A.M. Best Affirms Ratings of Nationwide Mutual Insurance Company and Its Key Operating Subsidiaries
April 2, 2014 by Business Wire
A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa-” of the four participating property/casualty pool members and 30 reinsured affiliates of Nationwide Group (Nationwide). A.M. Best also has affirmed the FSR of B+ (Good) and ICR of “bbb-” of Nationwide Indemnity Company (NIC), the group’s run-off entity for asbestos and environmental claims. Additionally, A.M. Best has affirmed the debt ratings of “a” of five surplus notes totaling $2.2 billion issued by Nationwide Mutual Insurance Company (Nationwide Mutual).
Concurrently, A.M. Best has affirmed the FSRs of A+ (Superior) and ICRs of ”aa-” of the two life/health subsidiaries of Nationwide Financial Services, Inc. (NFS): Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company. At the same time, A.M. Best has affirmed the ICR of “a-” of NFS and the debt ratings on the group’s outstanding securities. The outlook for all ratings is stable. NFS is indirectly owned by Nationwide Mutual and Nationwide Mutual Fire Insurance Company, which maintains an extensive market presence in the property/casualty industry. All companies are headquartered in Columbus, OH. (See link below for a detailed listing of the companies and ratings.)
Nationwide’s ratings and outlook reflect its solid level of risk-adjusted capitalization, which continues to be supportive of its ratings. Nationwide also features a superior business profile with diversified product offerings across personal and commercial lines, multiple integrated distribution channels and wide geographic spread of market presence across the country. Although the group has reported several years of variable underwriting performance in its core lines of business—impacted primarily by weather-related losses—underwriting results improved in 2013 due to Nationwide’s efforts to improve its various books of business, as well as milder weather patterns across the country.
While A.M. Best notes these improvements, Nationwide’s management will continue to face challenges in the near term to generate positive underwriting results necessary to continue to further strengthen the group’s capital position.
Regarding future rating movement, negative underwriting performance in the near term that leads to deterioration in Nationwide’s risk-adjusted capitalization would likely result in downward rating pressure.
The ratings of NFS recognize its strategic value and the diversification benefits it provides to the business profile and operating performance of Nationwide Mutual. The ratings reflect strong top line revenue growth within NFS’ target markets and positively trending GAAP operating earnings. GAAP operating earnings continue to benefit from solid growth in assets under management due to strong equity markets. NFS continues to enjoy prominent market positions in individual life, variable annuities and public sector retirement plans. Additionally, the ratings recognize favorable risk-adjusted capitalization and continued progress made in reducing equity market exposure related to variable annuity sales. Nationwide has a well-developed enterprise risk management program, and the overall credit quality of its general account investment portfolio has improved.
Offsetting rating factors include NFS’ potential earnings and capital sensitivity related to equity market volatility given that three-quarters of its insurance assets are held in separate account products. This exposure is partially mitigated by the company’s variable annuity hedging programs, which are complemented by a statutory capital hedge. Additionally, a large portion of general account liabilities are interest sensitive, which has contributed to some spread compression within NFS’ individual and group retirement business segments. NFS has historically maintained an elevated commercial mortgage loans-to-capital ratio that has increased modestly over last year. However, overall performance of this asset class has historically performed well.
Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of “a-” of Harleysville Life Insurance Company (Harleysville, PA), a subsidiary of Nationwide Mutual. The outlook for both ratings is stable.
A.M. Best believes the ratings of NFS and Harleysville Life are unlikely to increase in the near term. Factors that could lead to negative rating actions include a material decline in operating performance or risk-adjusted capitalization relative to A.M. Best’s expectations and/or ratings pressure on Nationwide Mutual.
For a complete listing of Nationwide Mutual Insurance Company and Nationwide Financial Services Inc. subsidiaries’ FSRs, ICRs, and debt ratings, please visit www.ambest.com/press/040203nationwide.pdf.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
