A.M. Best Affirms Ratings of Nationwide Mutual Insurance Company and Its Key Operating Subsidiaries
March 20, 2015 by Best's News Service
Oldwick – A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of the four participating property/casualty pool members and 31 reinsured affiliates of Nationwide Group (Nationwide). A.M. Best also has affirmed the FSR of B+ (Good) and the 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 FSR of A+ (Superior) and the ICR of “aa-” of the two key life/health subsidiaries of Nationwide Financial Services, Inc. (NFS): Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company (Nationwide Life). Additionally, A.M. Best has affirmed the ICR of “a-” of NFS and all of its outstanding debt ratings. 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. The group has reported several years of varying underwriting performance in its core lines of business, impacted in 2014 primarily by weather-related losses in various states, as well as some deterioration in profitability in the automotive lines. Nationwide continues to implement efforts to improve its various books of business, with emphasis on its multi-channel distribution sources and branding initiatives.
While A.M. Best notes these efforts, Nationwide’s management will continue to face challenges in the near term to generate the positive underwriting results necessary to continue to further strengthen the group’s capital position.
Regarding future rating movement, further negative underwriting performance in the near term or any material deterioration in Nationwide’s risk-adjusted capitalization would likely result in downward rating pressure.
The affirmation of Nationwide Life’s ratings reflects strong branding in its target markets as a leading provider of life, annuity, retirement and investment management solutions and its material contribution to Nationwide Mutual’s property/casualty offerings in terms of revenues and earnings. The ratings recognize Nationwide’s diversified product portfolio and distribution channels and progress made in reducing its overall equity market earnings sensitivity, top line revenue growth in its core business lines and strong GAAP and statutory operating earnings. Additionally, the ratings reflect a reduction in overall investment risk as measured by a decline in Schedule BA assets and below investment grade bonds relative to capital over the past five years. Finally, A.M. Best recognizes the group’s strong enterprise risk management framework, favorable hedging practices and maintenance of a statutory capital hedge.
These strengths are partially offset by an operating profile that remains somewhat volatile with ongoing, albeit reduced, equity market and capital sensitivity, given the strong progress made in reducing the percentage of variable annuities sold with living benefits over the past three years. Additionally, nearly three-quarters of general account liabilities are interest-sensitive, which has resulted in some spread compression that could accelerate if interest rates remain low or conversely could result in disintermediation risk in a rapidly rising interest rate scenario. Finally, NFS continues to face ongoing growth and persistency challenges within its private sector retirement business. NFS’s financial leverage and interest coverage ratios remain within A. M. Best guidelines, but utilization of operating leverage has increased in the past year due to higher Federal Home Loan Bank utilization and the issuance of a new stable value wrap product.
Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of “a-” of Harleysville Life Insurance Company (HLIC) (Harleysville, PA). The outlook for both ratings is stable with all new business written at Nationwide Life.
It is unlikely that positive rating action for the companies that comprise the Nationwide Life Group will occur in the near future. Factors which may lead to negative ratings movement include a material decline in absolute and risk-adjusted capitalization due to operating and investment losses, significant increase in sales of more risky and less creditworthy products, or rating pressure from its ultimate parent Nationwide Mutual.
For a complete listing of the Nationwide Group and its property/casualty and life/health subsidiaries’ FSRs, ICRs and debt ratings, please visit Nationwide Group.
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.
Key insurance criteria reports utilized:
•Risk Management and the Rating Process for Insurance Companies
•Understanding BCAR for Property/Casualty Insurers
•Rating Members of Insurance Groups
•Catastrophe Analysis in A.M. Best Ratings
•Evaluating U.S. Surplus Notes
•Rating Run-Off Insurers and Specialists
•A.M. Best’s Liquidity Model for U.S. Life Insurers
•A.M. Best’s Perspective on Operating Leverage
•Analyzing Insurance Holding Company Liquidity
•Equity Credit for Hybrid Securities
•Evaluating Country Risk
•Understanding BCAR for U.S. and Canadian Life/Health Insurers
•Insurance Holding Company and Debt Ratings
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.
