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Business and Finance
Business and Finance
Thu, June 16, 2011 A.M. Best Affirms Ratings of Key Life Insurance Entities of ING USA
OLDWICK, N.J.--([ BUSINESS WIRE ])--A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of aa+a of the key life insurance entities of the U.S. operations of ING Groep N.V. (ING) (Netherlands) (NYSE: ING), collectively known as ING USA (Atlanta, GA).
"A.M. Besta™s Ratings & the Treatment of Debt"
Concurrently, A.M. Best has affirmed the debt ratings of aa+a on the funding agreement-backed securities program of ING Security Life Institutional Funding sponsored by ING USA and the notes issued thereunder. The outlook for the FSR is stable, while the outlook for the ICR and debt ratings is negative. (See below for a detailed listing of companies and ratings.)
The rating actions primarily reflect ING USAa™s renewed focus on core business lines, adequate risk-adjusted capital, solid enterprise risk management practices and strong market presence within the U.S. life and retirement services arena. Operating performance in the groupa™s continuing business lines remains stable, while the legacy variable annuity (VA) segment remains challenged having recorded large deferred acquisition costs (DAC) write offs in 2010. A.M. Best notes that ING USA has taken some meaningful steps to stabilize profitability for the VA block and improve its overall balance sheet, including the aforementioned DAC write-down, the move to fair value accounting and expansion of its interest rate hedging program. However, operating results continue to be dampened by ongoing credit impairmentsa"primarily within the groupa™s structured asset portfolio, which remains outsized relative to U.S. peers. While realized losses remain significant, A.M. Best notes that a substantial portion are non-economic and reflect losses on derivatives used for product and capital hedging purposes.
A.M. Best believes ING USAa™s future operating performance will be muted by mixed top-line growth, some market reluctance in acceptance of new retirement annuity products, high correlation of earnings to U.S. equity market performance (driven by its legacy VA block) and the potential for additional credit losses within ING USAa™s investment portfolio. The groupa™s impairments remain sizeable; however, A.M. Best notes that credit losses have trended downward over the last few years. Additionally, ING USAa™s ratings recognize execution risk in successfully completing the planned initial public offering (IPO) of its U.S. insurance and asset management business as part of its previously announced restructuring plan between ING and the European Commission. The plan requires ING to divest its global insurance, ING Direct (U.S. only) and asset management operations by 2013.
The negative ICR outlook reflects the potential for continued asset impairments (albeit trending lower) given the groupa™s elevated exposure to below investment grade bonds and structured securities. The general account portfolios of ING USAa™s major life subsidiaries continue to hold high concentrations (relative to similarly-rated peers) of structured securities, including prime and subprime residential mortgage-backed securities (RMBS), asset-backed securities and commercial mortgage-backed securities(CMBS). A.M. Best recognizes that a considerable portion of the risk has been mitigated via participation in an Illiquid Asset Back-Up Facility, where 80% economic ownership of a portfolio of Alt-A RMBS held by ING USA was transferred to the Netherlands during the financial crisis. Additionally, below investment grade bonds represent roughly 70% of the groupa™s capital and surplus at year-end 2010.
ING USAa™s statutory capital levels have benefited from organic earnings growth and parental support, including the forgiveness of a material portion of intercompany loans, which have been converted to equity in anticipation of the IPO. ING USA has developed a strong U.S. franchise, with well-established market positions in retirement services and individual life. Going forward, A.M. Best believes that ING USA is strategically well-positioned to benefit from its increased focus on the higher growth segments of the maturing U.S. market, namely retirement services and rollover annuities.
The FSR of A (Excellent) and ICR of aa+a have been affirmed for the following ING USA life/health insurance entities:
- ING Life Insurance and Annuity Company
- ING USA Annuity and Life Insurance Company
- ReliaStar Life Insurance Company
- ReliaStar Life Insurance Company of New York
- Security Life of Denver Insurance Company
The FSR of A- (Excellent) and ICR of aa-a have been affirmed with a stable outlook for Midwestern United Life Insurance Company.
The following debt rating has been affirmed:
ING Security Life Institutional Fundinga" program rating of aa+a
-- aa+a on all outstanding notes issued under the program
The principal methodology used in determining these ratings is [ Besta™s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition ], which provides a comprehensive explanation of A.M. Besta™s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: aUnderstanding BCAR for Life and Health Insurersa; aRating Members of Insurance Groupsa; aA.M. Besta™s Ratings & the Treatment of Debta; aA.M. Besta™s Perspective on Operating Leveragea; and aRisk Management and the Rating Process for Insurance Companies.a 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 © 2011 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.
