A.M. Best Revises Outlook to Stable for Delphi Financial Group, Inc. and Its Life/Health Subsidiaries
December 13 2010 - 3:30PM
Business Wire
A.M. Best Co. has revised the outlook to stable from
negative and affirmed the financial strength rating of A
(Excellent) and issuer credit ratings (ICR) of “a” of Reliance
Standard Life Insurance Company (Reliance Standard) (Chicago,
IL) and First Reliance Standard Life Insurance Company
(First Reliance) (New York, NY), the primary life/health insurance
subsidiaries of Delphi Financial Group, Inc. (Delphi
Financial) [NYSE: DFG] (headquartered in New York, NY).
Additionally, A.M. Best has revised the outlook to stable from
negative and affirmed the ICRs of “bbb” and “a” and the existing
debt ratings of Delphi Financial and Reliance Standard Life
Global Funding (a Delaware business trust), respectively. (See
below for a detailed listing of the debt ratings.)
The revised outlook for Reliance Standard and First Reliance
reflect better relative investment performance and enhanced overall
capitalization. Over the last 12-18 months, notable improvement has
been reported in the group’s invested asset portfolio, compared to
sizeable realized and unrealized losses in 2008 and the first part
of 2009. The majority of the organization’s riskier assets are held
at Reliance Standard, the flagship life/health insurance
subsidiary. The life/health companies continue to generate good
operating results and are maintaining their pricing discipline
despite the weak U.S. economy and considerable competitive
pressures. A.M. Best also notes that Reliance Standard’s
risk-adjusted capital position has been maintained at its highest
level, which is more than sufficient for its ratings.
Although exposure in certain riskier asset classes has been
somewhat reduced, A.M. Best remains concerned regarding Reliance
Standard’s relatively high exposure to structured securities
(especially non-agency residential mortgage-backed securities) and
below investment grade bonds compared to many of its employee
benefits peers. Additionally, A.M. Best believes that an extended
period of low interest rates would likely have a notable negative
impact on the life/health companies’ future earnings.
Nonetheless, Delphi Financial has reported record earnings so
far in 2010, with its property/casualty operations (Safety
National Casualty Corporation) generating strong operating
results. This year, Delphi Financial has refinanced existing debt
and has been active in repaying some of its existing debt early.
Furthermore, the company has announced plans to redeem the
remaining balance of its 8% senior notes, due 2033 on December 23,
2010. On an adjusted basis, the ratio was below 19% at the end of
the third quarter of 2010, which is well within A.M. Best’s
guidelines for the organization’s current ratings. A.M. Best also
notes that Delphi Financial maintains a healthy interest coverage
ratio.
The following debt ratings have been affirmed:
Delphi Financial Group, Inc.—
-- “bbb” on $143.8 million 8% senior unsecured notes, due 2033
($68.8 million of 8% notes currently outstanding)
-- “bbb” on $250 million 7.875% senior unsecured notes, due
2020
-- “bb+” on $175 million 7.376% fixed/floating rate junior
subordinated debentures, due 2037
Reliance Standard Life Global Funding—“a” program
rating
-- “a” on $65 million 5.625% medium-term notes (MTNs), due
2011
The following indicative ratings have been affirmed for debt
securities available under the shelf registration:
Delphi Financial Group, Inc.—
-- “bbb” on senior unsecured debt
-- “bbb-” on subordinated debt
-- “bb+” on preferred stock
Delphi Finance Trust I—
-- “bb+” on preferred securities
The principal methodology used in determining these ratings is
Best’s Credit Rating Methodology - Global Life and Non-Life
Insurance Edition, which provides a comprehensive explanation of
A.M. Best’s rating process and highlights the different rating
criteria employed. Additional key criteria utilized include: “BCAR
for Life & Health Insurers”; “Rating Health Insurance
Companies”; “Risk Management and the Rating Process for Insurance
Companies”; “Rating Members of Insurance Groups”; “A.M. Best’s
Ratings & the Treatment of Debt”; and “Equity Credit for Hybrid
Securities.” Methodologies can be found at
www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and
most authoritative insurance rating and information source. For
more information, visit www.ambest.com.
Copyright © 2010 by A.M. Best Company,
Inc. ALL RIGHTS RESERVED.
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