, Chicago
or
Media Relations:
Cindy Stoller, 212-908-0526, New York
